Enovec Financing Options
People often try to convert CAPEX (capital expenditures) into OPEX (operational expenditures) in order to reduce the upfront cost of acquiring or upgrading assets. This can be particularly useful when you are trying to manage your cash flow and keep capital expenditures low.
*By converting CAPEX into OPEX, companies can spread out the cost of acquiring assets over time, typically through 2 arrangements, which Enovec offers:
As such, this allows you to preserve your cash reserves and maintain your liquidity, while still acquiring the assets you need to support your business operations.
In addition, by converting CAPEX into OPEX, companies can often take advantage of tax benefits and depreciation allowances, which can help to further reduce the overall cost of acquiring and owning assets. This can be particularly important for companies that are trying to manage your tax liabilities and maximize your profitability.
However, it’s worth noting that converting CAPEX into OPEX can also come with its own set of drawbacks. For example, leasing arrangements can result in higher overall costs over the long term, due to interest charges and other fees. In addition, OPEX expenses are ongoing, which means that companies may end up paying more over time than you would have if you had simply made a one-time capital expenditure. As with any financial decision, it’s important for companies to carefully weigh the pros and cons of converting CAPEX into OPEX and to make an informed decision based on your own specific needs and circumstances.
What Does This Mean?
Let’s say your company needs to purchase a new piece of equipment that costs $100,000. They could either purchase the equipment outright (a CAPEX expense), or you could lease it over a period of five years (an OPEX expense).
If you choose to purchase the equipment outright, the entire cost of $100,000 would be a one-time capital expenditure, which would impact your cash flow and balance sheet in the year the purchase is made.
Alternatively, if you choose to lease the equipment over five years, you may be able to obtain a lease with a monthly payment of $2,000 (or $24,000 per year), which would make it an operational expenditure. This would allow the company to spread out the cost of acquiring the equipment over time and reduce the impact on your cash flow.
While leasing the equipment may result in a higher overall cost over the long term (depending on interest rates and other fees), it may be a more manageable and flexible solution for the company, particularly if you need to acquire multiple assets or if you are trying to preserve your cash reserves.
Of course, the specific numbers and terms of a lease agreement will depend on a variety of factors, including the creditworthiness of the lessee, the cost of the equipment, and the length of the lease term, among other things.
In fact, most of the big tickets that we own in our personal life are running one lease. For example, your house on housing loan, your car on car loan!
*Financing Options are only applicable to selected products, services and solutions. Please contact Enovec for more information.