Crafting an effective IT budget does more than establish how much money you can expect to spend on information technology hardware, software, and services. It allows your business to invest in the latest technology so you can become more efficient and competitive.

Unfortunately, a lot of SMBs fall short when they try to create their IT budgets.

You can improve your budget’s accuracy and effectiveness by following these 6 steps.

1. Review Your Current IT Budget for Needed Changes

Don’t make the mistake of assuming that you can reuse your IT budget from year to year. The amount of money that you spend may increase or decrease depending on your previous investments.

For instance, if you spent $10,000 last year buying new computers for your employees, then you won’t need to worry about purchasing new PCs for at least three to five more years. You may decide to drop that line from your budget or redirect the money to another expense.

Look at that – free money.

If it has been several years since you purchased new devices, then you may need to add that line to make sure your employees have robust computers that work quickly.

Regardless of whether your overall budget increases or decreases, you need to review your current IT budget to detect the changes that you want to make.


2. Consider Several Financing Options Before Finalizing Your IT Budget

Your company doesn’t necessarily need to purchase equipment and software. You have other financing options that could influence how you allocate your IT funds. Some of the most popular financing options include:

  • Lease-to-buy, which spreads the cost out over several years.
  • Pay-per-use, which could help you save money on software and SaaS that you don’t use regularly.
  • Deferred financing, which lets you avoid paying for a certain amount of time.

You may need to speak with your company’s accountant to help you decide which financing options are best for you at this time.

3. Talk to Your Staff Members About Their Needs and Expectations

As a business manager or owner, you don’t experience IT the way that your staff does. Take some talk to them to gain insight into areas where your previous IT spending succeeded and failed.

After talking to your staff, you may discover that your data analysts think the network works too slowly. Maybe your sales representatives want an application that will automate some customer relationship tasks. You might even discover that people want access to more cloud-based applications so they can work remotely.

In other words, you never know until you ask.

You can also challenge your managers and staff to find areas where they could cut expenses.

After all, why pay for a service that your team seldom uses?

4. Set Aside Money for Research and Development

Today’s technology changes so rapidly that it’s nearly impossible to predict what trends will emerge a year from now.

While you cannot predict the future, you can spend money on research and development that helps you choose tools that will benefit your business. Too many businesses build their budgets around their current IT needs.

Including an expense line for research and development gives you a chance to evolve quickly and stay ahead of your competitors for the future.

If you don’t account for R&D, then you could find yourself facing unexpected expenses that undermine all of the work you put into creating an effective IT budget.

Another safe bet is to partner with a managed service provider that can stay on top of this kind of stuff for you – saving you time and money in the process.

5. Decide When You Plan to Spend Money on IT

Most companies have revenues that fluctuate throughout the year.

Depending on your industry, your company may earn most of its money during a certain financial quarter. Look closely at your expected revenues so you can plan on when to spend money on IT.

In short, timing when you should spend money can matter quite a bit.

If you buy new servers during the first quarter, when you rarely earn much money, then you may have to rely on credit. The interest from using credit will change the overall amount that you spend buying those servers.

If you can plan to purchase expensive equipment during a quarter when your company has plenty of money flowing in, then you can potentially avoid interest and other fees that make your IT budget look (and feel) bloated.

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6. Meet With a Consultant to Review Your IT Budget

Before you finalize your IT budget, you should sit down with a consultant to go over every line. Consultants have the advantage of working with numerous companies. You may not know how much your competitors plan to spend on IT next year, but your consultant has a good idea.

Consultants are also good at questioning the value of expenses. You may want to move more applications and data storage to the cloud, but that doesn’t necessarily mean that now is the right time to make that move. An experienced consultant will ask what ROI you expect. If your expectations do not match reality, then your consultant will let you know.

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Final Thoughts

Building a budget takes a lot of time, effort, and research. It is, however, one of the most important things that you can do to prepare for the upcoming year. As long as you follow these steps, you should find that you can craft an effective IT budget that serves your business well.

Want to keep reading? Check out How to Spot a Bad IT Service Provider.