Capital Expenses vs Operating Expenses and Which Will Optimize Your Software Purchases?

Investing in the right enterprise software is a crucial part of any successful business. In fact, with technological advances such as the cloud and SaaS, developing worldwide, not having the right software systems to keep up can be a make-or-break situation for your business.

When it comes to making the decision for which software purchase to choose there are so many factors to consider which ultimately take up a chunk of your time and resources. Then add on top of that trying to figure out which financial systems to use, and you have a recipe for disaster. To help speed up the process, we’ve put together a comparison list comparing Capital Expenses and Operating Expenses to help you make the wisest decision.

Definition of Capital Expenses and Operating Expenses

CapEx, otherwise known as Capital Expenses, are any investments spent on goods or assets. For example, property, infrastructure, equipment, even owned software licenses are all capital expenditures. The only thing with these CapEx investments is that you must keep them accounted for over their lifetime, usually 3 to 10 years, to reflect their current value.

Now OpEx, or Operation Expenses, have a completely different accounting system. When recording these expenses they will become a part of the company's profits and losses. This is simply because operating expenses are just what it takes to keep the business running.

Let's compare:

Purpose CapEx- Asset purchased with a life that goes beyond the current fiscal year.

OpEx- An ongoing cost.

Cost CapEx- One lump sum.

OpEx- Monthly or annually.

When Capex- Accounted for over 3 to 10 years.

OpEx- Accounted for in the current month or year.

Titled CapEx- Equipment, property asset.

OpEx- Operating cost.

Taxes CapEx- As the asset depreciates it is deducted over time.

OpEx- Just deducted in the current year.

Examples

CapEx- Purchasing a license to a software.

OpEx- Buying a desk to set up your workstation on.

Conclusion

Both CapEx and OpEx have their benefits but in recent years, the growing difficult economic times have put stress on businesses and many have started to opt for freezing capital expenses and converting them to operating expenses. Aside from the financial reasons for prioritizing operating costs, the ever-changing technology systems of new hardware or innovative SaaS also play a huge impact on not wanting to be tied down to one asset for years when the next better option is just around the corner. 

Therefore, moving to invest in flexible systems can be the best way to optimize your business. Operating expenses can eliminate the stress of system failures, and will put less stress on your accounting team trying to balance out the annual costs. Altogether, in this day in age, it is the most efficient way to grow your business by letting your team focus on doing what they do best.

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What Are the 4 Types of Entrepreneurship?

Millions of startups have been launched since 2019 by different entrepreneurs. Although the statistics are not always positive, with nine out of 10 startups failing, this hasn't stopped entrepreneurs from starting a business these days.

There are different reasons why startups fail, from insufficient funds to a wrong perspective. Before making a decision about what type of business you want to start, you must first know what type of entrepreneur you are going to be because it will help you set your goals.

In this blog, we discuss the four types of entrepreneurship and give some examples for each.

1.Small Business Entrepreneurship

Most startups are in the small business entrepreneurship arena. A small business can be any restaurant, retail store, or company launched by a founder, without the intention of converting the business into a franchise or chain.

This category of business comprises small businesses such as small grocery stores, service providers, or restaurants. Additionally, influencers who work on social media such as Instagram or YouTube and product testers are also considered small businesses.

2. Large Business Entrepreneurship

This entrepreneurship model is distinguished by creating a new business entity within an existing company, such as a new product line or division, rather than building a new business from scratch.

Entrepreneurs in large companies seek opportunities to enter new customer markets through innovation. Often large companies due to their size find it difficult to keep up with market demand and sometimes only find the solution to their problems by taking a smaller company and delegating innovation to the new acquisition, thus eliminating market competition.

An example of this is Facebook with Whatsapp and Instagram, Disney with Pixel, and Amazon with Whole Foods.

3. Social Entrepreneurship

This model sometimes describes a non-profit organization. The main objective of these companies is to achieve positive changes in society through their initiatives. Although they focus on solving social problems, such as access to food and education, for some of these companies their objective is still to make money. 

An example of a social entrepreneur is Blake Mycoskie, who invested $300,000 of his own money in creating the TOMS Shoes company. Campaigns such as "One-For-One" where they donate a pair of shoes for each one sold, supported water, birth, sight, and anti-bullying initiatives. Through TOMS, Mycoskie has raised awareness on global issues such as poverty and health.

4. Scalable Startup

A scalable startup venture is different from a small business entrepreneur because of its growth plan, a scalable startup develops ideas with the intention of growing. The common pattern seen in startups is to create a viable business with the ability to repeat itself at scale.

Many famous tech companies fall under this model, for example, Facebook, Apple, and Google.

Another example of scalable startups is Uber and Airbnb, the common theme here is to start small, succeed, and then expand.

Before entering the entrepreneurial path, you must identify what type of entrepreneur you want to be, thinking about whether you are only interested in making money, being your own boss, or creating a positive impact on society will help you understand what type of entrepreneurship goes with your personality and goals.

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Can You Make It Out There On Your Own As An Entrepreneur?

“How do I become an entrepreneur?, Do I have what it takes?”, you may find yourself asking yourself these questions at some point in your career. 

The answer to these questions may be answered whether you do or don’t have specific key motivators or key aptitudes. 

Key Motivators 

1.Need to set objectives and goals

The need for a challenge is important for entrepreneurs. They often have a need for achievement and want feedback on their achievements. 

2. Need to make an impact 

Entrepreneurs want to influence people, making money is a motivator but ultimately they want to make an impact through their business.

3. Independence 

The last motivator is autonomy. Entrepreneurs want to be their own boss and be in control. Independence is a strong motivator for those who want to pursue their dreams and have their own business. 

Key Aptitudes 

1.Determination

Entrepreneurs have the perseverance to get through obstacles and reach their goals despite setbacks. Perseverance is the top aptitude with today’s business environment, overcoming problems and frustrations to persevere. 

2. Self-Confidence

Business owners trust their instincts and show their self-assurance. This helps them push to achieve their goals and get them through hard times. 

3. Creativity 

Entrepreneurs that can creatively see business opportunities and identify gaps in the market can find one of a kind services and products that meet a demand. 

4. Ambiguity 

Entrepreneurs have a tolerance for ambiguity and are able to make decisions even when all the information isn’t provided. This uncertainty may be stressful for most people but entrepreneurs learn to work around it. 

5. Accept Failure 

Many people have a history of failures but entrepreneurs accept them as a learning experience and learn from their mistakes. 

6. Action Driven 

Entrepreneurs are action-oriented, they won’t put tasks off for later, they want to get to work and tackle their tasks. 

Before You Go Get Successful 

If you noticed reading through the motivators and aptitudes, I would first get a clear business plan together. When creating your business plan, it should be a real roadmap that shows where you want to go with your company. It should represent that you have done your homework, you understand your target market, and that you can actually generate customers. Now that you have a plan, you can get going!

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