Business-Startup-Tech-102

Last month, I promised an article with budgeting data, recommendations, and excitement. Here it is: how much, why, and what businesses budget for technology. My only request is that you make it past the “How much” section to get to the exciting “Why” and “What” sections, enabling you to create a proper budget that is a recipe for your business success.

How much should I spend on IT?

There are surveys taken every year by CIO magazine, Gartner, and many other very reputable market research firms that are often publically available (though sometimes not). I recommend you read the summaries. If you are in a specific industry, look for guidance at a specific organization that tracks this type of data. The following are a few examples of these reports.

Health care specific:  MGMA Cost and Revenue Survey lists $20,693 per FTE physician in 2014.

Non-Industry specific, percentage: CIO Magazine’s State of the CIO survey for 2013 lists technology spending at 5.2 percent of annual revenue.

Non-industry specific, cost per employee: Computer Economics has a free annual IT Spending and Staffing Benchmark that states the costs of IT have come down in recent years to $7,581 per employee per year.

Technology is not a one-time or up-front investment. It’s every year, just like marketing or sales. I recommend that customers budget an amount equal to 4 to 6 percent of your top line revenue. If your business is in a state of rapid growth, in need of an overhaul, or recovering from prior budget cuts, then 5 to 7 percent would be a better choice. Spend too little and your day-to-day business processes will be affected. Spend too much and you might be wasting that hard-earned revenue.

Why would I spend this?

After completing the math from above, many of you might say, “Why would I spend that much on technology?” There are some great reasons that I think you’ll agree with.

  1. Return on investment: Technology is an investment which will return results based on what you purchase. Spending less often costs more over the lifespan of the investment, so be careful when choosing only based on lowest price.
  2. Profitability: Technology that is always working with optimal performance increases profitability by improving productivity and reducing costs.
  3. Customer satisfaction: Everyone will agree that the customer is always right. If that means speeding up their checkout process, making sure they don’t have to wait for staff to look up their account, or providing public Wi-Fi when they have to wait, then they are correct.
  4. Competition: We all face competition, but someone always wins. Technology enables smaller businesses to compete with larger ones and provides your business with advantages over your competition.
  5. Reputation: Accidents happen in the technology world, but I have yet to meet a company that would like to call all of their customers and say, “Your credit card was stolen,” or “How much do you owe us? We lost our billing system.”

These are just a couple examples.

What should I spend my budget on?

Now that we have your shiny new budget numbers fresh in that spreadsheet, how do you break that down? This is a list of the items that should be included in everyone’s budget.

  1. Hardware: Commercial grade hardware with a warranty that matches how long you would like to keep it in your fleet (three to five years). These computers, servers, and networking gear enable your business to make money, so no consumer products allowed.
  2. Internet and communications: I recently wrote an article about Fiber availability in Columbia, and internet and phone should be evaluated at the end of each contract, as pricing and features often change. Spending more on internet and communications enables reduced spending in these other areas.
  3. Software: Business today runs on software that accesses customer data. These applications should allow you to make more revenue or decrease your cost per unit, allowing you to increase profits. If yours doesn’t do this, get rid of it.
  4. Security: This is becoming more and more important as hackers keep going after businesses of all sizes, sometimes even targeting small businesses because of inadequate security. Make sure you or your technology advisor never says, “We can get by with this” when talking about security investments.
  5. Data: This is the lifeblood of your organization; you need to treat it this way. You can’t afford to lose customer records, patient information, or billing data, all of which often have potential legal ramifications. Make sure you invest in securely storing your data, backing it up, and knowing how long recovery takes.
  6. IT management: The goal is uptime, performance, and predictability. Whether you are hiring full time staff or outsourcing, make sure you define success and track against the results. Proper IT management should help make technology investment decisions for long-term results.

Technology is an investment in your business and one that can be very rewarding by giving your business the ability to grow, increase profitability, and compete locally or worldwide.  Budgeting for your technology and sticking to the budget is the path to predictable results and costs for your business.

 

Matt McDermott is the owner of 43Tc and a guest writer for CBT. 

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