The Importance of Minimizing Capex  

Companies that are at the forefront of their industry are always working to maximize their Return on Capital “ROC” – one way to do this is by reshaping their capital expenditures “capex”. For example, in the healthcare industry, managing your company’s capital expenditures has become even more important... Capex is needed for the business to support its current and future patients. This is why Trace Medical wanted to provide our insights on the importance of minimizing capex.

Projecting Future Needs

While capex is required, business owners want to be careful managing Capex. To avoid this, developing a 1-year, 5-year and 10-year plan for projecting future needs for your business is paramount. This provides visibility to what should be increased or decreased to avoid growing your capex exponentially.

Shift to Opex

Another way to minimize capex is to find ways to shift some expenses to Operating Expenses “Opex”… Operating expenses can be fully deducted from the company's taxes in the same year in which the expenses occur, which is another reason to make the shift.  A perfect example for a healthcare provider is renting high value equipment rather than purchasing it.

An example of this could relate to IT – IT is a crucial part of healthcare, as keeping PHI secure is a #1 priority. Moving to subscription-based cloud storage allows a business to have IT be an operational expense that gives them the on-demand, secure storage they need while offering the ability to scale up immediately when the time comes. This allows the business the chance to continue to build upon what is already there without having to drop an incredible amount of funds towards an IT-related shift if they were to continue on the path of large, one-time improvements. 

Create Efficiency 

If you are unable to minimize capex, working towards making the most out of what you have available. Here are some tips:

  • Implement clear, comparable criteria for investments so you can better track ROI – to go along with this, have the projects outlined in clear stages so you can properly track and monitor the investment in digestible chunks.

  • Optimize any contracts or GPO relationships you have and reevaluate the supply chain decision-making process so things can come to completion quicker.

  • Have a specific team or person assigned to these different areas, stages and processes to allow a proper champion to bring it to completion no matter how small the investment or project.

  • Finally, continue to apply risk-management tools to help lower risk for the projects.

When organizations invest large amounts of money upfront for improvements, measuring Return on Capital can be difficult. The more a business can optimizing its capex, the better ROC and the more flexible that business’s expenses can become. 

Elliot Campbell