How to create an IT budget for small business.

A well-built IT strategy, complete with a technology roadmap, set of IT policies, and dedicated IT budget, is crucial to keep businesses safe from digital disasters. In today’s modern business world, we are continually shocked to discover that many businesses are able to effectively forecast market growth and protecting themselves from physical threats without ever developing the most basic elements of an IT strategy.

Legacy businesses without strong tech roots and small businesses without a long-term approach to IT budgeting are far more likely to expose their bottom lines to unnecessary risks. Strategic budgeting should ensure that your business includes its IT needs as a critical part of its business plan, instead of an afterthought once all other needs have been covered. IT budgeting recognizes expenditures as investments in the security and efficiency of the business, as well as an opportunity to gain a competitive advantage over less forward-thinking competition.

Before you budget.

In order to manage your business’s IT needs, will your business outsource to an MSP, use in-house resources, or take a co-managed approach (in-house +MSP support)?

Hopefully your IT policy has already answered this question, but if it has not, now is the time. No other decision will have a greater impact on your budgeting process or the final budget. Each approach has advantages and disadvantages and unique impacts on your budget.

• In-house IT gives you the greatest control over your IT needs, but also requires the greatest amount of internal oversight. Staff expenses, phone service, internet service, and software subscriptions generate operational expenses, while computer purchases, network upgrades, and tech hardware necessitate capital outlays.
• Outsourced IT can provide the same level of support as in-house IT, or even much greater, since high-quality managed service providers (MSPs) retain experts in diverse IT areas. Some MSPs can even help you develop internal IT policies and a long-term IT strategy, while rolling all of your tech expenses (including phone, internet, software, services, and hardware) into a single, monthly bill.
• Co-managed Support gives you the best of both worlds. MSPs provide support to high-quality internal IT personnel wherever they are needed: daily help desk support, hardware upgrades, long-term strategy development, or pretty much anywhere else!

Our previous post takes a much closer look at the pros and cons of each IT management approach—as well as their impact on your budget.

Elements of a basic IT budget

Every IT budget can be reduced to the following three key elements: staffing, software and services, and hardware.

1. Staffing.

Whether outsourced or in-house, your business needs someone to manage the network, purchase and update hardware and software, troubleshoot tech gremlins, upgrade servers, perform cloud migrations, identify and address cybersecurity risks, and ensure consistent internet connections. Even if you have no internal IT staff or contractors, someone in your business is using their time to manage your IT needs, since every company is now a tech company.

Total cost of staffing will be largely dependent on the amount of support you need, which is in turn determined by how many of your employees work with business technology. Beyond the size of the company, the type of support (internal vs external) will also have a large impact on the final amount needed. In a 40-person company, the average in-house IT department (plus an average amount of consultant support) costs approximately $390 per computer-using employee per month, whereas MSP staffing support will cost roughly half that amount, between $200-$250 per user per month.

2. Services and Software

Most modern businesses could not operate a single day without their essential tech services—and the total number of vital services and subscriptions continue to grow: phone, internet, cybersecurity, point of sale (POS) systems, remote collaboration tools, inventory management, data backup and recovery, business VoIP, email, cloud computing, company websites, online advertising, and ecommerce platforms.

The list goes on; modern business software is just as essential as the tech services! Word processors, spreadsheets and analytical programs, operating systems, security software, project management tools, HR and payroll software, customer relationship management (CRM), and accounting software form the backbone of efficient small businesses across the country.

Added together, business software and services can represent a significant chunk of the budget. Although not all users may appreciate subscription-based software and services, subscriptions and cloud-based software (versus one-time purchase, installed software) enable more predictable budgeting since the monthly expense is usually fairly consistent.

3. Hardware

Most accountants and managers are well-suited to calculate staffing, services, and software expenses, and most can predict these operational expenses with an acceptable degree of accuracy. However, in our experience, most IT budgets fail in the area of hardware. Without the input of knowledgeable and forward-looking IT experts, most businesses grossly underbudget for hardware—putting their businesses at high-risk for some of the most serious IT disasters: data breaches, ransomware attacks, extended network downtime, backup failures, and complete data loss.

A single day without internet or network access can easily up to tens of thousands of dollars in lost productivity and revenue for small businesses, and those expenses pale in comparison to the financial costs of cyberattacks and data loss. Regular hardware updates can mitigate these painful possibilities. IT equipment lifecycle policies can help businesses with in-house IT teams project capital expenses up to 10 years in advance. For those that prefer to avoid capital expenses entirely, a Hardware-as-a-Service (HaaS) arrangement with an MSP provides an excellent opportunity to consolidate all IT expenses into a single, monthly payment.