IT Budgeting for Small Businesses: Best Practices

Can your business afford to pay $5,600 per minute? If not, it’s time to start thinking about IT budgeting, because that’s the average cost of IT-related downtime. And that’s just the average; the actual number is much higher for many businesses.

If you’re like most small businesses, a computer system or application failure has probably already burned you at least once. So you might be thinking about investing in a backup plan or upgrading your hardware. But businesses and organizations that want to avoid these problems altogether need to divert resources to their IT budget—which means having a proper IT budgeting plan in place.

But where should you start? This article will explain the ins and outs of IT budget planning and what you’ll need to budget effectively.

What is IT budgeting?

IT budgeting examples

What can result from a mismanaged IT budget?

IT budgeting best practices for business owners

Advantages of working with a managed service provider on IT budgeting and strategy

What is IT budgeting?

IT budgeting is the act of determining which information technology assets are pivotal to the business’s success and designating the proper funding for those tasks. Even without the sophisticated IT infrastructure of major corporations, small businesses and organizations still need to pay careful attention to their IT budgets. Effective IT budgeting allows organizations to:

  • Prepare for future growth
  • Keep up with their competitors
  • Safeguard their data storage capabilities
  • Comply with laws and regulations regarding data storage and security

In other words, IT budgeting should be included alongside any other strategic business activity. It’s just as crucial as frontline customer interactions or recruiting new employees.

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IT budgeting examples

Almost all businesses today rely on a myriad of information technology systems to conduct their regular operation, including cloud computing. Different businesses have different requirements — not all need cloud-based services, and some must invest more heavily into encryption models, for example. In general, IT budget management includes things such as the following.

Software licensing fees

Most software licenses fall under one of two licensing models: perpetual licensing or subscription. Perpetual licenses are those you buy once and can access permanently. In contrast, subscription fees are paid out monthly or yearly. Though it can be convenient to pay for software only once, subscription models usually come with ongoing support and system upgrades that make them worthwhile.

Hardware costs

Enterprise-level IT demands a robust investment in the hardware your system runs on. Thinking beyond computers and monitors, this also includes cabling and routers, network servers (plus encryption), printers, phone service, and more. Of course, the attendant maintenance and upgrade fees for these appliances are also included.

Training costs

Few are the business owners who know how to administer their own networks. Instead, this task typically falls to dedicated IT personnel, which must be brought on board and trained to fulfill their respective roles. Some businesses may even hire third-party trainers to come on-site and show them the ropes or pay for an e-learning course from the vendor.

Software upgrades

All IT budgets are subject to change. New applications and systems will be introduced that businesses either want or need. Vendors will also release new and (hopefully) better versions of their software, often as paid upgrades. These all have to be accounted for in IT budgeting.

Backup, security, and recovery

Businesses inevitably accumulate data costs during their operations. Data must be organized and stored logically and, at semi-regular intervals, either archived or deleted. Utilities for long-term data storage are a must. In addition, investing in security and encryption for that data will be necessary for many businesses. It’s also wise to have recovery solutions in place and ready to go before you need them.

What can result from a mismanaged IT budget?

A mismanaged IT budget leads to inefficiencies and increased costs. For example, a poorly planned budget can result in overspending on projects that aren’t going to work or, in some cases, projects that shouldn’t have begun at all.

Mismanaged IT budgets can stunt the growth of new businesses and cause them to lose their competitive advantage. Wasted money, poor performance, and even a loss of morale can all reverberate throughout the organization as a result of an inefficient IT system caused by inadequate funding. This can result in:

  • Unnecessary spending: This happens when projects and initiatives are started without a clear idea of what is expected to be accomplished.
  • Poor planning: For instance, the software team may be spending a lot of money to build a system that won’t actually be used.
  • Misplaced priorities: Money that could have been used more efficiently elsewhere can be lost by pursuing ill-advised objectives.

As the name implies, information technology provides the raw information businesses need to operate. IT is the engine behind tracking customer interactions, monitoring employees’ performance, and gaining insight into customer preferences and behaviors.

The risks associated with a mismanaged IT budget extend beyond the threat of system failure and downtime. Businesses that don’t use, maintain, and optimize their IT infrastructure will inevitably lose valuable insight into their clients and customers. This is an ongoing, if hidden, cost of inefficient IT budgeting that can be fixed with greater attention to this area.

IT Budgeting best practices for business owners

A budget for a small business should be tailored to the organization’s specific needs. It should be flexible enough to accommodate new projects and changes in business requirements. Business owners looking to revamp their IT budgets can follow a basic 1-2-3 approach to maximize their time.

1.  Conduct an IT assessment

You should survey your business’s information technology assets as they now stand. How well are the current hardware and software utilities serving the organization’s needs? Are there better options or upgrades available? More importantly, which of them, if they went down tomorrow, would significantly hinder your ability to do business?

Consider also the lifecycle of IT technology. Are you operating hardware or software that’s older and, thus, more vulnerable to failure?

2.  Designate business initiatives

The mission and goals of your business or organization should drive IT budgeting decisions. Customer insight and feedback have a vital role to play in IT budgeting. When current IT systems are hindering the mission or are simply unable to meet customer expectations, that must be prioritized. Long-term forecasting, such as asking what business operations will look like five years from now, should also influence budgeting decisions.

3.  Allocate resources

Because an IT budget is limited, careful thought and planning must go into its allocation. Once a business’s priorities and short- and long-term objectives have been clarified, it becomes a matter of prioritizing and taking the necessary actions. Internet services, network administration, website maintenance, and software are vital for business success. They will represent an ongoing overhead cost for continued operations.

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We’re big believers in culture fit. Contact Tier 3 Technology Solutions for a commitment-free conversation about your business’s IT Support needs.

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Advantages of working with a managed service provider on IT budgeting and strategy

Rather than assembling a traditional, in-house IT department, small businesses often outsource their IT support to managed service providers. This practice is also known as managed IT support. In addition to taking care of IT systems on a business’s behalf, MSPs can provide valuable advice regarding an organization’s strategic goals and how to align its IT budgeting accordingly. A virtual Chief Information Officer (vCIO), a role often assumed by your MSP but which can also be filled separately, can also offer strategic budgeting guidance. The point is to let business owners focus on core activities, such as management and oversight, while the MSP takes care of hosting, system upgrades, troubleshooting, and other IT-related tasks behind the scenes.

Given the complexity of IT infrastructure and maintenance for businesses small and large, outsourcing such tasks can be a budget-conscious decision in and of itself. If that sounds like it’s up your alley, think about reaching out to a reputable MSP to discuss your organization’s IT needs.