Many small to medium sized businesses (SMBs) operate on extremely lean budgets. In fact, many small business owners try to avoid budgeting at all costs and tend to run their operations on a “cash-in-hand” basis, planning for the near-term future based on the amount of money in the bank.
When funds get tight, it’s often the IT budget that takes a hit, since business owners assume, “We can upgrade next year.” That’s a mistake that too many SMBs make, but with a well-thought-out IT budget, SMBs can plan for IT growth to help them promote business growth.
SMBs are More Strategic with IT Spending
Believe it or not, when it comes to IT, most SMBs tend to outspend the big corporations. On average, a small company spends 6.0 percent of its revenue on IT, where midsized companies spend 4.1 percent and larger corporations spend only 3.2 percent. That works out to about $13,100 per employee for midsized business versus $11,580 for large corporations.
It has also been proven that companies are more strategic about their IT investment, spending on smaller projects that yield an immediate return, and therefore are more likely to succeed. Perhaps that is part of the reason why 69 percent of SMBs tend to invest in emerging technology, including 86 percent who are embracing cloud-based services. For SMBs, the challenge is investing in the right technology to stay nimble and promote growth by improving the underlying infrastructure. Many SMB owners are reluctant to embrace new technology because it may disrupt operations. That’s why cloud computing is an ideal approach for many SMBs; it allows businesses to adopt new technologies and business processes without having to invest in additional hardware and software.
No matter what the size of the organization, an IT budget is essential to keep technology spending in check and to yield the appropriate return on investment. Where the big corporations may have one view of IT spending, SMBs need to focus on technology spending that yields immediate returns, helps them compete, and lays the foundation for future growth.
Why You Need an IT Budget
When considering how to approach an IT budget for your SMB, think about why you need a technology budget in the first place. This will help you focus on what’s important and where you should invest in technology. There are various reasons why any SMB (or any business) should carefully budget IT spending:
To control costs – You need to have a plan to actually spend money on IT, including new hardware, software, and training. With a budget, you can be sure the necessary funds are available when you need it, rather than having to find the necessary cash at the last minute.
To upgrade equipment – One of the ongoing challenges with any technology is obsolescence. For example, if you don’t plan for hardware upgrades, then you won’t be able to run the next-generation software you need to run your business. And if you don’t keep software licenses current, the cost to upgrade later on becomes more expensive because it will likely require more computing power and more training, as well as higher software costs. Identify those IT components that are critical to your operations and allocate funds for timely upgrades.
To maintain productivity – Your employees need the necessary tools to be productive. That may mean upgrading office computing systems, or it may mean you need to create a budget for new tools, such as mobile computing, or to outsource IT services. Having the necessary technology to keep employees productive will yield returns in greater productivity and, ideally, in greater profits.
To promote predictability – If you create an IT budget it eliminates much of the guesswork from operations. Things such as necessary upgrades or new hardware and software acquisitions can be planned in advance, so there are no surprises when it comes to technology costs.
To plan for future growth – Creating an IT budget also helps you lay a foundation for growth. For example, is it better to invest in computing hardware to meet a short-term need, or will you need more computing power for a project on the horizon? Is it better to spend more now, or wait until you are ready for a bigger upgrade? Will you be able to amortize today’s technology investment before you need to buy next-generation technology? Is there a service or platform that you can adopt today that will grow with your needs?
To give managers operating budgets – Creating an annual IT budget also helps your management team plan for their needs for the year. It forces them to assess their departmental computing requirements and put together their “must have” and “nice to have” requests for new and replacement technology.
To define your company’s vision and strategy – Perhaps more than anything else, focusing on your IT budget also forces you to think about strategic goals. Your IT budget is part of a larger roadmap to company growth, showing you where you need to invest to acquire the technology needed to reach your long-term objectives.
Don’t think of technology investment as an operating expense or capital overhead. Instead, think of technology as a strategic investment in business growth. Determine where your IT investment will do your business the most good, both now, and into the future.
If you aren’t sure how to allocate technology spending, ask for help. A managed services company like NSI can work with you to refine your computing needs and help you make the right investment at the right time. Consider outsourcing routine IT tasks, such as systems backup and printer service, which gives you greater reliability and predictable expenses, freeing other dollars for technology investment.
More strategic services, such as new software or cloud services, can be planned out with expert help, including a more accurate idea of costs. For example, your business’s technology strategy might be better service with cloud computing than new hardware and software, and an IT consultant can help weigh the pros and cons, and the expense. Expert advice can save your business a lot of money and still lay a strategic foundation for the future.