From the finance director's chair
Capex vs opex: why finance cares which box your cost goes in
Same $120,000 out of the bank. One way it wrecks this year's numbers. The other way it barely shows up. Welcome to capex versus opex.
- Opex (operating expenses) are the costs of running the business this year. They hit the P&L, and EBITDA, straight away.
- Capex (capital expenditure) buys something that lasts several years. Its cost is spread over those years as depreciation.
- Both cost cash. Only one hits this year's EBITDA in full.
The simple version
Opex is anything you use up this year: salaries, rent, travel, marketing, software subscriptions, repairs. Capex is something you'll use for years: a machine, a vehicle, a building, a major system you own.
The analogy: buying a car is capex. Fuel, insurance and parking are opex.
Quick math: one cost, two very different years
Your team needs to spend $120,000 this year, and will benefit from it for five years.
- If it counts as opex (say, a strategy consulting project, or most training): all $120,000 hits this year's P&L and EBITDA.
- If it counts as capex (a machine or a system the company owns and uses for five years): the P&L takes $24,000 a year of depreciation (spread evenly over five years, with nothing left at the end), and none of it hits EBITDA, because depreciation sits below that line.
Notice what doesn't change: the cash. Either way, $120,000 leaves the bank this year. Capex vs opex changes how the cost is reported, not what it costs. (Paying monthly instead of upfront, through a lease or a subscription, is a separate decision about cash, and leases have accounting rules of their own.)
Where a cost lands isn't always obvious. Some software implementation work, for example, can be capitalized and some can't. That's why the call belongs to finance and the company's policy.
Why finance cares so much
Different budgets. Most companies keep a separate capex budget with its own approval process, often a business case with payback and return figures.
Different targets. If the company is measured on EBITDA (see what is EBITDA), opex is the cost that moves the target. Capex shows up on the cash flow statement instead.
Rules, not preferences. What counts as capex is set by accounting rules and your company's own policy (often a minimum amount and useful life). You can't just choose the box you like.
Why it matters to you
When you request spending, know which box it falls in before the meeting. A request framed as "a $120,000 hit to this year's EBITDA" gets a very different reaction from "a five-year asset at $24,000 a year of depreciation, paid back in three years". Same spend, same cash, different conversation.
Moving from owned software to cloud subscriptions often shifts cost from capex into opex, which can make IT budgets look bigger on the P&L. When a manager is surprised by that, I explain where the cost used to live.
"Is this request capex or opex under our policy, and which budget does it come from?"