In the past, the idea of purchasing a new phone system for a small or medium-sized business (SMB) was daunting to say the least. On top of scoping out the initial business requirements and understanding the pain points to be resolved, you had to calculate downtime needed for a new system implementation and then worry about the learning curve for users. All of those issues aside, company leadership was concerned with one thing more than any other: how to come up with the cash to pay for the phone system.
Traditionally, buying a phone system (that legacy system that may still be taking up space in your office) required a large capital expenditure (CapEx). By definition, static purchases (or fixed assets) fall under CapEx, while fluctuating expenses (part of day-to-day operations) are tagged as operating expenses, or OpEx. With a CapEx, your CFO was faced with the challenge of making a substantial lump sum payment, upfront. Though this method of payment was the norm, it created a barrier-to-entry for cash-strapped companies wanting to take advantage of new communications technology.
Well, times have definitely changed. Phone systems have entered the world of OpEx. Driven by the influx of cloud-based or hosted phone systems, like Switchvox Cloud, companies of all sizes and budgets now have purchasing options that don’t disrupt cash flow. That means more organizations can keep their cash and still reap the benefits of a modern Unified Communications (UC) system – making CFOs all over the world smile.
Let’s take a look at three ways in which the OpEx cost model of a hosted phone system benefits your company.
Control Over Cash Flow Priorities
With the ability to move your communications to an OpEx model, the cost of a new phone system becomes another monthly expense. Not only is this easier to manage and plan for, but it gives your company leadership much needed flexibility. The company has the ability to use its available cash for other revenue-generating activities like lead generation, product development, human capital, or research and development.
Many CFOs today prefer OpEx to CapEx for the tax benefits. OpEx allows a company to write off the entire monthly expense of a hosted phone system as a day-to-day operating expense. With the CapEx model, a company can only write off a percentage of the cost of a new premises-based system per year, based on a depreciation schedule of assets. The OpEx model puts a company in a better position when it comes time to pay taxes, as they’ll be able to take a larger deduction based on the amount accrued from the total number of monthly payments.
Scale As Needed
Using a hosted solution, or software as a service (SaaS) under OpEx allows companies to scale their technology purchases and pay for only what is needed. For example, with a hosted phone system, if a company needs to add users during a busy season, they can do so with a simple phone call. The increased cost for additional seats, or users, is added to the monthly bill. With a premises-based system purchased as a CapEx, you need cash upfront for that equipment, which could pull resources away from other projects. Similarly, if a company needs to remove users from the phone system, it requires only a quick call. The reduction in users is also reflected in your monthly bill with the rate dropping, because service is based on number of users. Even hardware (phones) can be rented and returned to avoid absorbing the cost long-term.
As you can see, there are several financial advantages to be had when taking your communications to the Cloud. Smart technology investments, like an upgraded phone system, that can be rolled into OpEx are also more likely to get the green light from your CFO.