Whats the difference between operating expense and capital expense?
With cashflow tight after Covid-19, many businesses are now choosing to lease, rather than buy, the equipment and services they need to grow  Inevitably, the past year has seen many businesses struggling to keep afloat, with numerous lockdowns and restrictions imposed to kerb the pandemic. As a result, businesses are finding that as the nation begins to unlock, their cash flow is tighter than ever before. However, that doesnt necessarily mean they cant invest in future growth. Traditionally, there are two ways to invest in assets to grow the business, either using Capital Expenditure (CapEx) or Operating Expenditure (OpEx). Put simply, CapEx occurs when assets are paid for at the outset. Usually once the CapEx asset is put to use, it depreciates over a period of time (normally between five and 10 years) and the amount of this depreciation is used as tax deduction. For example, it may be a specific item of machinery that the business needs, costing 700,000  which depreciates at 100,000 over a period of seven years. Transform your business: it's important to understand the difference between OpEx and CapEx Credit: Getty  OpEx, on the other hand, refers to those expenses that a business has to incur in the course of its daily operations. These include the wages of employees, rent, property taxes, any leases and the cost of goods sold (COGS). Whereas CapEx is only partly tax deductible, OpEx is entirely tax deductible. Furthermore, OpEx doesnt require a huge capital outlay, thereby making it a particularly attractive proposition to many businesses for which cash isnt readily available. Changing attitudes  According to Emma Sinclair, co-founder of Enterprise Alumni, business owners are changing the way they think about ownership, just as consumers have been over the past 15 years since the launch of the Spotifies of the world. Services like Spotify show you dont need to own something to get enjoyment or utility from it, and these principles apply to your business too, says Sinclair. In an uncertain economic environment, it may be prudent to take the Spotify approach.  Challenge your thinking: leasing gives businesses greater flexibility Credit: Getty  For example, rather than buying expensive laptops, one option may be to lease or buy Chromebooks that are a fraction of the cost, because data processing is happening far away in data centres, rather than in the devices themselves. Similarly, applications and communications infrastructure can be moved to the Cloud, using services such as AWS or Azure. And instead of buying company cars outright, businesses are increasingly leasing them using services such as Onto or Zipcar. Consumers have shown us that ownership is an old-fashioned concept, and that its time for business to benefit from the same liquidity and flexibility, says Sinclair. Time to rethink operating models  According to Phil Jones, managing director at Brother UK, many businesses find it much easier to charge a lease to their P&L rather than making a capital investment, especially if cash flow is tight. After the events of the past year, now is a good time for businesses to rethink what their operating models will look like over the coming years, he says. And while Brother still sells printers and consumables, it is seeing smaller and medium-sized companies choosing to lease, rather than buy, their printing equipment to preserve cash flow and future-proof their businesses. Indeed, for Mike Cherry, national chair at the Federation of Small Businesses, its now more important than ever for businesses to keep hold of their cash. As the economy begins to re-open its vital to remember that cash is king for small businesses, he says. There is now hope as we progress along the roadmap, but restarting is a particularly dangerous time for cash flow, with many firms having built up massive debts and having to pay out significant sums before they can expect to recoup the costs of re-opening.  The future is now  Forget making predictions for next years business trends  if theres anything that 2020 taught us, its to be ready for anything. From being more adaptable in the face of socio-economic changes, to ensuring data and systems are secure in the new hybrid workplace, Brother is here to get your business ready for the future  now. For more information, visit brother.co.uk/business-transformation