How to create an IT budget

How to create an IT budget

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Your IT department keeps your business running in today’s digital age, so it’s critical that they have the resources they need to keep the lights on. In this article, we’ll outline the six steps you need to take to conceptualize, create, and execute an IT budget that serves your business strategy. Let’s go!

1. Audit your current IT budget

Do you know what you’re currently spending on IT? You need to begin with a thorough audit of your IT budgets for the past six months (or, ideally, a year) down to the penny. If you haven’t used a formal budget, just try to parse out all of the expenses your business has made which would fall into the IT budget.

Consider the following questions:

  • What are we spending on IT right now?
  • What are your fixed costs in IT?
  • What are your variable costs in IT?
  • Have we outlined discretionary expense examples?
  • Who are our regular or authorized IT spenders?
  • Have we stayed within spending goals or budgets?
  • What are our current goals in IT?
  • Do we have an emergency fund?

This is a critical baseline to lay before you dive into more complicated strategy and mathematics that will inform your future IT budget creation.

2. Compare with other IT budgets

You shouldn’t make major decisions based only on what your competitors are doing, but it’s important to make sure you’re on the right track. Severely overspending or underspending on your IT annual budget is an indication that something is off, and that you may need to refine your IT spending strategy.

One important consideration is that smaller businesses actually spend more of their revenue on IT than larger businesses. According to TechTarget, small businesses spend 6.9% of their revenue on IT, while larger companies spend only 3.2%. The study also revealed that spending more on IT isn’t always indicative of performance, and in fact successful businesses are careful with their IT spending.

Just because others are spending less on their monthly budget, doesn’t mean you have to trim (so long as you’re still a small, growing business). But you also should consider that other companies spending less could be out-performing you. Compare your IT spending with businesses that are your same size, as well as businesses in your same industry.

3. Identify needs and goals

Your budget doesn’t exist in a vacuum, and the whole goal of a budget is to help you access the resources you’ll need to execute your business strategy. Before you start doling out funds, you need to work as a team, top-down and bottom-up, to discuss your overall goals and the best way to meet them.

Get clear on business strategy

Does your company have a mission statement? Clearly defined OKRs? Involve the executive team for the big-picture goals and overall strategy, but also include the feedback of IT employees for more ground-level goals to keep things running smoothly and for realistic execution of the strategy.

We recommend setting explicit OKRs (objectives and key results) so everyone is on the same page about where the company is headed. Your OKRs will make it easier to determine project budget breakdowns and sub targets for monthly fixed expense goals. This will come in handy when it’s time to outline discretionary expenses—trust us.

Look for gaps

When you know what you’re already spending and using, you will inevitably start to identify some of the gaps in your IT budget. As you work with your executive team and IT crew on OKRs you’ll start to see the outlines of a roadmap. What do you need, right now, to meet those goals? Your list of needs might include hardware, software, additional licenses, hiring needs, raises, and workplace assets. These needs should be factored into your annual budget, even if they won’t always show up in monthly budgets or fixed expenses.

Be smart

It’s tempting to balance your boring monthly income budget with more exciting wish list expenses. But smart financial leaders will pay closer attention to the invisible or unsavory aspects of your variable expenses. Debt repayments, recurring expenses, unexpected expenses, and emergency funds are important elements to any IT business budget.

4. Improve budget tracking

Your budget will start to take shape as you’ve worked through the preceding steps, but it won’t mean much unless you can see it in action. It’s time to nail down your data collection and analysis as it pertains to your budget and asset management.

Here’s how you take your IT budget tracking to the next level:

  1. Create an initial business budget
  2. Utilize accounting and expense management software to track all spend
  3. Invest in asset management tracking software (or create your own method)
  4. Start using virtual cards and corporate cards for every employee to increase visibility and security

The needs of IT are different than most of the departments within the company, so don’t be afraid to change the way your specific team does budgets and expenses.

5. Get team buy-in

We’ve mentioned this in nearly every step, and that’s because it’s a key piece of budgeting strategy. Without team understanding and buy-in, your budget is simply a hypothetical list of numbers. For a successful budget, you need input and understanding from the people who will actually be using it.

Gather feedback from your IT team about their priorities, wish list purchases, how they spend, and what they understand the overall company goals to be. You can and should control budget spend, but it’s best if your team actually wants to fulfill budget expectations.

6. Set a cadence for communication & iteration

Please don’t set-it-and-forget-it. Your IT budget should be flexible and ongoing. Set up regular budget checks—that means not after the quarter has concluded. Review budgets monthly at the very least, but ideally each week. Take note of budgets which aren’t being used, or the ones repeatedly going over-budget. What will you do with a surplus? Which budgets can back up the ones most likely to go over?

Seek feedback and other communication from your IT employees at a regular cadence which makes sense for your business. Be sure to actually incorporate the reasonable feedback you receive—or you’ll stop getting feedback altogether. At least once a year we recommend that you conduct some basic corporate budgeting exercises to look at your spending with fresh eyes.

An IT budget that works

These steps (repeated as necessary) can help you create a strategy and budget that doesn’t leave you flying blind in the world of hardware and software. As your company grows, it becomes even more important to manage your IT needs. We’re here to support you through it.

Expense management software that manages budgets, automatic expense reports, and flexible credit. Did we mention it’s free? Sign up for everything BILL has to offer today.

The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided "as-is"; no representations are made that the content is error free.