IT Budgets for Small Business: Key Elements to Consider

Budgets are a pain. We know. We're sorry.
After working with small businesses for over two decades (and after being one for just as long), we understand what it's like to create a budget when the funds at your disposal are all but infinite.
We also understand the incredible benefits that can result from a truly detailed and strategic IT budget that removes the guesswork from your investments, and focuses on maximizing efficiency throughout your business. As just one example, we’ve seen a 25-person company give their workforce total mobility and save $40,000 over the course of three years by implementing a hosted desktop solution that, at first glance, appeared too expensive.
So, what does it take to put together a successful IT budget for your small business? Below we’ll walk through both the characteristics of a successful IT budget, as well as what technical elements need to be accounted for in your plan.

Characteristics of a Successful IT Budget

1. It gets done. This may seem silly, but it needs to be said: if you set out to create an IT budget,take the time to create it fully. Work through the next year from start to finish. How is your technology going to change? How is your business going to change? Are the two aligned?

2. It gets done properly. When you get to the end of your company’s fiscal year, will you have something to measure against to see where you misjudged, where an investment may have saved you in a big way, and where you need to focus your attention the next year?

3. It’s realistic. This goes both ways—make sure you budget enough to fully care for your information systems, but not too much that you’re biting off more than you can actually chew over the next 12 months. For most companies, you should plan on spending between 3-4% of your top-line revenue on IT. If you’re growing rapidly, think closer to 5-7%. (And, if you haven't put money into your systems for a while, you're going to have to.)

With those overall principles in place, we’ll help you work through the specific elements that you need to account for when putting your budget.

Capital Expenses to Consider for your Small Business

What one-time capital investments do you need to account for when creating your budget?

1. Software. Do you use a specific line-of-business application in your day-to-day operations? Is this software due for an upgrade? What about your accounting system? Plain old Microsoft Office licenses? Anti-virus?

2. Hardware. How old are your servers? Workstations? What about ancillary (but still costly) devices like your firewall and copiers? Are there any alternatives to a replacement project? If you’re growing, what additional devices are you going to need to accommodate the increase in people and data? Are there any expiring warranties that you’ll need to extend?

3. Labor. Generally speaking, you’ll need to account for any time you engage an outside provider in order to fully implement these upgrades. Whether a consultant will work with you to evaluate different software solutions, or whether network engineers will build your servers and swap them out with your aging hardware, be sure you account for their cost as well.

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Operating Expenses to Consider for your Small Business 

On top of those one-time costs, what will you be putting into your technology on a regular ongoing basis:

1. Internal IT Staff. Do you have a full IT team in-house? What are their salaries? What sort of training might they need to complete over the next year?

2. Managed Services. Do you pay an outsourced team to take care of hardware monitoring and maintenance? Helpdesk? Room in their datacenter for data backup? Do you outsource anything and everything up to CIO-level consulting? Will your provider’s current rates stay the same? Will you need to make any adjustments to the services you’re subscribing to?

3. Hosted Services. Do you have a hosted website? Hosted email? Have you forgone on-site servers in favor of a hosted desktop solution? Will you need to account for fluctuations in your monthly pricing as your off-site data shrinks or grows?

It’s a lot to consider, and does require a good understanding of your company’s technologies and how they function. This is why it’s important to work with the people who will actually be performing all of this work so that you’re sure all is accounted for, and that your cost projections are as accurate as they can be.
Keep in mind: Even if you think you’ve taken the most miniscule details into consideration, you should always build flexibility into your budget; while you may have budgeted for 20 new computers, what would happen if your primary server were to fail unexpectedly?
So yes, it’s a lot to consider and yes, budgeting and planning and tracking can be an arduous process. But being able to move through your year with confidence in your technology and your investments is more than worth it by a long shot.

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