How to create your IT budget?

This article will teach you more about:

• The importance of an IT budget
• Defining your priorities
• The structure of an IT budget
• The difference between OPEX and CAPEX
• Tips for reducing your IT budget

As the end of the fiscal year approaches, your annual budget is finalized, and another one will take effect for the following year. Your accountants, or you yourself, as is the case in many SMEs, will review the previous year and draw conclusions.

For many entrepreneurs, an expense that often comes as a surprise is IT. Whether it's due to a cyberattack (https://pal-ti.ca/cyberattacks-definition-issues-for-small-businesses-and-most-common-attacks/), or equipment that had to be replaced, this section often presents unexpected expenses that make you shudder.

Fortunately, you don't have to live this way. By properly planning your IT budget, you'll be able to better plan for future expenses and avoid unexpected costs.

What is an IT budget?

Like a traditional budget, an IT budget is a management document that allows you to plan your IT spending for the upcoming fiscal year. It's a guide that will help you achieve your business goals while providing a comprehensive picture of your technology spending and investments.

First of all, prioritize your priorities.

Since your finances are a limited resource, it's essential that you prioritize your needs for the coming year. You can't do everything, and you need to be aware of that.

That's why, before even considering their IT budget, we recommend our clients draft their IT master plan. This is a document that details an organization's information technology strategy for the next three to five years.

By knowing which path to take in the medium term, your IT budget will be much easier to draft and will align with your business strategy.

How to structure your IT budget?

Your IT budget will be divided into two main sections: current expenses and project expenses.

Current expenses

Current expenses include expenses related to normal business activities. These expenses are generally further divided into three subsections: personnel, hardware, and software expenses.

Don't forget to include your SaaS software subscription expenses and cloud storage space, which are often left out of traditional budgets.

Project expenses

Using the same structure presented above, project expenses relate to temporary projects, such as server migration or temporary office rentals.
They are budgeted similarly to operational expenses, but are divided and categorized by similar projects. They also include services from IT service companies or IT consultants who will assist you in carrying them out.

When writing this section, also include your time, which is a financial resource. Also, include project dates; this will give you a better picture of the situation and often avoid overloading the first few quarters.

IT budget: OPEX vs CAPEX

When writing your IT budget, it is also important to distinguish between operational expenses, often referred to as OPEX (operational expenses), and capital expenses, commonly referred to as CAPEX (capital expenses).

It's recommended that you start with operating expenses and end with capital expenditures. Also, prioritize them, as the most expensive expenses will often be the ones you want to cut last.

Again, if your IT master plan has been done properly, this step should be relatively quick.

Don't forget the return on investment

Every good IT budget focuses on return on investment, or ROI. Whether the IT budget is being written for a superior or for yourself, it's essential to measure the financial impact this investment will have on the business.

Sometimes, some expenses are simply for software updates, but support will end, which doesn't seem to offer a return on investment, such as the transition from Windows 7 to Windows 10, for example. However, you can assess the risk you're taking and the potential support costs that may result.

In this situation, it is up to you to measure the risk to which you decide to expose yourself.

How to smartly reduce your IT budget

There are several ways to reduce your annual IT budget. Here are a few that can be used by any type of business.

Open source software

Open source software is software that is mostly free and offers similar features to traditional software. For example, you can use OpenOffice as an alternative to Office365 or G Suite.

Virtualization

Virtualization, which involves offshoring elements traditionally found within a company, has many advantages . Made possible by cloud solutions, you can use virtual storage space or even eliminate your in-house server.

This will simplify your IT management and save you money.

Opt for used equipment

High-quality refurbished equipment is available that can save you up to 70% on your hardware costs. In addition to being a good financial investment, this is a great way to reduce your environmental footprint, especially considering that electronic waste will reach 12 million tons per year by 2020, according to the European Commission.

Nexxo can help you write your IT budget

We realize you probably don't enjoy budgeting for IT expenses as much as we do, and that's perfectly fine. If you have any questions about this article or would like external help with your IT, please don't hesitate to contact us. We're available around the clock, even at night.