CapEx vs. OpEx: What Should Be in Your Capital Plan?

When it comes to managing your organization’s finances, having a solid capital plan is key to staying stable and growing long-term. Two major types of expenses are at the core of this plan: Capital Expenditures (CapEx) and Operating Expenditures (OpEx).

Knowing the difference between these two — and how to use each strategically — can help your business or organization make smarter financial decisions.

What Is CapEx?

Capital Expenditures (CapEx) are the big-ticket items your organization buys or upgrades to use for many years. Think of buildings, vehicles, technology systems, or new equipment.

Examples of CapEx:

• Building renovations or expansions

• Purchasing equipment like computers, HVAC systems, or machinery

• Infrastructure upgrades, such as installing solar panels or constructing a new office

CapEx is usually a one-time, upfront investment that shows up on your balance sheet and is depreciated over time. These purchases are about building for the future — improving the tools and spaces you need to grow.

Learn more about how CapEx affects your balance sheet.

What Is OpEx?

Operating Expenditures (OpEx) are your everyday expenses — the costs of running your organization regularly. These are recurring and fully deducted in the same year you spend them.

Examples of OpEx:

• Utility bills (electricity, water, internet)

• Employee wages and benefits

• Routine repairs and maintenance

OpEx is all about keeping the lights on. Managing these costs efficiently helps your organization stay flexible and run smoothly day-to-day.

CapEx vs. OpEx: What’s the Difference?

The key difference between Capital Expenditures (CapEx) and Operating Expenditures (OpEx) lies in their purpose and how they’re handled financially. CapEx is used for long-term investments, like purchasing new buildings, vehicles, or major equipment, that help your organization grow and improve over time. These expenses are capitalized, meaning they’re recorded as assets on your balance sheet and depreciated gradually over several years. From a tax perspective, CapEx can be deducted, but only over time through depreciation.

On the other hand, OpEx covers your daily operational costs — such as rent, utilities, employee wages, and routine maintenance. These expenses are fully expensed in the same financial year in which they occur, offering immediate tax deductions. While CapEx supports long-term strategy, OpEx ensures that your organization stays functional and efficient on a day-to-day basis.

Understanding the differences between CapEx and OpEx is essential for effective budgeting, financial planning, and making smart decisions, especially when it comes to managing cash flow and preparing for tax season.

How Do You Decide What Goes in a Capital Plan?

When planning, ask yourself:

• Does this expense support long-term growth? If yes, it’s probably CapEx.

• Will this expense be repeated regularly? If yes, it’s likely OpEx.

• What are our financial goals and budget limits? Align spending with your organization’s priorities and cash flow.

Smart capital planning helps you decide how to divide resources — what to invest in now, and what to reserve for daily operations.

Why Balancing CapEx and OpEx Matters

If you only focus on CapEx, you risk stretching your budget too thin and neglecting daily needs. But if you only focus on OpEx, you might miss out on long-term opportunities for growth.

A good financial plan makes room for both investing in the future and keeping your day-to-day operations running efficiently.

Reserve Studies: Planning for CapEx

Reserve studies help you plan for future expenses by estimating the cost and timing of major repairs or replacements. They also help ensure you have the funds to cover day-to-day costs.

Including CapEx in your reserve study gives you a clear picture of your financial needs today and in the years ahead. It also reduces surprise costs and supports smarter, more strategic decision-making.

Planning for Long-Term Success

Understanding and balancing CapEx and OpEx is essential for smart capital planning. With the right strategy, you can meet your current needs while also building a strong foundation for future growth.

Need help? Midwest Reserves, LLC can guide you in building a capital plan that fits your unique needs. Whether you need a full reserve study or just a second opinion, we’re here to help.

📞 Contact us today or visit our website to get started!