How would you know how much money to set aside for groceries every month if you’d never been to a grocery store before?
IT budgeting isn’t all that different.
Sure, you know what you paid for your computers and what you’re paying for your antivirus and your software subscriptions.
But because you don’t live in the IT for accounting space, it’s helpful to have someone guide you down the isles, show you the best deals, and help you pick out the solutions that will best fit your organization’s workflow and objectives.
In this article, we’re going to explore how your accounting firm can set an IT budget that works.
Why is IT For Accounting Budgeting a Challenge for CPAs?
We’ve already noted the biggest challenge (simply not knowing the solutions or the pricing), but there are other roadblocks to accounting firms when trying to forecast their IT spend for the month/quarter/year.
- You have no way to predict IT breakdowns or emergency costs.
- You don’t have a way to determine what solutions the market forces and client expectations will demand a capital investment.
- You don’t have a reliable framework to determine what costs will be as you scale up or down your firm in the tax season cycle.
You’ve worked with your clients on their IT budget line items. Now it’s time to look at how to nail down your own IT budgeting so your costs don’t spiral out of control.
With that in mind, here’s how to think about setting an IT budget.
Think of Your IT Budget as a Business Investment
It’s common for a CPA to see an expenditure as a short-term layout of cash without a long-term payoff. Usually, that kind of thinking works in the accounting world.
However, IT budgeting is different. Because technology underlies and supports all of your business processes, IT budgeting is as much as an investment in the business success as the rent or mortgage on your offices.
Seeing IT expenditures as an investment your company’s processes today and its prospects tomorrow helps you capture the real-life value of the IT solutions involved.
IT expenditures add value to your firm by:
- Keeping you technologically relevant
- Enabling you to meet security and compliance requirements
- Helping you get more done in less time
- Facilitating your mobile and work-from-home needs
So, consider your IT budgeting for IT services for accounting firms as an investment.
The next thing to consider is, how do you make a good IT budget?
IT budgeting isn’t like high-school chemistry. There is no equation or formula that allows you to strike the perfect balance. Instead, there are a series of factors that an IT consultant can help you explore. The result of that IT assessment will determine what should be the budget for your operations now and growth in the foreseeable future.
Those IT budgeting factors include:
1. Capital Expenditures vs. Operating Expenditures
I don’t have to tell you about the advantages/disadvantages involved in CAPEX VS. OPEX.
In recent years, IT management, software, maintenance, and security has moved from a break-fix and buy-it-now model to a subscription service (IT Services for Accounting Firms) that fits better into budgeting and the OPEX side of the spreadsheet.
Without the former, high-cost, up-front expenses, IT budgets are now easier to forecast and simpler for accounting firms in Chicagoland to justify.
2. The Level of Data and Workflow Security Required
Tactically, one of the first factors to consider is the level of security that will be needed for your organization. Here are some questions you should consider and talk over with your IT for accounting consultant.
- How to control user access?
- What compliance regulations must be met?
- How to secure communications?
- How will data be backed up?
- What IT security training will CPAs and support staff have?
We are often asked, “What does the minimum security cost?” While I understand the need to control costs, cybersecurity isn’t the place to do that. A single ransomware attack could send your business and your reputation over a cliff – and cyber-criminals know you have valuable data. You are a target.
3. System Accessibility
Related to security is system accessibility within your IT for accounting environment. If COVID-19 has taught the business world anything, it’s taught us the importance of anytime/anywhere secure access to the company’s internal processes and data. However, securing that kind of flexible accessibility does add an extra layer of complexity to the IT security side of the equation and must be included in the discussion.
A few considerations:
- Will you require segmented access based on employee roles?
- Will you need access for clients?
- Will you be doing work from home or from clients’ workplaces?
- How many users?
4. Storage Needs
Data storage is a significant consideration because of the explosion in the levels of data that are now produced by companies. The information age has resulted in a tidal wave of data that will – sooner rather than later – make its way into the IT for accounting arena.
Secure data storage – in-house, cloud, or hybrid – must be explored and its costs defined.
- What are your data retention requirements?
- What are your current data levels?
- Are you currently backing up at the file or image level?
- How often is your data backed up?
- Are you making use of cloud backups?
5. Organizational Size and Scaling Up or Down
We have already made passing reference to the fact that you likely have to expand your workforce during tax season and then scale back some during the rest of the year. This fluctuation must be taken into account in the IT budgeting process.
A very general guideline is that mid-sized businesses spend 6 to 7% of their budget on IT, while large companies spend 3 to 4% (because they more effectively leverage economies of scale). However, each industry (and each company within that industry) has unique needs that create fluctuations in those numbers.
A few considerations:
- Satellite offices
- Number of workstations
- Number of users
- Complexity of IT systems in place
- Cloud assets in use
6. Organizational Objectives – Growth
Typically, an organization wants to be looking at everything from three months to three years out. Thinking ahead with your IT budgeting will help you avoid spending big money on something that you’ll only have to replace in the near future.
Technology changes so quickly that only an IT professional will be able to help you sort out what you should be spending money on now and what should be left until later.
As an investment, IT needs must be considered in the long-term.
Putting the right IT foundation in place now will help you avoid technology capacity and capability roadblocks as your organization grows.
IT budgeting should be thought about more as a roadmap than a set of numbers on a spreadsheet. Sure, real numbers and real money are involved, but because of the fast pace of business technology, some flexibility must be built into the system. This observation, however, doesn’t necessarily mean that costs will go up. Many technologies actually get less expensive over time. Cloud storage is a good example of this.
As I have already noted, it’s important to get an IT specialist involved in the budgeting stage. Alavanca Systems works on a full-service model that includes executive consulting for IT budgeting. We can help you get the right technologies in place while controlling costs.
Need some assistance in understanding the IT side of budgeting for your accounting firm’s next steps of growth? Just reach out. We’re ready to help.
Ciro Cetrangolo is an IT specialist with over 30+ years in the IT services industry. Ciro has a deep understanding of the software, workflow, and underlying technology of accounting organizations and helps firms like yours achieve the secure, stable, and streamlined IT environments you need to accomplish your work more effectively. See my Amazon Author Profile