Small Business IT Budget: What to Include and How to Plan It
Many small businesses do not have an IT budget. They pay for computers when one dies, subscriptions when a card is charged and support when something breaks. The result is surprise costs and no clear picture of what technology costs the business. A simple budget fixes that, and it does not need to be complicated.
There is no standard number
You will see rules of thumb about a percentage of revenue, but they vary so widely between industries and businesses that they are not much use here. A dental office with imaging equipment and patient records has different needs from a small consulting firm. Build your budget from what you actually have and need, not from an average.
Start with a complete inventory
List everything: computers, phones, servers, network equipment, printers, software, cloud subscriptions, domain names, internet and phone services, and who uses each. Note the age of each device and the renewal date of each subscription. This list is the base of the budget. Many businesses find subscriptions they forgot they were paying for.
The categories a small business IT budget should include
Computers and equipment. Plan to replace computers on a schedule, typically every four to five years, spread across years rather than all at once. Include network equipment, which also ages. See our post on how long business computers last.
Software and cloud subscriptions. Email and Microsoft 365, accounting, practice or industry software, design tools, antivirus and others. These usually charge per user per month, so they grow with your headcount.
New employees and departures. Each new hire needs a computer, accounts, licenses and setup time. Each departure needs accounts closed and equipment recovered. If you are growing, budget per person.
IT support. Decide how you will pay for it: an in-house person, a call-out arrangement when things break, or a managed IT provider. Managed IT is often priced at a flat monthly rate so you know the cost. Our own is a flat monthly rate set per user or per device. Whichever you choose, include the cost of after-hours emergencies.
Cybersecurity. Email protection, endpoint protection, multi-factor authentication, staff awareness and a way to watch for problems. This is where underspending is most costly.
Backup and recovery. Backup storage, backup of your cloud data such as Microsoft 365, and restore testing. See backup and disaster recovery.
Insurance and compliance. Cyber insurance premiums, and costs for any compliance work you need, such as HIPAA or PCI-DSS assessments. Insurers’ requirements can drive spending on things like multi-factor authentication and monitoring.
Internet, phones and Wi-Fi. The connection, the phone service and the equipment that supports them, including any backup connection.
Projects and the unexpected. One-off projects such as an office move or a software change, and a reserve for emergencies, since something will break.
Turn the inventory into a plan
- Put each item on a calendar. Note when each computer will need replacing and when each subscription renews.
- Separate recurring from one-time costs. Monthly and annual subscriptions are predictable. Equipment and projects arrive in lumps.
- Add a reserve for the unexpected, as a separate line you can see.
- Add the total up per year, and per employee. The per-employee view makes it easier to compare year to year and plan for growth.
- Rank the spending. Some costs are fixed, some protect the business and some are nice to have. When money is tight, know which is which.
- Review it every quarter, and fully once a year, and update it when you hire, move or change systems.
Where businesses underspend
The areas that are cheapest to skip and costliest to regret are security, backup and the replacement of old equipment. An unsupported computer, a backup that was never tested or a missing second sign-in step can cost far more than the small amount saved. See our post on what end of Windows 10 support means for one example of a cost that arrives on a date.
Getting a number you can trust
A budget is only as good as the inventory under it. Our managed IT services cover day-to-day support and hardware, from purchasing to warranty services, for a flat monthly rate. Our vCIO services include help with budget forecasting and IT financial cost analysis. A free network review is a good first step, and you can contact us to talk it through.
Frequently asked questions
How much should a small business spend on IT?
There is no reliable standard. It depends on your industry, size, equipment and risks. Build the number from an inventory of what you have and need, then compare year to year.
What should be in an IT budget?
Equipment, software and cloud subscriptions, support, cybersecurity, backup, insurance and compliance, internet and phones, new hire and departure costs, projects and a reserve.
Is managed IT more expensive than paying when things break?
It can look that way, but it is predictable and includes monitoring and maintenance that reduce breakdowns. Compare against your real call-out costs and downtime over a year, not a single repair.
How often should we review the budget?
Quarterly for a quick check, and once a year in full. Update it whenever you hire, move or add a major system.
Where do small businesses most often underspend?
Security, tested backups and replacing old equipment. They are easy to postpone and expensive when they fail.
