Why and How to Create a Small Business IT Budget

Author: Caron Beesley | May 13, 2014

There’s no doubt that information technology (IT) is a core enabler for small businesses. It increases productivity, aids communication and collaboration, and, of course, cuts costs.

Despite these advantages, managing small business IT budget has its challenges.

According to a 2013 National Small Business Association technology survey, the top IT challenges facing small-business owners included: the cost of needed upgrades, security issues and the time it takes to fix problems. In fact, nearly half of small businesses report having been the victim of a cyber-attack, resulting in the loss of thousands of dollars and considerable man hours.

Clearly controls and practices need to put in place to ensure the expense of upfront IT software and hardware investments are balanced with the cost of ongoing support while paying heed to the overall needs of the business. This means having an IT budget.

A well thought-out budget can help you:

  • Ensure your IT function and systems are current and performing well.
  • Anticipate your changing business needs.
  • Reduce surprise technology costs.
  • Inform what you can and can’t achieve this year both in IT and across other areas of your business based on your overall goals and budget.

Here are eight best practices for understanding and managing the costs of IT across your small business:

Use Past Performance as a Guide
If you’ve created a budget before, that’s a great starting point. If not, gather all the data that you have about your IT investments, costs, and any trends that might inform your expenses for this year. Don’t forget to reference your business plan, this will outline the areas that need IT support for the coming months.

Start with Your Fixed Costs
As with any budget, start from the easiest point and calculate your fixed, ongoing costs. These include software upgrades, cell phone and telecommunication costs, cloud storage services, internet access, any IT support costs, (if your team is less than five people, you might want to consider outsourcing), and so on.

Plan for Investment in Diverse Scenarios
No business stays the same for 12 straight months; some may experience unexpected growth and enjoy a bump in profits. Others might diversify into new markets or lines of business. This is something worth planning for from an IT perspective – it doesn’t matter how you grow, you’ll need IT to scale with you.

Use your budget to help plan for these diverse scenarios. For example if you have a view to opening a second location or a satellite office, what will that entail in terms of IT costs? Simple add a new column or tab that accounts for these plans and eventualities and budget for them accordingly.

Don’t Forget Training Costs
These include plans for training your staff on new systems or software as well as training costs for your IT team. Online or virtual training can keeps costs at a minimum, but hands-on training might be more productive in the long run. Again, assess these needs in the context of your wider business and IT goals for the year.

Show me the ROI
As you plan your budget for the year, review your organization’s IT wish list and be prepared to trim the fat by cutting out projects that won’t add significant value to the business or that appear questionable. Your budget should be built around your business priorities, money spent on one initiative leaves less for others, so spend some time with your team prioritizing their wants and needs with an eye on return on investment.

It’s a good idea to make this a regular exercise. Working with an eye to cutting processes and operational expenses on a monthly or quarterly basis will ensure overall efficiencies are maintained, through good times and bad (leave it to leaner times and it might be too late).

Writing Your Budget
Plan on creating your budget once a year, breaking down spending for each month and taking into account your fixed monthly costs as well as one-off expenses, like new hardware for that second location you’re opening!

Treat Your Budget as a Living, Breathing Document
Once created your budget becomes a valuable tool. Use it as a reference point to track spending against your projections. If your costs exceed your forecasts it’s time to review why and adjust your plan accordingly. Likewise, if you run into cash flow problem, revisit all your business budgets and examine how this negative period will impact your plans.

Don’t forget to take a look at how your IT investments are impacting your bottom line. Are you getting the ROI you expected?

Remember, each budget year will inform the next, and the exercise will get easier and more accurate year-over-year.

Treat IT as Part of the Business as a Whole
You’ve probably noticed a common thread running through this blog – and that is to ensure your IT goals and budget align with your big picture business plans. Today IT runs through each artery of your business, from marketing to human resources. Endeavor to involve your IT team or the IT function in all your business planning meetings and set-aside time for an annual IT review for a deeper strategic IT review.

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