IT Budgeting Mistakes
Most firms have an IT budget, but frequently make the same series of mistakes that result in major surprises or drastic swings in the firm’s cash flow and profitability. Here are three common budgeting mistakes, and what to do about them:
Not budgeting for annual price increases. As inflation has increased over the last few years, software and service contracts have started including higher annual or renewal increases. Prior to 2020, a few percentage points were standard, but some vendors are increasing 10% or more, and one practice management vendor sent some firms a 30-day notice for a price increase of 30%+ for their recent renewals.
How to avoid this: Review every contract for price increase language. Make sure agreements clearly cap annual increases and include a reasonable notification period. If a vendor won’t agree to a cap, at least plan your budget assuming worst-case scenarios.
Not accounting for growth. Most IT is priced based on the number of users or devices at a firm. CGP frequently works with fast-growing firms, and doubling in size over a two or three-year span results in a comparable budget increase.
How to prepare: Add pricing logic to your budget entries. For example, instead of just logging "IT Services," use "IT Services @ $250/user." That way, when you forecast headcount, you can immediately see the impact on IT costs.
Not planning in advance for improvements. Many firms are reactive on IT budgeting, even though most changes can be planned in advance. CGP recommends a running 18 month budget for a firm, but some items can easily be planned further in advance.
How to stay ahead: After each IT project, log the expected lifecycle of the equipment (e.g., 3 years for laptops, 5 years for servers). Use that to build a rolling 18-month budget, with major replacement projects mapped out well in advance.
Bottom line: IT budgets shouldn't feel like guesswork. With the right structure and some forward-thinking, you can build a budget that protects profitability and avoids surprises.
If your IT budget feels more like a moving target than a strategic tool, it might be time for a second opinion. Clear Guidance Partners can help you put structure around your tech spending and make sure your budget actually supports your growth. Fill out this form, and a member of our team will be in touch with you soon: