How to build an IT budget for a small business

Start from what you spend today

Many owners look for a rule of thumb, such as a fixed percentage of revenue for IT. Those benchmarks vary widely by industry and source, and they say little about whether your spending is effective. A more useful starting point is your own records.

Pull the last 12 months of software, IT and telecom charges from your accounting system and company cards. Many subscriptions hide on individual employees' cards or are billed annually, so look for both. List each item with its monthly cost, annual cost, renewal date, owner and number of users. Most firms find tools nobody uses, duplicate products doing the same job, and seats for people who left. That list is the foundation of the budget.

Spreadsheets work fine for this. Add columns for the business purpose of each tool and whether it holds client data, and the same list becomes useful for security reviews and offboarding as well as budgeting.

The main line items

Group spending into categories so you can see the shape of it.

Hardware is easy to forget because it is bought irregularly. Estimate a replacement cycle for laptops and phones, often three to five years, and spread the cost across the budget so a batch of failing machines does not become an emergency purchase.

• Core productivity: Microsoft 365 or Google Workspace licenses for every user.
• Line-of-business systems: your practice management, field service, accounting or property management platform, such as Clio, ServiceTitan, QuickBooks Online or AppFolio.
• Supporting tools: CRM, e-signature, scheduling, document storage and phone system.
• Managed IT and support: help desk, device management, backups and monitoring.
• Security: endpoint protection, email filtering, multi-factor authentication, security training and cyber insurance requirements.
• Hardware: laptops, phones, printers and network equipment, usually replaced on a cycle.
• AI and automation: AI licenses, automation platforms and usage fees.
• Projects and advice: one-off work such as a migration, an integration or outside technology leadership.

What managed IT costs

For many small firms, managed IT is the largest single line after core software. Denver providers' published guides put fully managed IT for small businesses at roughly $100 to $250 per user per month, and one Colorado provider says pricing usually starts around $125 per user per month and moves toward $275 or more depending on scope. The range depends on what is included: help desk hours, on-site visits, security tools, backup, compliance support and strategic reviews.

When comparing quotes, ask for a line-by-line list of what is included and what is billed separately, such as projects, after-hours work or new device setup. A cheaper per-user rate that excludes security tools may cost more once you add them back.

Cyber insurance belongs in the conversation too. Many insurers now require specific controls such as multi-factor authentication, backups and endpoint protection, and the cost of meeting those requirements should sit in the security line rather than surprising you at renewal.

Budget AI deliberately

AI spending is easy to let drift. Individual staff sign up for tools on company cards, a vendor adds an AI tier to your existing software, and usage fees appear on automation bills. Give AI its own line in the budget so you can see it.

Plan it in two parts. The first is licenses for tools you have tested and decided to roll out, such as Microsoft 365 Copilot Business, which Microsoft currently lists from $18 per user per month on an annual plan as a first-year promotion. The second is a small experiment budget with a time limit, used for pilots with a few people and clear measures. When a pilot ends, either move it into the main budget with a business case or cancel it.

Watch for AI tiers added to software you already own. Several vendors now sell AI features as paid add-ons to existing plans. Before buying, check whether the feature solves a specific measured problem, and whether the same need is already covered by another tool you pay for.

Separate projects from running costs

One-off projects, such as moving to a new practice management system, building integrations or cleaning up the CRM, should be budgeted separately from monthly costs. Give each project an estimate, a target date and the measure it is supposed to improve. That makes it easier to judge afterward whether it was worth the money.

Outside technology leadership belongs here too. Market rates vary widely: published benchmarks put a traditional fractional CTO at roughly $9,000 to $15,000 a month, while narrower scoped arrangements cost less. Treat it as a project with a defined period and outcomes, not an open-ended line.

For each project, also note the running costs it will add once complete. A new integration may need its own subscription, and a migration may require a higher tier of your core system. Those costs belong in next year's running budget, decided before the project starts.

Find the waste

Set calendar reminders 60 days before each annual renewal and decide deliberately whether to keep, downgrade or cancel. Savings found this way are often enough to fund a useful project.

• Seats for former employees still being billed.
• Two tools doing the same job, such as two e-signature products or two file-sharing services.
• Premium tiers bought for one feature nobody uses.
• Annual renewals that auto-renewed without review.
• Add-ons included in a plan you already pay for, such as features in your Microsoft 365 plan.
• Automation tasks running for workflows that no longer matter.

Review the budget quarterly

An IT budget is not a once-a-year document. Review it every quarter with whoever owns technology: the office manager, operations lead, IT provider or an outside lead. Check actual spending against the plan, look at upcoming renewals, and ask whether each project is on track to deliver its measure.

Tie spending to results where you can. If you added a scheduling tool to reduce no-shows, check the no-show rate. If you paid for an integration to save admin time, ask whether the time was actually saved. InTheory begins most engagements with exactly this kind of stack review, because cutting what does not earn its place often funds what does.

Share a one-page summary with partners or managers each quarter. Seeing the totals by category, and what each project delivered, builds support for the spending that matters.