How to prepare an IT budget, and why you might need one

When it comes to budgeting, it’s easy for the IT department to get passed over. While it seems easy to skip upgrading equipment to save the budget of other departments, this is often a dangerous route to go down. Poorly funded IT departments can cause many future problems, including a trickle-down effect which can impact nearly every other department’s productivity.

So, in this article, we’ll be talking about how to plan for IT spending and how you can make sure that you’re budgeting the correct amount for everyday upkeep and improvements no matter what size your company is.

How do you prepare an IT budget?

For many people, creating the IT budget can be intimidating. The truth is that many people are still not very technologically inclined, and it can be difficult to know exactly what to include in your figures. If this sounds like you, then that’s okay.

While you might not know everything there is to know about IT, you do have a valuable resource which can help you out with this. Your IT provider. Whether your IT is on site or outsourced you should be able to easily get with someone in the know to help you plan the budget.

In fact, scheduling a meeting with your IT team can help you to work out everyday budget problems which you may not have otherwise been aware of. You’ve already hired professionals to help you with your IT problems because of their expertise. Why not let them also use that expertise to help you plan your budget?

If you do need to cut costs, then don’t be afraid to say so. Your providers are likely more experienced with this than you are. They’ll be able to point out what needs to be accounted for immediately, but they can also probably help you to find areas that can be cut without impeding productivity. Here’s a small list of things you should be sure to speak with your IT team about.

• Hardware (Computers, servers, etc)
• Phones (landlines, company-issued mobile devices)
• Software (Subscriptions, upgrades, improvements)
• Cloud Storage and Applications
• IT Salaries or Services
• Infrastructure and maintenance
• Warranty renewals

You should also make sure that you don’t forget to separate your budget items into the right categories. This is particularly important if you’re doing the budgeting as an employee who may have limited wiggle room when it comes to your budget versus an owner. They will have allowances for both, and since a lot of IT related software is moving to a subscription model, it’s actually classified as opex rather than capex. This could leave room in your budget for other things that you may have thought you couldn’t afford. Opex options also come with better tax deductions since they don’t need to be depreciated over 5 to 10 years, a plus for any business.

How do you know how much to spend on IT?

The basic rule of thumb is to allocate 1-2% of your total wages to IT expenditures. Obviously, the more employees you have, the more computers you’ll have, and that means you’ll need a bigger budget to cover the management of these devices. You should keep in mind however that this is a rough estimate, and it might not reflect the total needs for your business.

If you’re looking for a figure that’s a little more concrete, then you could try to figure out how much your competitors are budgeting and spend the same amount or even a little bit more. While this information is not always so easy to find, you can generally get a hold of industry specifics online or talk to your industry association. For example, for a medical practice, the RACGP or AAPM could be a good place to start.

Most of these tools even allow you to narrow down these figures to your specific country, state, and region in order to get accurate numbers which you can plug into your budgeting software or just use to see how your estimates compare to averages.

Why you shouldn’t cut IT spending to save other departments

Budgeting is a stressful experience. There’s only so much money to go around, and business owners are always looking to cut costs to save money. Many times this leads to them cutting the IT budget by delaying upgrades in order to save some cash.

However, this isn’t always the smartest way to go about doing things. While delaying for a while might get you through a leaner year, it’s not something you should make a habit of. If you defer budgets for several generations, then you could be facing some surprisingly large bills when you do need to upgrade.

In many cases, vendors won’t support these large leaps, and you’ll be required to rebuild many of your systems from scratch. If this happens then you may find that any money you saved has now been lost.

Plus, older electronics are more prone to break down on you. This could cost you thousands of dollars in wasted time and man-hours. Not only because your techs will spend more time and money fixing your machines, but you’ll also have lost productivity when other employees can’t work due to these mishaps. Businesses should aim to replace equipment every 3-4 years for optimal efficiency.

How having an adequate IT budget improves your entire workflow

Increasing your IT budget can actually have a positive impact on your business that many people seem to miss. Putting forth a small investment in newer equipment and software which is top of the line gives you an edge over competitors. You’ll spend less time and money on repairs and faster electronics improves your employee’s workflow and productivity.

Having up to date resources also improves the work environment. Electronics that constantly break down are frustrating for those who are using them and the techs that need to fix them. This frustration can actually lead to higher turnover and reduced work performance, but machines which can actually get the job done do the opposite. So, before you cut your IT budget, consider the consequences and talk with your IT provider to see what concessions can be made to reduce costs but not impact your productivity.

Once you work out what you might need in regards to your IT, don’t forget to talk to your provider about equipment finance to also help manage your cashflow.