Capex to Opex

Technology is advancing at an ever-increasing speed, making it very capital intensive to keep up.
However, with a bit of a paradigm shift, it is easy for you to stay up to speed.
By adopting subscription or rental models rather than ownership, information and communication technology (ICT) spend can become a 100% operational expense, rather than a capital expense.
More and more software solution providers are backing this trend, offering subscription options that far surpass the old “buy and own the CD” paradigm.
For ICT hardware, there are competitive rental options.
Here are a few of the many benefits of subscription and rental models that are often overlooked:

  • Improve your financial gearing. When you subscribe or rent, you no longer have an asset that depreciates faster than you can repay the loan on it, thereby giving you access to funding for your core operations.
  • Tax and cash flow benefits. In South Africa, a company can currently get 43% of its annual cash flow back in VAT and income tax alone. If you own these assets (software and hardware), you will only be able to get the full 43% of the cash flow back over a minimum period of three years.
  • Stay up to date. When you subscribe, you automatically get the latest version when it becomes available and with a rental you can upgrade at the end of your term.
  • Less hassle. Because it is not yours, you can hand the pain of repairs and warranty issues over to the owner to sort out.

I am a BIG fan of subscription and rental services!
In fact, I believe that there are other areas in business where this model should also be considered, especially on depreciable assets, for example your fleet.
There are very few things on this earth that you must own to get the full benefit of. Simply having the right to use it will give you the same benefit – and many other benefits to boot.
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