skip to Main Content

IT Budgeting For Your Business: When Does Cost-Cutting Hurt?

IT budgeting cost-cutting“Do more with less” — when it comes to IT budgeting, this is one of the most common marching orders CIOs and IT managers get. It comes as no surprise that the budget of an IT department is one of the first to get arbitrary cuts when accounting firms are trying to reduce its operating expenses. This is quite ironic given that many aspects of an accounting firm’s day-to-day tasks need technology to get done.

IT Budget Cost-Cutting: Why Is Technology A Perennial Target?

Roman Kepczyk, a Certified Information Technology Professional (CITP) and Certified Public Accountant,  believes that constantly cutting IT budgets  is an aftermath of the recession:

Since the economic downturn of 2008, we have seen consistent pressure on firm IT spend, which permeates in underspending in many firms still to this day! Not only were those IT personnel constantly battered to justify any expenditure; many were pushed to extend the life of equipment beyond recommended lives (which inadvertently increased IT maintenance and stability), while at the same time delaying the purchase of needed technologies and applications that would have made the firm operate more effectively, but instead put the firm behind.

Here’s another theory we can offer. Among accounting firms, IT is not considered a profit center, which means it does not directly contribute to the revenue growth of the firm. While this is true, technology impacts almost all facets of modern-day accounting.

The Best Way To Save Money On IT: Leave The Break-It Fix-It Trap With Your “IT Guy” And Partner With A Managed Services Provider

If you’re not entirely clear what managed service providers do, start with our guide for understanding managed services. In a nutshell – you can have someone in-house or an IT company you call who shows up every time something breaks or isn’t working, and lose thousands of dollars in employee productivity and forever be stuck in a reactive IT support trap (think: break it, fix it, break it, fix it…) versus partnering with a true managed services provider who takes a proactive approach to IT support – asking you questions and analyzing your current systems to prevent servers going down, or technology breaking and losing data before it ever happens.

So get rolling on partnering with a managed service provider. From there, you’ll to be able to partner with an expert who can lead the conversation and differentiate between smart budgeting and unwise budget cuts.

IT Budgeting Mistakes: The Top 3 Cuts That Hurt

So, how do you know if you’re doing more harm than good? Overall, cutting your business’s budget is bad if there are many opportunity costs involved. Ask yourself the following 3 questions:

  • Does this cut save me money but makes my employees less effective and efficient?
  • Will this affect the quality of service my firm’s clients will be getting?
  • Is this cost reduction going to give other firms a competitive advantage over mine?

Specifically, these are the top 3 cuts that hurt SMBs:

1. IT Budgeting — Cutting Costs That Affect Long-Term Business Objectives

it budgeting long term goalsToo often, companies try to cut immediate IT costs, compromising future IT capabilities.  This IT budgeting mistake makes it more difficult for firms to achieve their long-term business goals. Across the board IT budget cuts without taking into consideration workload, process improvements

Across the board budget cuts, without regard to workload, automation or process improvements will end up costing your business more money in the long run. Proactive IT monitoring advocate Abdul Jaludi cites the example of a company that experienced a significant drop in employee morale and productivity after an IT budget cut. Three years down the road, the company had to increase its IT budget to an amount that is thrice the national average just to regain a normal level of productivity.

2. Allocating The Bare Minimum For Cybersecurity For IT Budgeting

In 2016, the US government cut funding to protect against cybersecurity attacks despite the mounting evidence that it’s going to worsen. According to Juniper Research, the total financial loss to cybersecurity attacks will surpass $8 trillion by 2022.

Don’t make the same mistake for your business. While your SMB may seem like a less obvious target compared to other institutions like banks, a data breach doesn’t only put your business’s data security in quandary. It also jeopardizes the data credibility of your clients. The investment your business allocates on the correct IT infrastructure and personnel training is worth every penny. Smart IT budgeting should never compromise cybersecurity at any cost.

3. Skimping On New Technology

IT budgeting accounting firms managed servicesFirst, a disclaimer. Your business doesn’t need every shiney, glittery latest and greatest software for everything.

However, there are certain advances in industry-specific technology that you need to be aware of. Smart IT budgeting for your business — or smart leadership general — involves being aware of these technologies and which ones you should invest on.

For example, blockchain technology has been a hot topic among accounting leaders since it became popular with the rise of Bitcoin and other cryptocurrencies. The applications of blockchain in accountancy are obvious, yet according to a survey, 71% of businesses don’t have anything planned related to blockchain for the next 12 months.

However, we understand that acquiring new technology doesn’t come cheap, especially if your business is operating on lean resources.

One solution to this is for your firm to take a “reserve” approach to IT budgeting. Every year, allocate a certain amount that will go to a reserve fund that you can then use when the need arises. Consider this as your innovation purse so you don’t need to scramble for funds when you need a new piece of tech for your business.

IT Budgeting: To Cut Or Not To Cut? That Is The Question

Technology is now a vital element in the day-to-day operations of your business and you need to budget for it. When you use a strategic approach to IT budgeting for your firm, you create a planning and decision-making tool that can help you get the most benefits out of your IT investments. A good IT budget not only gives your firm the ability to meet your IT needs in both the short and long term. It also gives you enough flexibility to adjust your IT spending to adapt to the changes in your business environment.

Like any business, you will face situations wherein you would need to reduce your IT spending. Just make sure you’re making the right cuts.

Back To Top