How Much Should CT Small Business Owners Spend on IT?

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Whether you are a Connecticut small business or a global company, it’s important to have a formula to make sure you are spending the right amount on your IT infrastructure.

Enterprise systems are essential for all businesses, large and small, and whether you are investing to upgrade your own local area network or relying more extensively on cloud services, your IT spending must be in line with the rest of your operation. After all, IT is a support system, not a profit center (as a rule), so you don’t want to overspend on computing, nor do you want to cut spending to the point you don’t have the resources you need to be successful.

Download Small Businesses’ Guide to Identifying Your IT Needs

IT support is an area where all businesses look to save money, but being judicious about IT spending is not the same as eliminating vital computing services. To save money and add new capabilities, many Connecticut small businesses are looking to cloud services and managed service providers (MSPs).

How Much to Spend on IT?

IDC predicts that small- to medium-sized businesses (SMBs, i.e., companies with fewer than 1,000 employees) spent about $546 billion in computer hardware, software, and services in 2016, and they will spend up to $668 billion by 2020, a compound annual growth rate of 4.2 percent. Half of SMB software spending is on applications such as enterprise resource management (ERP), customer relationship management (CRM), and content applications. The other half is spent on application development and infrastructure. Telecommunications hardware, computers, and peripherals made up three-quarters of SMB hardware spending. Business services are the biggest growth area. More than 40 percent of SMB spending went to outsourcing such as hosted applications and applications management.

So how much should your CT small business spend in IT? Spending largely relates to company size. Small companies tend to outspend big ones, with the average SMB spending about 6.9 percent of annual revenue for IT. That averages out to $13,200 or less per employee, although some studies suggest that the more you spend on IT infrastructure, the more successful you are. At the same time, being thrifty and focusing spending on projects with a faster payback tends to yield even greater returns.

It’s Not How Much, but Where You Invest in IT

For Connecticut SMBs, it’s not so much a matter of how big your IT budget is, but rather how you allocate the money. For example, the average cost of recovery from a data breach for an SMB ranges from $36,000 to $50,000. And thanks to state lawmakers, Connecticut small businesses have added expenses from a data breach, such as reporting and offering identity theft protection.

When planning out your IT spending, start with the computing essentials you need to keep your business operational:

  • Data security – Clearly securing your company and its employees from data theft and cybercriminals must be a primary concern. For most SMBs, it’s no longer a matter of if you will be hacked but when. For example, malware is everywhere and hackers are using ransomware to target SMBs. The cost of data recovery from a malware infection can range from $20,000 to $50,000. Anti-virus protection and remote systems monitoring is a cheap investment to protect business-critical data.
  • System backups – Regular data and system backups are essential, and companies that invest in data backup are less likely to suffer from a disruption. For example, David’s Soundview Catering in Stamford suffered a malware attack and was able to restore the system in a few hours using clean files backed up offsite. Rather than losing $30,000 in sales, the company’s network was back online relatively quickly.
  • Disaster recovery – Secure backups are only one aspect of disaster recovery. If your network system goes down due to fire, flood, blizzard, power outage, or any other disaster, you must be able to recover quickly. Hosting business-critical systems in the cloud or creating redundant systems offsite are just two ways to make sure your enterprise network stays operational.
  • Productivity tools – In addition to protecting your data systems, you also want to invest in tools to help employees be more productive. Assess your current workflow and infrastructure and identify bottlenecks, either due to lack of automation or process inefficiency. Eliminating paper processes, for example, could save thousands of man-hours and eliminate manual errors. If you perform a cost analysis, chances are you will find that automating routine business processes will save money and increase productivity.
  • Hosted services – The more you can automate and outsource business processes, the greater the potential returns. More SMBs are finding cloud computing not only is affordable, but also helps them expand their business. Outsourcing to a cloud service provider also makes your operation more agile because you can add new services and users as needed. It also allows you to concentrate more on your core business and less on operating infrastructure.

An MSP Can Cut Costs

When assessing your IT budget, take a hard look at how much of your operation can be outsourced. Is it more cost-effective to handle your own data backup or to hire an outside service? What about disaster recovery? Do you have 24/7 service available when you need it?

Rather than adding infrastructure and overhead, more SMBs are partnering with MSPs to offload routine IT functions. For example, rather than hiring more IT personnel to deal with routine tasks such as system backup, printer services, systems monitoring, and so on, you probably can hire an MSP for a fraction of the cost and get around-the-clock service.

A reputable MSP can help you get more from your IT budget. Consider a free consultation as you are planning your IT budget for the future. You may be surprised to see how much of your business-critical computer operation can be better managed by an independent service company, and for substantially less.

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About The Author

President of NSI, Tom has been helping small and medium businesses succeed in Connecticut for over 25 years.