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

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

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

How do you prepare an IT budget?

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

While you might not know everything there isto know about IT, you do have a valuable resource which can help you out withthis. Your IT provider. Whether your IT is on site or outsourced you should beable 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 beafraid to say so. Your providers are likely more experienced with this than youare. 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 withoutimpeding productivity. Here’s a small list of things you should be sure tospeak 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’tforget to separate your budget items into the right categories. This isparticularly important if you’re doing the budgeting as an employee who mayhave limited wiggle room when it comes to your budget versus an owner. Theywill have allowances for both, and since a lot of IT related software is movingto 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 thoughtyou couldn’t afford. Opex options also come with better tax deductions sincethey 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% ofyour 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 tocover the management of these devices. You should keep in mind however thatthis is a rough estimate, and it might not reflect the total needs for yourbusiness.

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 narrowdown these figures to your specific country, state, and region in order to getaccurate numbers which you can plug into your budgeting software or just use tosee how your estimates compare to averages.

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

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

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

In many cases, vendors won’t support theselarge leaps, and you’ll be required to rebuild many of your systems fromscratch. If this happens then you may find that any money you saved has nowbeen lost.

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

How having an adequate IT budget improves your entire workflow

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

Having up to date resources also improves thework environment. Electronics that constantly break down are frustrating forthose who are using them and the techs that need to fix them. This frustrationcan actually lead to higher turnover and reduced work performance, but machineswhich can actually get the job done do the opposite. So, before you cut your ITbudget, consider the consequences and talk with your IT provider to see whatconcessions 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.  

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