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How Much Should Your Business Budget for Information Technology?

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EJ Phillips

Determining how much your business should budget for its technology needs can be a high wire balancing act.  On the one hand, you need to keep to your budget to maintain financial stability, ever able to weather the unexpected.  On the other hand, technology is ever-changing, and you know that investing in technology can propel your business growth and keep you ahead of your competition. So what is the best way to determine just how much of your budget should be allocated to information technology? 

According to Statista, in 2020 alone, global spending on IT in the forms of devices (such as PCs, tablets, mobile phones, printers), data center systems, enterprise software, and communications services was around 3.97 trillion dollars and is expected to increase by approximately 8.6% in 2021.  And while it is doubtful that your small to mid-sized business is making a large dent in that number, knowing what your competitors are spending can be of use as your customers expect efficiency and you don’t want to get left behind technologically. 

Budgeting for IT

Investing in information technology services is vital to the overall health and growth of your business.  So what do you need to consider when determining your budget?  The following article will help you know what to consider when determining your IT budget.  

What Are Your Business Goals? 

Your overall business strategy should be the foundation of every decision and purchase your business makes. Clarifying these goals will help you better understand where technology fits in. You want your technology to serve you well and empower you to achieve your business objectives in a measurable way. 

What Are You Using Now? 

Assess what technology you are using now.  Is it sufficient?  Is it up-to-date?  Is it helping you or hindering you? Is your sensitive company data at risk?  Are you constantly having to call in IT support to patch or fix outdated systems that no longer meet your needs?  If what you are using now is no longer meeting your needs, it is time to make a change and perhaps invest in better tools. 

What Do You Need for Your Tech to Do? 

Determine what is the most important to your business. Chances are that you want your technology to help you. 

Technology can help:

  • Increase efficiency. 
  • Streamline operating processes. 
  • Secure and protect customer data and confidential business information. 
  • Facilitate collaboration and remote working possibilities. 
  • Scale your storage requirements to fit your business’s ever-changing needs, for example with cloud solutions.  
  • Enable business continuity in the event of disaster or business disruption. 

Your technology should be a tool you use to help you meet your overall business goals.  It’s not a silver bullet for all your needs, rather, the right technology can be what empowers you to meet you and your customer’s needs. 

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What Type of Business Do You Have? 

Every business has different regulatory, compliance, and technological needs.  Each industry allocates different proportions of their budget to IT needs, typically with those in the financial industry being the highest at around 7%. 

Budget as Percentage of Revenue by Industry

So what does this mean for the typical small business?   

For most small businesses, this means allocating between 3-6% of your budget is a good starting point. This is a manageable level for most small businesses.  It also allows for some wiggle room should your business grow in the coming year. 

Understand Your Recurring Expenses 

Some IT costs are variable, like new hires and the need for new software or hardware. But many technology costs are predictable and stay put. Knowing which costs can be expected regularly can help you adjust your budget as necessary. 

Example predictable IT costs include: 

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Hardware Spending 

We’ve all done it.  The moment you buy the latest version of your smartphone, in a month’s time the new version comes out.  Technology is changing all the time, be it security patches or updates or completely new systems. Yesterday’s must have is tomorrow’s fossil.  

However, with proper planning and a sound technology strategy, these problems can be mitigated. 

Strategies to help stretch your IT budget: 

  • Purchase as recent of a model of printer/smartphone/etc. as you can afford because it will still be supported by the manufacturer and it will take longer to need replacing. 
  • Know how long products are supposed to last. For example, routers tend to only be updated every 4-5 years. 
  • Choose scalable solutions like cloud-based platforms. These can expand easily to suit your growing business without a lot of stretching of your IT budget. 

There is no magic number when determining your IT Budget. Make sure that everyone involved in deciding your IT budget is aware of your overall business strategy so that the decision is made not only about where your company is today, but also with an eye on where it wants to be in the future. 

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