Creating an IT budget breakdown is a pain. We know. We’re sorry.
We’ve worked with small businesses for over two decades and been one for just as long. So, 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 breakdown. Cyber attacks cost companies $200,000 on average and are putting many out of business. And an effective IT budget breakdown can remove the guesswork from your investment. This allows you to focus on maximizing efficiency throughout your business. For example, we’ve seen a 25-person company give their workforce total mobility and save $40,000 over the course of three years. This was done 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 breakdown for your small business? Below we’ll walk through both the characteristics of a successful information technology budget breakdown. Additionally, we’ll break down the technical elements that need to be accounted for in your plan.
Annual It Budget Breakdown for Small Businesses
The amount you want to breakdown your IT budget each year depends on the following factors:
- How essential IT is to your operations. Are you relying on line-of-business applications to perform your daily tasks? Do your staff members need remote access to your network? Do you have a robust disaster recovery solution in place to protect your data? Or do you not need much more than a functioning file server to keep the wheels turning?
- Your growth mode. Are you in a heavy growth mode? Steady state? Shrinking? As you could probably guess, growth translates to much heavier technology demands (and, by extension, larger expenditures). So does shrinking, though to a lesser extent.
- How much change your business is experiencing. Are you moving offices? Replacing a number of your staff members? Going through a merger or acquisition (from either side)? The more flux your company is in, the more money you’ll have to put into your technology to get from A to B.
- Service expectations. Does your ideal IT scenario include a lot of hand-holding from your technology provider? Is it important to have a dedicated representative to oversee your account? Or are you willing to sacrifice overall service in the name of cost savings?
- Tolerance for risk. How long are you willing to go without functional technology in the event of a disaster? Hours? Minutes? How much data are you willing to lose? One day’s worth? Thirty minutes’ worth? Do you want to outsource all of this risk to a provider in the form of a fully-hosted solution? Across the board, lower risk equals higher investment.
IT Infrastructure Cost Breakdown
Then, you should prepare to invest 3-4% of their annual top-line revenue in technology. This is for small businesses with moderate technology needs and basic service expectations.
The number will differ for companies who are in the midst of significant change or growth. It’s also true for companies who have exceptionally low tolerance for risk or rely almost exclusively on technology. They’re looking at closer to 5-7% of their revenue.
If you are spending much lower than this, please proceed with caution. There’s often a direct give-and-take when it comes to technology. So, you may inadvertently be putting your systems at risk both in terms of security and efficiency.
This goes in the other direction, too. If you are spending much higher than this, you may need to take a second look at where you’re putting your investments. It’s especially true if you are not intentionally and strategically leveraging your technology. For example, maybe you’re using technology to gain a competitive advantage.
If it all just seems too much for you to work through on your own, look to getting strategic guidance. There are countless resources that can help get your IT budget breakdown on the right track.
Successful It Budget Breakdown
1. It gets done. This may seem silly, but it needs to be said: if you set out to create an IT budget breakdown, 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? Or 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. However, it shouldn’t be 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.
IT Budget Categories
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. Moreover, you’ll need to account for any time you engage an outside provider in order to fully implement these upgrades. Can a consultant will work with you to evaluate different software solutions? Will network engineers will build your servers and swap them out with your aging hardware? Be sure you account for their cost as well.
Small Business IT Budget Operating Expenses
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? And 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? Can 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 requires 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. As a result, you’re sure all is accounted for and that your cost projections are as accurate as they can be.
Even if you think you’ve taken the most minuscule details into consideration, you should always build flexibility into your budget. You may have budgeted for 20 new computers. But 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.