How to build a sensible IT budget for the year ahead

Start with what you have

Before putting numbers on anything, list your IT. Include every laptop, desktop, server, printer, firewall, switch and Wi-Fi access point, along with its age and warranty end date. Add every software subscription and who uses it. If you have an IT provider, they should be able to produce this list from their records; if not, a walk around the office with a spreadsheet works.

This list is the foundation of the budget. It shows what will need replacing, which licences are actually in use and where you are paying for things nobody needs. Many businesses discover unused subscriptions and licences for staff who left months ago, which pays for part of the exercise straight away.

Running costs

Running costs are the predictable monthly items: IT support or managed services, internet and phone services, cloud subscriptions, backup services and security tools. These are usually priced per user, per device or as a flat fee, so they are easy to forecast once you know your headcount for the year.

Factor in expected growth. If you plan to hire three people, include their licences, support and equipment from their likely start dates. If staff numbers might fall, check how quickly you can reduce subscriptions, as some are annual commitments that cannot be cut mid-term. Annual billing can be cheaper per month but reduces flexibility, so weigh the saving against how certain your headcount is.

Hardware replacement

Laptops and desktops typically last three to five years in business use, depending on how hard they are worked. Servers, firewalls and switches often last longer, but they still reach end of support, when the manufacturer stops issuing security updates. Plan replacement before that point rather than after a failure.

Spreading replacements evenly is easier on cash flow than replacing everything at once. If you have twenty laptops on a four-year cycle, budget for about five a year. Leasing is another option for businesses that prefer a steady monthly cost to a lump sum, though the total over the term is usually higher than buying outright. Whichever approach you take, the asset list tells you when each item is due.

Licences and price changes

Software licensing is easy to underestimate. Vendors adjust prices and bundles from time to time, and some move features between plans. Rather than relying on last year's figure, check current pricing when you prepare the budget and allow a margin for change during the year. Note which subscriptions renew annually and in which month, so renewals do not arrive as a surprise.

Review whether each licence matches the person's real needs. Some staff may be on a higher plan than they use, while others lack a feature that would save them time. Getting this right can lower costs or improve productivity, and is worth doing once a year with your IT provider. Also look for overlap, such as two file-sharing services or two video calling tools doing the same job, where consolidating saves money and reduces confusion.

Projects and security

Projects are one-off pieces of work: moving to the cloud, replacing a server, setting up a new office, rolling out new phones or improving Wi-Fi. List the ones you expect this year, get rough estimates and put them in the budget with a target quarter and a note of why each one matters to the business. Spreading projects across the year avoids a pile-up of work and cost.

Security deserves its own line rather than being absorbed elsewhere. Training, multi-factor sign-in, endpoint protection, backup testing and occasional external reviews all cost money. Cyber insurers increasingly expect these controls, and the cost of a single incident often exceeds several years of preventive spending. Keeping security visible as its own line also stops it being the first thing quietly cut when money is tight.

Contingency and review

Add a contingency, often somewhere around ten percent of the total, for the things nobody plans: a laptop dropped on a tiled floor, an urgent fix after a supplier change, or a price rise mid-year. If it is not used, it can carry over or fund next year's projects. Having it set aside means an unexpected failure becomes an inconvenience rather than a cash flow problem.

Review the budget each quarter against actual spending. If you have a managed IT provider, the quarterly review is the natural place to do this. Adjust for changes in headcount, new risks and any projects that slipped. A budget that is reviewed regularly becomes a plan rather than a guess, and next year's version takes a fraction of the time to prepare.