Why does this matter when looking at office furniture?
Modern offices need to be flexible, durable and open to the fluidity that comes with constantly evolving workspaces. Equally, you don’t want to be endlessly spending your profits, so early decisions are important.
Office spend is inevitable whether you’re investing in new, ergonomic furniture or printer paper. But there is a vast difference between the types of expenditure, and its vital to have a clear financial plan from the outset. (No-one likes nasty surprises further down the line!)
Understanding the difference between OpEx and CapEx expenses can help make these decisions a little easier.
OpEx (Operating Expenditure) refers to short-term expenditures that keep a business running.
CapEx (Capital Expenditure) refers to long-term investments/capital expenditure used to purchase, maintain or upgrade/invest in tangible company assets.
How does this relate to office furniture?
Every office is likely to have a combination of both OpEx and CaPex expenditure, but how much of each depends on the structure of your business and your overall budget.
CaPex requires a business to have funds available for the full cost of a project. This might mean a full office fitout, or a long-term investment in office furniture, for example. Such decisions often need to be signed off by the people ‘at the top’ and, if funds aren’t available, bank assisted funding might be necessary.
OpEx doesn’t require the cash outlay associated with CaPex. It is the money a company spends on a regular, ongoing basis such as printer ink and employee wages. It operates on monthly overheads with no need for bank related funding.
For those that aren’t wishing to make grand furniture purchases, rental office furniture can be a great option as it enables a business to preserve its cash rather than spend on capital assets.
Most businesses will combine both OpEx and CaPex along the way. During an office fit out, for example, certain elements such as office equipment will fall under fixed assets. CapEx is required for any construction work that is undertaken to the building. OpEx can then be used to cover the cost of any movable assets such as office rental furniture.
The pros and cons
There are pros and cons for both options, so the choice ultimately comes down to what makes the most strategic sense for your business.
When it comes to an office fitout, it seems more likely that any business would opt for CaPex, but it can be a nerve-wracking prospect for new businesses that lacks a precedent for future success. A big investment with no guarantee – not for the faint hearted!
This is where OpEx can come into its own with options such as office rental furniture. In fact, one of the main reasons that many businesses opt for CaPex for fitouts is because they’re unaware that furniture rental is an option. (We can assure you that it is, and it’s a perfectly viable option!)
With a simpler spending model, OpEx has vast benefits due to its flexibility. There’s no need for stringent budget approval and it can be more economical, particularly if you’re unsure about the future of your business. Office furniture rental is for the short term and offers an affordable, flexible option with no need for long term decisions.
The real benefit comes with tax as any operation costs can be fully deducted for the tax year. OpEx is a taxable business expense and VAT is claimed monthly.
That said, the long-term investments associated with CaPex are always beneficial. While it does mean paying upfront for assets, it is a one-time purchase which removes the burden of having to part with finances on a monthly basis.
However, from a tax perspective, OpEx is preferable over CapEx which will reduce profits and taxable income due to its upfront payment and depreciation.
Office furniture and OpEx
There are many advantages to choosing office rental furniture, or the OpEx route. You don’t have to make any long-term decisions or pay a lump sum that vastly cuts into your profits. Your budgeting can be predictable with the option to upgrade or replace furniture at any point during your lease. That means you can make changes as often as you want and within budget, all while offsetting against tax!
Overall, your risks are reduced with OpEx, particularly within the realm of office finances for years to come. Go with the flow, see what makes your workforce thrive.
Office spaces are changing, and businesses are becoming more flexible. That’s why it matters to consider your business options and make the decision that will be of most benefit to you.
FluidSpace Flex offers a highly adaptable subscription-based based office furniture rental and lease service that helps businesses grow. Renting or leasing your favourite furniture pieces can come at a low monthly cost rather than a high capital investment with zero returns.
Want to know more about our office furniture rental options? Please get in touch with one of our team.