IT spending can feel like a black hole. You put money in, things break, you put more money in, something else breaks. It’s hard to plan when you’re always reacting to problems.
But it doesn’t have to be that way. With some basic planning, you can turn IT from a constant expense into a strategic investment. You can budget for what you know is coming, set aside money for emergencies, and make informed decisions about when to spend and when to wait.
We’ve helped businesses create IT budgets that actually work. Not complex spreadsheets with hundreds of line items, but practical plans that account for the reality of running a small business. Here’s how to do it.
Start With What You’re Already Spending
Before you can plan for the future, you need to understand the present. Go through your bank statements and credit card bills from the last year and identify everything IT-related.
Hardware purchases (computers, printers, servers, network equipment). Software subscriptions (Microsoft 365, accounting software, industry-specific tools). IT support contracts. Internet and phone services. Cloud storage. Backup services. Security software. Everything.
Add it all up. That’s your baseline. You’re probably spending more than you think, and that’s normal. IT costs add up quickly when you’re not tracking them.
Now categorize it. What’s recurring (monthly or annual subscriptions)? What’s one-time purchases? What’s support and maintenance? This gives you a picture of where your money is going.
Plan for the Known Expenses
Some IT expenses are predictable. Software subscriptions renew annually. Internet and phone bills are monthly. Support contracts are usually annual. These are easy to budget for.
But also think about equipment replacement. Computers don’t last forever. Most business computers need replacing every 3-5 years. If you have 10 computers and they’re all 4 years old, you’re probably looking at replacing them in the next year or two. That’s a known expense you can plan for.
Create a replacement schedule. When did you buy each piece of equipment? When will it likely need replacing? How much will that cost? Spread that cost over the years leading up to replacement, so you’re not hit with a huge bill all at once.
Also think about growth. Are you planning to hire more staff? That means more computers, more software licenses, more everything. Factor that into your budget.
Set Aside Money for the Unknown
No matter how well you plan, things break. Hard drives fail. Network equipment dies. Software needs emergency updates. You need a contingency fund.
We usually recommend setting aside 10-20% of your IT budget for unexpected expenses. If your annual IT budget is £10,000, that’s £1,000-2,000 for emergencies. It might seem like a lot, but when something breaks and you need it fixed immediately, you’ll be glad it’s there.
This contingency fund also covers opportunities. Maybe a great deal comes up on equipment you need. Or maybe you discover a security issue that needs immediate attention. Having money set aside gives you flexibility.
Prioritise: What Actually Matters?
You can’t afford everything, so you need to prioritise. We usually think about IT spending in three categories:
Critical is stuff that keeps your business running. Security software, backups, internet connection, core business applications. If these fail, your business stops. These get funded first.
Important is stuff that makes your business run better. Faster computers, better software, improved infrastructure. These improve efficiency and productivity, but the business can function without them (just not as well). These get funded if there’s money left after critical items.
Nice to have is everything else. The latest gadgets, experimental software, nice-to-have features. These get funded only if there’s money left after everything else.
When you’re deciding what to spend money on, ask: “What happens if we don’t do this?” If the answer is “the business stops working,” it’s critical. If the answer is “we’re less efficient,” it’s important. If the answer is “we’d like it,” it’s nice to have.
Understand Total Cost of Ownership
The purchase price is only part of the cost. When you’re budgeting for IT, think about total cost of ownership.
That new computer costs £800, but you also need software licenses (£200), setup time (maybe £100 if you’re paying someone), and ongoing support. Over 4 years, you might spend another £200 on repairs and maintenance. So that £800 computer actually costs £1,300 over its lifetime.
Cloud services are the same. The monthly subscription is obvious, but what about setup costs? Training? Integration with existing systems? These hidden costs add up.
When you’re comparing options, compare total cost of ownership, not just purchase price. The cheaper option isn’t always cheaper in the long run.
Plan for Security (Because You Can’t Afford Not To)
Security spending is often the first thing cut when budgets are tight. But that’s backwards. A security breach costs way more than prevention.
Budget for security software, regular security audits, employee training, and keeping systems updated. This isn’t optional. It’s insurance. You might not see the value until you need it, but when you need it, you really need it.
We usually recommend allocating 15-25% of your IT budget to security. That might seem high, but security incidents are expensive. Prevention is cheaper than recovery.
Consider Leasing vs. Buying
For expensive equipment, leasing can make sense. It spreads the cost over time, which helps with cash flow. And at the end of the lease, you can upgrade to new equipment without a big upfront cost.
But leasing usually costs more in the long run. If you can afford to buy, buying is usually cheaper. Leasing makes sense if cash flow is tight, or if you need to upgrade equipment frequently.
For software, subscriptions are usually the way to go. You get regular updates, support, and you’re always on the current version. The old model of buying software once and using it forever is mostly gone, and that’s probably for the best.
Review and Adjust Regularly
Your IT budget isn’t set in stone. Review it quarterly. Are you spending more or less than planned? Why? What changed? Adjust accordingly.
Maybe you discovered a new tool that saves money. Maybe equipment is lasting longer than expected (or shorter). Maybe your business needs changed. Regular reviews keep your budget realistic and useful.
Also, technology changes. Prices go down. New options become available. What made sense six months ago might not make sense now. Stay flexible.
Get Help When You Need It
IT budgeting isn’t something you have to do alone. An IT consultant can help you understand what you actually need, what you can skip, and how to prioritise spending.
They can also help you avoid common mistakes. Overspending on things you don’t need. Underspending on things you do. Missing hidden costs. Making decisions based on price instead of value.
If you’re not sure where to start, or if your IT spending feels out of control, get help. A few hours of consulting can save you thousands in mistakes.
Making It Work
IT budgeting isn’t about creating a perfect spreadsheet. It’s about understanding your IT costs, planning for what you know is coming, and having money set aside for what you don’t.
Start simple. Track what you’re spending. Plan for known expenses. Set aside money for emergencies. prioritise what matters. Review and adjust regularly.
It won’t be perfect. Unexpected things will happen. But having a plan, even an imperfect one, is better than no plan at all. You’ll make better decisions, avoid surprises, and turn IT from a constant expense into a strategic investment.
If you need help creating an IT budget that works for your business, get in touch. We’ve helped businesses plan their IT spending and make smart technology investments and can help you too.