How to Spend Money on Long-Term Assets as a New Business Owner
You need more than just an idea to start a business. It costs money, and not just for everyday things like paying employees or buying supplies. Startups also need to spend a lot of money on things like tools, equipment, property, and more. You don’t buy these things every day. These are known as capital expenditures, and they are a big part of starting a business that can grow and survive.
Let’s break it down into simple terms, with examples and information that every founder should know.
What does "Capital Expenditure" (CapEx) mean?
Capital expenditures are the big things a business buys to make it easier for it to make money over time. They don’t run out in a week or a month; they last for years.
If you’re starting a business, think of capital expenditures as the first step in building it. You’re not just spending money; you’re putting it into something that will help your business run, grow, or make more money in the future.
Here are some examples:
- Purchasing tools or machines for production
- Putting together workstations and office furniture
- Buying cars for work
- Getting licenses for software or tech systems
- Purchasing property or fixing up a space
- Making a prototype or intellectual property
All of these are CapEx
OpEx and Capital Expenditures (CapEx)
You really need to know the difference between CapEx and OpEx.
Capital Expenditures (CapEx) | Costs of doing business (OpEx) |
Use for a long time (1 year or more) | Short-term, happening again and again |
Asset is owned and goes down in value | The cost is used up in the same year. |
Adds value to the company | Helps with daily tasks |
Laptops, office space, and patents are some examples. | Some examples are rent, salaries, and utilities. |
You need to keep track of both as a startup, but when you’re thinking about long-term growth, CapEx is what you should focus on.
Why Startups Should Care About Capital Expenditures
Every rupee, dollar, or euro counts when you’re just starting out.So why would you put a lot of money into assets?
Since most of the infrastructure that startups need isn’t cheap, they need it. You can’t grow without:
- The right tools or machines
- Technology systems that grow with your needs
- A place where your team can work
- Things that help you get more done or be more productive
Capital expenditures are what make your startup strong
Your business might work without them, but it won’t be ready to grow.
Different kinds of capital expenses for new businesses
Here are some common types of startup CapEx, along with examples and tips:
How accounting handles capital expenditures
Expenses don’t show up right away as capital expenditures.They don’t go away; instead, they become assets on the balance sheet.
Over time, these assets lose value. This is called depreciation (or amortisation if the asset is not tangible).
You buy laptops that cost $10,000. You could write off $2,000 a year for five years instead of $10,000 this year.This way, your profits won’t drop a lot all at once.
This is useful when showing investors your financials because it shows that your startup is making smart, long-term choices.
How Startups Can Pay for Capital Expenditures
You need a lot of money to buy big things. Here are your choices as a new business:
Common CapEx Mistakes Made by Startups
Even smart people get this wrong. Here are some common traps to stay away from:
- Spending too much on tools that aren’t needed, If you don’t need it yet, don’t buy the most advanced gear.
- Mixing up OpEx and CapEx, This makes taxes and accounting hard.
- Not planning for depreciation means you have to replace assets sooner than you thought.
- Buying instead of renting: Sometimes it’s better to rent, especially at first.
- Not connecting CapEx to revenue. Always ask yourself, “How will this help me grow or make money?”
How to Plan Your Capital Expenditures the Right Way
When you plan your startup’s CapEx, you don’t just pick what to buy. You need a real plan.
Step 1: Make a budget for capital expenditures. This should include:
- Name of the item
- Estimated price
- Purpose of Life
- Expected return on investment (ROI)
Step 2: Put the Most Important Things First
What do you need to do today, and what can wait? Put first the things that affect your product, delivery, or making money.
Step 3: Keep an eye on things and make changes
After you buy, update your balance sheet, keep track of depreciation, and make plans for replacements.
Is CapEx good or bad for your startup?
If you use CapEx wisely, it will help you in the future. It gives your startup real value, helps it grow, and gets you ready to grow quickly when demand rises.
But if you don’t use it carefully, it can put you in a lot of debt, leave you short on cash early, and make future investors nervous.
Be careful and ambitious at the same time.
FAQ: Capital Expenditures for Startups
What is considered a capital expenditure for startups?
Anything a startup buys that has long-term value and is used over more than one year, like computers, machinery, real estate, or IP, is CapEx.
How do capital expenditures affect startup cash flow?
CapEx requires large upfront cash, which can reduce short-term liquidity. That’s why many startups lease or seek investor funding.
Is software a capital expense?
Yes, if it’s a long-term license or development project that creates value over multiple years. Monthly SaaS subscriptions are OpEx.
Can a startup deduct capital expenditures from taxes?
Usually not all at once. Most countries require you to depreciate the asset and claim small tax deductions each year.
Should startups focus more on CapEx or OpEx?
Both are important. But in early stages, CapEx sets your foundation. OpEx helps you survive day-to-day. Balance is key.
