Most small business owners don’t have a deliberate IT budget — technology purchases happen reactively, when something breaks or when a subscription shows up on the credit card. The result is usually overspending on some things and underspending on others, with no clear picture of what technology actually costs the business.
A simple IT budget doesn’t require a dedicated IT department. It requires about two hours once a year.
What to include in a small business IT budget
Hardware: Computers, laptops, monitors, printers, servers, networking equipment (router, switches, access points), phones, tablets. Hardware has a predictable lifecycle — plan for replacement every 3-5 years for computers and annually for peripherals like keyboards and mice.
Software subscriptions: All recurring software costs — Microsoft 365 or Google Workspace, accounting software, CRM, project management tools, security software, backup software, industry-specific applications. These are usually the largest and most predictable category.
Internet and communications: Business internet service, VoIP phone service, mobile data plans for company devices.
Security: Antivirus/endpoint protection, password manager, backup service. If you have compliance requirements (HIPAA, PCI, etc.), add any compliance-specific tools or audits.
Support and maintenance: External IT support (a managed service provider, a freelance IT consultant, or pay-as-you-go support). Plan for at least a few hours per year even if you handle most things yourself — some issues require expertise.
One-time and project costs: Planned upgrades, new employee setup, office moves, new software implementations. These are harder to predict but easier to plan for if you know they’re coming.
What a typical 5-person business spends
This varies enormously by industry and toolset, but as a baseline:
| Category | Annual cost (5 people) |
|---|---|
| Microsoft 365 Business Standard | $750 (5 × $12.50/month × 12) |
| Cloud backup (Backblaze) | $495 (5 × $99/year) |
| Password manager (1Password) | $300 (5 × $5/month × 12) |
| Business internet | $1,200 ($100/month) |
| VoIP phones | $1,200 (5 × $20/month × 12) |
| Accounting software (QuickBooks) | $360 ($30/month) |
| IT support (8 hours/year) | $800-1,600 |
| Hardware reserve (5-year cycle) | $600-1,200/year |
Approximate total: $5,700–7,100/year (~$1,140–1,420 per employee per year)
This is on the lean side — it covers essentials but not premium tools, specialized industry software, or robust security tooling. A business in a regulated industry or with more complex needs would spend more.
The useful benchmark: industry guidance generally suggests small businesses should spend 4-6% of revenue on technology. A $500,000/year business at 4-6% would budget $20,000–30,000 for all technology costs including hardware, software, and support.
Building your actual budget
Step 1: Audit current spending. Pull your last 12 months of credit card and bank statements and categorize every technology purchase. You’ll almost certainly find forgotten subscriptions and surprising totals in categories you didn’t realize were adding up.
Step 2: Identify known planned costs. List any purchases or upgrades you know are coming in the next 12 months: hardware replacements for aging computers, software upgrades, new employee equipment.
Step 3: Build the budget by category. Take your audited current spending as the base, adjust for planned changes, and add a contingency (10-15% of the total) for unexpected repairs or purchases.
Step 4: Review against value. For each subscription, ask: if this went away tomorrow, what would break? If nothing critical would break, consider whether you still need it. Unused or underused subscriptions are a common source of waste in small business IT spending.
The computer replacement question
Computers last 3-5 years before repair and performance costs start to outweigh replacement costs. Rather than reacting when a computer fails, plan proactive replacements:
If you have 5 computers and a 4-year replacement cycle, you should budget to replace roughly 1-2 computers per year. At $800-1,500 per business laptop, that’s $800-3,000/year in hardware replacement — a predictable cost you can build into the budget rather than scrambling for when it happens unexpectedly.
Track the purchase date and expected replacement date for every computer. When a machine approaches the 4-year mark, budget for its replacement the following year.
Where most small businesses overspend
Unused software subscriptions. Subscriptions are easy to forget. A software tool you tried for a month and abandoned may still be billing you. The audit in Step 1 almost always surfaces these.
Overspecified hardware. Not every employee needs a high-end laptop. A $500 laptop handles email, Office apps, and browser work fine. Reserve premium hardware (fast processors, more RAM, dedicated graphics) for employees who genuinely need it.
Premium tiers for features nobody uses. Many software subscriptions have multiple tiers. Check whether you’re using the features that justify your current tier — you may be paying for the Business plan when the Basic plan covers everything you actually use.
Where most small businesses underspend
Backup. At $99/year per computer for cloud backup, the ROI is immediate the first time it prevents a significant data loss. Businesses that skimp on backup typically spend multiples of the backup cost on data recovery when something goes wrong — if recovery is even possible.
IT support. Small businesses often try to handle everything internally to avoid support costs. Spending $100/hour on a competent IT consultant for a few hours per year to handle setup, security review, and complex troubleshooting saves more time and prevents more problems than the cost suggests.
A technology budget is a planning tool, not a constraint. The goal isn’t to spend less on IT — it’s to spend deliberately, on the right things, and to stop being surprised by technology costs. Two hours building the budget once a year, and 30 minutes reviewing it quarterly, is a reasonable investment for the clarity it provides.