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There’s a saying making the rounds in business publications for every industry: “Every company is a technology company.”1 The advantages today’s tech can offer any business—from corner retail shops to mid-sized service companies to the biggest enterprises in the world—are simply too much to ignore. In fact, small business technology increased by a whopping 50% in 2015,2 and continues to rise as tech of all kinds becomes more essential to business operations.

So how do you start to allocate spending? How can you be sure your purchases and investments give you the momentum you need to keep growing? Rather than making blind guesses or letting industry trends pressure you into a decision, check out these steps to create a measured analysis of what you have, how much you spend, and how to predict your needs in the future.

  1. Create a list of everything you’ve purchased or subscribed to. The first step to understanding what you should plan to spend on technology is to take stock of what you’ve already spent on technology. That means creating an inventory of all the hardware and subscription-based technology solutions your business relies on every day.

    A recent study commissioned by Salesforce and conducted by Harris Poll found that 46% of a small business’ tech budget goes toward hardware like servers or laptops,3 so a bulk of your tallying will be done there. Implementing a system to document all physical hardware will not only ensure you have an accurate count, but will help your IT team when considering whether an upgrade or new purchase is necessary as they’ll know how many you already own as well as what condition they’re in.4 Document the following about every piece of equipment you have as you create your inventory:
     
    • The name, make, model, or serial number
    • Date of purchase
    • Original purchase price
    • Who uses the equipment
    • If applicable, extra information like the operating system used
    Of course, your hardware alone does not reflect your entire technology spend. You should also keep a similar inventory of any and all recurring software licensing and cloud services fees.5 Many businesses utilize software such as Adobe Creative Cloud or Microsoft Office, which are often paid for on a subscription model with monthly or annual recurring fees. Additionally, the cloud has become a prominent part of most business’ tech blend, with 92% of businesses using one or more cloud-based solutions. Your business may utilize any of the following:
     
    • Point-of-sales tech like Square
    • Cloud storage solutions like Amazon Web Services
    • CRM and marketing automation tools like Salesforce or HubSpot
    • Productivity tools like G Suite or Podio
    • Financial tools like QuickBooks Online

If you view tech as something with predictable depreciation, you can plan for how much you’ll need to spend.

Keep in mind that you don’t have to reinvent the wheel when it comes to figuring out how to keep track of all this equipment and software. There are many pieces of software—some free and some paid—available that are designed specifically to help businesses make and manage a record of their tech inventories. Research your options to find a program that best suits your needs and preferred method of tracking.

  1. Figure out your average annual technology spend. Now that you have a clear understanding of what you own and use, it’s time to figure out what you spend on it over time so you can get a sense of your current annual technology budget.

    First, the easy part: your software and cloud subscriptions. Since these are already paid for on a subscription basis, you can easily add up all your monthly costs, multiply them by 12, add in any annual costs, and arrive at your annual spend for this portion of your technology usage.

    Second, when it comes to hardware, you can take a lot of guesswork out of calculating cost over time by looking at the IRS standard depreciation rates. As an example of this, the IRS has set the depreciation rate for “computer and peripheral equipment” to be five years.6 That means you’ll be able to write off 20% of the purchase cost of the equipment on your yearly income tax for each of the first five years you own it. In other words, if you purchased a $1,000 laptop in 2014, you can use depreciation schedules to spread that $1,000 one-time cost out over a five-year period for tax purposes, writing off $200 per year through 2018. Likewise, by looking at the depreciation schedules for each piece of hardware in your inventory, you can spot trends over 1, 2, or even 5 years and derive an average annual hardware spend per year.
     

    46% of a small business’ tech budget goes toward hardware like servers or laptops.

    Business owners challenged this timeline in 2000, lobbying Congress to revise the depreciation rate on technology hardware to reflect the changing reality of the digital economy. Their efforts were ultimately unsuccessful,7 and given that studies have shown the average age of business computers in 2017 to be 4.38 years,8 the five-year definition isn’t that far off. That said, be sure to balance what you find from the IRS with your own practical experiences; for example, if you know you use mobile devices a lot more than PCs (many companies now do9), maybe you shouldn’t expect every piece of tech you own to last five years.

    Once you’ve combined both hardware costs and recurring subscriptions into an easy-to-digest budget, you should take one last step and compare it with other companies in your industry. This will help you ensure your spend is in line with others who do what you do. Speaking to peers is a good start to get a sense for what other companies in your industry spend, and you may consider looking into industry tech spend trends to see where you stack up.
     

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Prepare for anything

Though you can use tools like the IRS depreciation schedule or competitor data to predict your upcoming costs, unknown emergencies still lie ahead. What will you do if something breaks? How can you accommodate risk into your technology budget? Part of the answer may be found in the ongoing debate between two IT management models: break-fix and managed services.

For some time, the traditional default for companies has been break-fix. In this model, companies pay IT providers for individual repairs if and when something breaks. For a company with only a few employees, this approach may make sense. However, the future of IT solutions seems to be heading in the direction of managed services. With a managed service provider, your system is monitored 24/7 and technicians are immediately dispatched (either remotely or locally) to assess and fix your issue. But instead of paying the provider for individual repairs, your company allots payment for a subscription fee that covers all costs of any repair. This shifts the burden of pricey repairs, such as recovery following a cyber-attack or replacement of key hardware.

The business world has recognized the potential savings that could come from a shift toward managed services, with a recent study showing 64% of organizations using some form of managed services.10 Additionally, further research over the course of a three-year study showed the implementation of managed services provided as much of a 224% ROI.11 With these savings in mind, it’s easy to see how incorporating something as simple as managed services may allow you to plan for even the most disastrous of IT situations. One can’t be expected to predict the seemingly-endless growth of technology, nor to avoid technical failures or natural disaster.

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Technology offers small businesses the opportunity to find new efficiencies and innovations at every turn. But the amazing potential is offset by unpredictability and the need to scale at a moment’s notice. With increasing demands for integration and mobility, and the constant need to monitor for threats and technology performance issues alike, it can be tough to know what line items you’re overestimating and which are the pitfalls ahead. If you’re simply spending the same amount on your tech budget as you did last year, it’s safe to say you’re living moment to moment. But by maintaining detailed records of your inventory, measuring your yearly spending, and planning for any possible disaster, you can stay in pace with technology as it grows to serve you and your business. You won’t be saddled with any mistakes possibly made in your last tech budget. Instead, you’ll be able to flourish, stand out, and find strategies to plan ahead.

1 https://www.forbes.com/sites/forbestechcouncil/2017/01/23/why-every-company-is-a-technology-company/#6b35bb5957ae

2 https://www.insight.com/en_US/learn/content/2017/02232017-these-small-business-technology-statistics-are-surprising.html

3 https://www.salesforce.com/assets/pdf/smb/Connected-Small-Business-Research-Report-2016.pdf

4 https://blog.kinaxis.com/2015/06/inventory-management-technology-enablers/

5 https://www.assetpanda.com/it-asset-inventory/

6 https://www.irs.gov/faqs/sale-or-trade-of-business-depreciation-rentals/depreciation-recapture/depreciation-recapture

7 http://lobby.la.psu.edu/085_computer_depreciation/summary_depreciation.html

8 https://www.statista.com/statistics/267465/average-desktop-pc-lifespan/

9 https://www.gartner.com/newsroom/id/3568420

10 https://www.comptia.org/resources/2016-managed-services-buying-guide

11 https://www.ibm.com/midmarket/de/de/att/pdf/IDC_Whitepaper_2013_Business_Value_of_Managed_Services.pdf