Budgeting for IT: A Smarter Way to Drive Business Growth

There are dozens of ways to spend your IT budget, from new devices to cloud migrations, endpoint management solutions, and network improvements. It can be difficult to find a strategy where you’ll see the greatest return on investment. We recommend a two-category approach when it comes to planning your IT investments.

By taking this approach, you can ensure the best resource allocation and highest value. This structured, proactive budgeting process helps small and midsize businesses (SMBs) balance essential operating costs with strategic growth, supported by cybersecurity initiatives. “The next big disruption to your business—whether it’s a cyberattack or another crisis—is not a question of if, but when. The businesses that survive are the ones that plan for this,” says John Nobis, VP of Engineering at ISOutsource.

Category 1, Operational IT Spending: “Keeping the Lights On” Expenses

The first category covers the essential technology needed to maintain daily operations. Start with this kind of IT expense when creating your IT budget to avoid surprise expenses that could easily slow your business down or result in reactive spending.

Operational IT spending:

• Is necessary for business continuity. If you didn’t budget for your IT operations expenses, something small could cause lost productivity and revenue opportunities. For example, a spike in hiring could result in a long delay in onboarding new employees, because not enough money was set aside for software subscriptions, new devices, and so on.
• Focuses on reliability and security. As a best practice, plan to buy basic tools for your business each year, like software licenses, hardware, IT services, cloud services, and the like. Outdated systems slow productivity and can cause security vulnerabilities.
• Is often seen as a “cost center” expense. But running a business comes with certain expenses, like hiring employees and maintaining a website. Most companies rely on IT components—devices, infrastructure, and services—as an integral part of serving customers and creating products.

Think of it this way: If students went to school without paper, pencils, and a backpack, they would lack basic tools for learning. IT operational expenses are not a drain on your company; they are business-growth enablers.

Typical operational IT expenses:

• Basic IT infrastructure, as in laptops, desktops, servers, printers, and other hardware.
• Internet and network connectivity costs, like Wi-Fi, VPNs, and routers.
• Security and compliance support, which could include firewalls, antivirus software, and multi-factor authentication (MFA), which help secure your data and systems.
• IT support and maintenance, such as helpdesk services and software updates, to protect employee productivity.
• Cloud storage and data backups to prevent information loss after a disaster, cyberattack, or accidental deletion.
• Software subscriptions for services like email (Microsoft 365, Google Workspace), accounting software (QuickBooks, Xero), and storage (Box, Google Drive), for basic tasks.

Category 2, Strategic Investments to Support Future Growth

This spending category focuses on technology as a competitive advantage to drive business efficiency, revenue, and scalability.

Strategic IT investment spending:

• Is forward-thinking and growth-oriented. Planned-for growth is sustainable growth, so start thinking about this type of spending right away, even if you only set aside a small part of your budget for it at first.
• Provides measurable business benefits. Strategic IT investments are the ones you make to support your business goals beyond the everyday, operational basics. Planning to grow? Want to hire talent from around the globe? Start building the kind of IT infrastructure that enables these things.
• Enhances productivity and competitiveness. By backing up business goals with strategic IT investments, you help employees work more efficiently. After you’ve financed a solid infrastructure that enables productivity, adding strategic investments can help your employees make smarter decisions to guide the business into new markets or creating new products.

Typical strategic IT investments:

• Cloud adoption, to make business processes easy to scale on demand.
• Automation and AI tools, such as chatbots, AI-driven analytics, and customer relationship management (CRM) process automation.
• Cybersecurity enhancements, including advanced threat protection and security audits.
• Process optimizations, like digital transformation projects to replace outdated workflows.
• Employee productivity tools, such as collaboration platforms like Slack, Asana, or Microsoft Teams.
• Data analytics and business intelligence tools to support insight-driven decision-making.
• Custom software development for situations where off-the-shelf tools don’t meet your business needs.

How to Balance the Budget Categories—And Why It Matters

As SMBs optimize their operational IT costs over time, they can channel the savings into strategic IT Investments to drive growth. A good example is moving from capital expenses (CapEx) for things like on-premises servers to cloud-based operating expenses (OpEx), which have more predictable costs.

This way, you build a solid foundation of essential investments that pave the way for strategic, growth-oriented investments at the right pace when budgeting for IT.

This budgeting approach:

• Prevents reactive IT spending. If you’ve taken care of essential investments first, optimizing them over time, you can avoid last-minute, costly fixes due to security breaches or outdated systems.
• Balances short-term needs and long-term vision. You can ensure that when you start to scale, you’re doing so from a place of flexibility and adequate cybersecurity. This helps your businesses stay competitive without overspending.
• Maximizes IT ROI. When you see operational IT expenses as a platform for future growth, you can measure the value they bring to your organization. This helps get everyone in the company on board with IT initiatives, whether for budget approval or technology adoption.

“You’re going to pay for IT at some point—the question is when. If you invest in the right areas early, you save money, avoid disruption, and future-proof your business. If you wait until something breaks, you’ll be paying a lot more,” says Naveen Rajkumar, CEO of ISOutsource.

How Both Budget Approaches Support Each Other

“I cannot stress enough how important it is to be proactive. I had a client who refused to prioritize IT investments. When the pandemic hit, their service delivery collapsed, and they ended up spending more money reacting to the crisis than they would have by planning ahead,” says John Nobis.

He cites another example of how an SMB saved their business with proactive investments. This client—a 20-employee business—was forward-thinking and invested in cloud-based solutions, new laptops, and a VoIP system before the pandemic. When COVID lockdowns hit, this SMB pivoted to remote work overnight, with no downtime.

Another real-world example is a client that ignored recommendations to update and kept their outdated on-premises systems. During the pandemic, this company scrambled to implement remote-work solutions but faced service disruptions and higher costs due to demand. As a result, instead of gradual, cost-effective investments, they paid a premium cost for rushed solutions during a crisis.

How SMBs Can Start Optimizing Their Budgets Today

The key to planning IT budgets when you use the two-stage approach? “Understand your business’s risk tolerance: where you can afford risk, versus where you can’t. Work with a consultant to prioritize IT spending over the next five years,” says John Nobis.

Start by moving your IT spending from CapEx to OpEx. “A big shift we’re seeing is SMBs moving away from big, one-time capital expenses (buying servers, hardware upgrades) toward smaller, ongoing operational expenses (cloud-based subscriptions, managed services, cybersecurity protection). This helps improve cash flow and prevents big, unpredictable IT bills,” concludes Nobis.

Not sure where to get started? A technology assessment is a good way to start identifying IT budget buckets and building a roadmap to a future-proof environment. Contact ISOutsource today for more information on supporting your budget, IT strategy, and business goals.