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Determining The Right Budget for Your Small Business IT Spend

  • November 29, 2021

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Small businesses tend to spend a larger percentage of their annual budget on information technology spending. However, it is always a delicate balancing act between keeping up with technological and industrial progress and justifying the spend to maintain financial and operational stability. While you definitely do not want to be left behind by the competition, it can be hard to achieve the perfect balance between justified IT spend and justified spend in other areas of the business that can improve your bottom line. IT Outsourcing Services can be a great resource for IT consultation and guidance in helping you nail down the most optimized IT budget for your business.

IT technology expenditure is not something that you can blindly follow the trends for. Justified IT spending depends on your unique individual business needs. Certainly it helps to have a ballpark figure in mind by knowing the average spend in your industry and for your business size - you cannot simply follow what another company has done and expect it to yield similar or necessarily optimal results. You need to make the best decision for yourself based on the limited budget you have for the problems you are trying to solve. This means having an in-depth understanding of your business processes, market trends, your options, and your company goals. Only this can help you determine exactly where you need to direct your efforts the most in IT spending in order to get the best results. 

What is Everyone Else Spending on IT?

When you are starting out to set your IT expenditure budget, it is recommended to take a look at the average IT spend of small businesses in your specific niche. Recent studies have found that small and mid-sized businesses tend to spend considerably more on IT than the larger-sized counterparts. Small businesses could often spend as much as 6.9% of their revenue on information technology, while mid-sized businesses spend around 4.1%. Large organizations, on the other hand, spent only 3.2%. You also have to factor in the aspect that large businesses can tend to be out in a smaller percentage because of scale. They simply spend a lot more in IT which ends up yielding better rates, the ability to do much of the work in-house, etc. 

Effective IT spend is more important than the number

When trying to decide on the right budget for IT, you must remember that spending the most is not necessarily a guarantee for performance. It's better to err on the side of caution and be frugal when it comes to optimizing spend on IT. It's much more important to be judicious about the right investments than spending a lot. You want the investments to reflect in your ROI and productivity. The first step towards creating a reliable technology budget involves a thorough assessment of existing infrastructure, hardware and software. While this can be done in-house, it is better to find a reliable managed services vendor who specializes in IT consulting to conduct an unbiased assessment. They will also be able to guide you on whether your budget is falling in line with your overarching business objectives. Ultimately, the right budget should be shaped by your company's specific requirements and objectives, rather than a specific industry standard. 

How will IT improve our operational and strategic agility?

Streamlined IT processes through 24/7 IT support can go a long way in improving your business stance on agility and quickly adapting to evolving market demands. Several processes can contribute to better agility. These include modifying the systems landscape, improving data quality, optimizing IT delivery processes, and improving flexibility. In order to effectively compete with your industry peers, you need to continuously monitor business and IT agility and manage them for optimal results.

How is your current IT spending related to your business goals?

Let your business objective state of mind which areas of IT need the most attention and investment. You need to be absolutely certain that each penny you spend will actually go towards moving the needle on your current business objectives. If the technology spend does not correspond to business goals, then it's time to tweak things in your budget.  

What specific IT spending can improve your ability to achieve your objectives?

For every company, there are different areas in IT that can enable them to leverage specific strengths for their industry. It's important for you to figure these out early on in the budget process so you can determine exactly how these will feed into your overall strategy.  

Are you comfortable with your level of IT risk?

Cyber security has become one of the major concerns for companies of all sizes. Irrespective of size, every single company is subject to growing cyber security risks and have significant privacy concerns regarding employee negligence or lack of awareness. In order to combat this effectively, companies need a thorough understanding of their current security posture and potential vulnerabilities. They also need to have a strong grasp of the full range of threats they may face in order to deploy a comprehensive strategy for managing IT risk. This needs to be taken into account to build an effective IT budget strategy. 

Conclusion:

Budgeting for IT spend requires core technical knowledge and a broad range of business expertise that small businesses may not have readily available. In such cases, it is really advisable to seek guidance and counseling from a reliable managed service provider in their respective business function and geographical area. This can help them with not only optimizing their IT expenditure, but also improve business agility, scale quickly, have a wide variety of technical tools and expertise available at their disposal and effectively manage and mitigate risks. Recent statistics indicate that 8 in 10 small businesses (80%) plan to outsource business functions in 2021. If you are not convinced yet, consider taking a look at this article that explains why Managed IT Services can be life-changing for your business.

About Nora:

Nora Erspamer is the Director of Digital Marketing at New Charter Technologies, a group of companies specialized in managed IT support services. She is an experienced marketer and sales strategist with a demonstrated history of working in various technology industries. Skilled in strategic campaign development, lead generation, and marketing automation software. Her blog can be found at https://newchartertech.com/blog/.

 

 

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