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How Small Businesses Should Budget for IT Expenses

[Updated 2023] While small business leaders understand the importance of budgeting, IT sometimes falls through the cracks. The problem is often that executives have trouble getting their arms around the scope of the task. There are, in fact, many variables that need consideration so there isn’t a one-size-fits-all budgeting formula. In this article, we’ll point out 10 variables you should include to help you get your IT budgeting process started.

Before getting into the details about IT budget considerations, it’s important to note the role that IT strategy plays in the budget process. If you don’t have a strategy for how you’re going to use technology to support business goals and continuously improve your network, your budget may be nothing but a wish list. A plan is much better than a wish, obviously, because it points the way forward.

Most companies struggle to create both an IT strategy and a budget without guidance. That’s where a Virtual Chief Information Officer (VCIO) comes in. Managed IT services companies, like XPERTECHS, provide VCIO consulting as part of their services but you can also hire a fractional VCIO to advise your executive team and walk you through the IT strategy and budgeting process.

What to Include in Your IT Budget

Whether you’re working with a VCIO or you’re working through the IT budgeting process on your own, here are some components that should be included.

1. Hardware Replacement

No one likes to buy new hardware but it’s necessary to refresh equipment every three to four years. As equipment ages, it actually costs more to operate because it becomes less predictable. Create a refresh schedule so that you cycle laptops, workstations and servers and plan for the expense. If your servers are in the cloud, that’s a capital expense you can avoid.

2. Network Maintenance

Whether your infrastructure is in the cloud or not, your network needs regular maintenance to respond to issues and support optimal performance. Maintenance includes activities like monitoring and responding to alerts; updating and patching software; ensuring that security controls are working; and keeping network documentation up to date.

3. Cybersecurity and Compliance

Cybersecurity and regular network operation intertwine in many ways, so it can be hard to separate security costs from operational costs. However, it’s useful to evaluate how your security posture matches up with your risk profile and determine if you’re investing at the right level. Additionally, look at any costs that are separate from ongoing security operations, like pen testing, and include those in your budget.

4. Cyber Insurance

You may or may not place cyber insurance in your IT budget. At the same time, cyber insurance affects your IT spending. You’ll only qualify and get your best rate if you’re effectively managing risk. Increasing your investment in cybersecurity may be necessary to lower risk. Add to that increasing prices for cyber insurance which makes cyber insurance an important consideration when you’re creating an IT budget.

5. Data Backup and Recovery

Data backup may be rolled into your managed IT services fee, depending on your agreement. Whether it is or is not, your backup prices are going to increase if the amount of data you store continually increases. Review your Recovery Time Objective (RTO) and Recovery Point Objective (RPO) to anticipate how you’ll need to use your backups. Add in budget considerations and you’ll discover how close you can get to your optimal backup recovery scenario.

6. Software Subscriptions and Licenses

Software represents a substantial cost to most clients these days. Software licensing includes your Microsoft 365 accounts, phone service, and line-of-business software, plus all of the applications that various departments and individuals utilize. Audit your software licenses and subscriptions to make sure that what you’re paying for matches up with your list of actual users. Anticipate future software needs with your plans for adding on staff throughout the next year.

7. Expansion and Project Expenses

Ongoing consulting with a VCIO allows you to know ahead of time what improvements you need to make, when you’re going to make them and what they’re going to cost. In addition to network improvements, consider how you plan to grow your business in the coming year and allow for additional staff and locations in your budget.

8. Voice Communications

Some of the considerations we’ve already discussed overlap with your costs for voice communications like licensing. If you’re looking for a place to make budget cuts, your phone system might be a target. Upgrading your on-premise phones or your old VoIP phones to Microsoft Teams Voice can be a way to find savings and improve efficiency at the same time.

Related: Microsoft Teams Voice Implementation Takes Phone Worries Off CFO’s Radar

9. IT Staffing

If you work with a managed IT service company, you don’t need to separate staffing out as a line item in your budget. It’s another story if you have an internal team. Adding staff could be a substantial addition to your IT costs but you still could have gaps in IT capability. Do you have a contingency plan for staffing IT when your employees want to take PTO or leave your company? If you don’t have a plan for how you’re going to handle these situations, staffing can blow your whole IT budget out of the water.

10. Employee Training

Training too often gets overlooked when building an IT budget, but your employees’ effective use of their technology tools depends on it. Plan for employee training when you’re onboarding new employees or introducing new or updated applications. The best training includes opportunities to not just learn software but develop mastery. Ongoing cybersecurity training is a must-have to manage risk. Don’t forget that your internal IT team will need time and resources for continuous learning to stay abreast of trends and the changing cyber threat landscape.

Pull it All Together with a VCIO

Wishing there was, in fact, a recipe for IT budgeting now that you know about some of the variables that you need to include? Working with a VCIO allows you to pull all of the parts together. Not only that, they ask the questions you didn’t think to ask.
IT Budgeting Guidance with Managed IT Services

Here at XPERTECHS, we provide the services of a VCIO to help clients create an IT strategy along with a plan and a budget. This not only helps companies to manage their costs, but opens up the door to the most innovate uses of technology. If that’s not what you’re getting with your current IT team, we should talk.

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