Capex vs opex: What's the difference?
Operating expenses (opex) are your day-to-day costs of doing business, while capital expenditures (capex) are major investments that'll benefit your business for years to come. Understanding the difference helps you make smarter financial decisions and keeps you on the right side of the IRS. Let’s compare capex vs opex.
What is capex?
Capex (or capital expenditures) are major purchases that will help your business generate revenue for more than a year. Capex includes the big-ticket items that stick around and help your business grow over time.
Categories of capital expenditures
We typically see capex fall into these main buckets:
Physical assets like buildings, machinery, and vehicles that you will use for multiple years
Technology infrastructure including servers, network equipment, and enterprise software licenses that have multi-year terms
Major upgrades or improvements to existing assets that significantly extend their useful life or capabilities
Examples of capital expenditures
Let's make this concrete. Here are some common capex purchases we frequently see among our small business clients:
A coffee shop buying a new commercial espresso machine they'll use for the next 5-7 years
A construction company purchasing heavy equipment like excavators or bulldozers
A retail store installing a new HVAC system that will heat and cool their space for the next 15-20 years
How to record capex in your books
When it comes to recording these purchases, you don't treat them like regular expenses. Instead, you:
Record the full purchase price as an asset on your balance sheet
Depreciate the asset over its useful life, which spreads the cost across multiple years on your income statement
Track accumulated depreciation to show how much of the asset's value you've already written off
What is opex?
Opex (or operating expenses) are the regular, recurring costs that keep your business running day-to-day. These are the expenses that help you generate revenue in the current period.
Examples of opex
Most of your regular business expenses probably fall into the opex category. Here are some common ones:
Rent payments for your office or retail space
Employee salaries and benefits
Utilities, office supplies, and routine maintenance costs
Marketing and advertising expenses that drive current sales
How to record opex in your books
Recording operating expenses is more straightforward than capex:
We expense these costs immediately on your income statement in the period they occur
They directly reduce your taxable income for the current period
We categorize them by type to help track where your money's going and identify areas for cost reduction
Common challenges with capex and opex
We often see small business owners struggle with these aspects of expense management:
Determining whether an expense qualifies as capex or opex — especially for technology purchases where the lines can blur
Calculating depreciation correctly and choosing the right depreciation method for different types of assets
Managing cash flow when making large capex investments while maintaining enough working capital for regular opex
Keeping proper documentation to support your expense classifications in case of an audit
If you run into any of these issues, an accountant can help you set up reliable systems to track and classify your expenses correctly.
Ready to get your expenses sorted?
Archer Lewis is here to help you make sense of your business expenses and set up systems that make tracking them easier. Want to learn more? Explore the bookkeeping services we offer small businesses.