Article Summary: A small business IT budget needs to cover more than computers and Microsoft 365. Plan for setup labor, renewals, hiring and departures, support, cybersecurity, backups, insurance requirements, planned projects, and a reserve for surprises. Start with a full inventory of what you pay for, then review the budget every quarter so renewals and replacements don’t catch you off guard.
October is when many business owners around Renton and South King County start putting numbers together for next year. IT usually gets a single line: computers, Microsoft 365, and a little set aside for repairs.
That line almost always comes up short. The costs that cause trouble are rarely the obvious ones. It’s the annual renewal that lands in the same month as three others, the new hire who needs a laptop by Monday, or the cyber insurance application that asks about a control you don’t have yet.
A good small business IT budget shows what you pay for now, what will need replacing, and what you plan to change in 2027. Here’s what we recommend including.
Start with what you need, not a percentage
You’ll find benchmarks online that say a business should spend a set percentage of revenue on IT. We don’t put much weight on them. A ten-person law firm and a ten-person contractor can have similar revenue and very different technology needs.
What drives the number is how much the business depends on each system. If an internet outage stops you from taking payments, the connection deserves more budget than it would at a business that can keep working offline. If your staff handles client financial or health records, security and compliance will cost more.
Price the systems you need first. Use benchmarks as a sanity check afterward.
Build a complete technology inventory
You can’t budget for what you don’t know you have. List every computer, phone, printer, server, firewall, software subscription, cloud service, domain, and phone line. For each one, record who uses it, what it costs, when it renews, and who manages the account.
The NIST Cybersecurity Framework 2.0 Small Business Quick-Start Guide recommends the same starting point: an inventory of your hardware, software, and services, along with what happens to the business if each one becomes unavailable.
Check company credit cards and expense reports too. This exercise often turns up subscriptions an employee signed up for on their own, licenses still assigned to people who left, and equipment that stopped receiving security updates a while ago. Cleaning those up can cover part of next year’s budget.
Computers and equipment
The price of a laptop is only part of its cost. Add monitors, docks, headsets, warranty coverage, and the time it takes to install software, apply security settings, move files, and test access.
Track each device’s purchase date, warranty, and operating system. Replacing a few computers every year is much easier on cash flow than replacing a whole office at once, which is what many businesses faced when Windows 10 support ended last October.
Include a prepared spare laptop so a failed device doesn’t cost someone a day of work. Old equipment needs a line too, since business data has to be securely wiped before a computer or phone is recycled.
Software and cloud subscriptions
List every subscription and note which ones bill monthly and which bill annually. Several annual renewals in the same month can strain cash flow even when the monthly equivalent looks small.
Before each renewal, remove licenses assigned to former employees and look for tools that overlap. Check that your plan includes the security, backup, and retention features you need, or find out what it costs to add them.
If Microsoft 365 Copilot is on your list for 2027, budget for the licenses and for the cleanup work that should happen first. We covered that in Preparing Microsoft 365 for Copilot: What Every Business Should Check First.
Hiring and departures
Each new hire needs more than an email account. Plan for a computer, software licenses, security tools, a phone number, and the setup time. When someone leaves, the business has to remove their access, transfer their files, collect their equipment, and cancel or reassign their licenses.
Estimate how many people you expect to hire and lose in 2027, and include both the equipment and the labor. If that process feels inconsistent today, read why bad onboarding is the real cause of messy offboarding.
IT support
If you work with a managed IT provider, confirm what the monthly agreement covers and what it bills separately. Projects, office moves, after-hours work, and major upgrades often fall outside the standard agreement.
If you pay for support as needed, pull the last two or three years of invoices, including emergency work. Businesses on break-fix support tend to underestimate this number, because the expensive months are the ones nobody planned for.
If you have an internal IT person, include their salary and training, plus outside help for projects or incidents one person can’t cover alone.
Cybersecurity
Give cybersecurity its own line, even when some tools come bundled with your licenses or support agreement. That makes it easy to see which protections are funded and which still need approval.
Typical items include endpoint protection, email filtering, multifactor authentication, password management, security monitoring, and staff training. The right mix depends on the data you hold and what an incident would cost you. The FTC’s Cybersecurity for Small Business guidance is a good plain-language place to start.
If you want to see why this line matters, our post on how small business ransomware attacks work walks through a typical attack from first email to locked files.
Backup and recovery
Budget for the whole recovery process, not only storage. That includes backup software, an isolated copy attackers can’t reach, monitoring, and regular restore tests.
Confirm what’s covered. Business data lives on laptops, servers, Microsoft 365, accounting systems, and industry applications, and each may need its own backup. Don’t assume a cloud provider keeps deleted or damaged data as long as you need it.
A “backup completed” email tells you a job ran. A restore test tells you the data comes back. CISA’s Cyber Essentials lists backups and recovery planning among the basics every small organization should have in place.
Cyber insurance and compliance
Insurance applications now ask detailed questions about MFA, backups, endpoint protection, and incident response. Client contracts and industry rules can add their own requirements, and Washington state has its own data breach notification law for businesses that hold personal information.
If your policy renews in 2027, find out what the carrier will ask before you finalize the budget so you have time to close any gaps. Our guide on how to complete your cyber insurance renewal without costly mistakes covers what to watch for. For legal requirements, confirm your obligations with your attorney or compliance adviser.
Internet, phones, and your website
If losing internet would stop work, price a backup connection that uses a different carrier or technology, such as a cellular line alongside fiber or cable. Network equipment ages out as well. Firewalls and wireless access points that no longer receive security updates belong on the replacement schedule.
Phone systems and mobile plans often get billed outside IT, but they belong in the same budget. So do domain renewals, website hosting, and maintenance. Make sure the business owns the domain account, not a former employee or web developer.
Planned projects
Keep projects separate from ongoing costs. An office move, a new location, a server replacement, or a new phone system each needs its own estimate covering planning, equipment, data migration, training, and the stretch where old and new systems run side by side.
Projects that get pushed to next year every year carry a cost of their own. We wrote about that in Is Technical Debt Slowing Down Your Business?
A reserve for the unexpected
A laptop gets dropped. A firewall fails. Someone needs work done outside the support agreement. Look at what surprises cost you over the past few years and set aside a realistic amount.
Keep the reserve separate from planned replacements. A computer you already scheduled to replace isn’t a surprise.
How to build your small business IT budget for 2027
- Inventory your hardware, software, services, and contracts.
- Record monthly and annual costs, renewal dates, and cancellation notice periods.
- Flag the equipment due for replacement in 2027.
- Estimate hiring, departures, and office changes.
- Add support, security, backup, training, and compliance costs.
- Budget planned projects separately.
- Set a reserve based on what surprises have cost you before.
- Review the budget with your IT provider and your accountant, who can tell you which purchases to treat as capital expenses.
Then compare actual spending against the plan every quarter. Switching vendors or trimming licenses is much easier when a renewal is three months away than three days away.
Plan your 2027 IT budget with WatchTower
If your business is in Renton, South King County, or elsewhere in the Puget Sound area and you’d like a second set of eyes on next year’s IT budget, schedule a call with us. We’ll help you map what you use today, what’s coming due, and what you’re planning next, so the numbers hold up through 2027.
Frequently asked questions
There’s no reliable percentage that fits every business. Add up the equipment, services, security, support, and projects your business needs, then use industry benchmarks as context.
Setup labor, onboarding and offboarding, restore testing, staff training, equipment disposal, subscription price increases, and urgent replacements.
Build it once a year and check it every quarter. Update it after significant hiring, an office move, a new system, or a new compliance or insurance requirement.
Yes. Even when some tools come bundled with your licenses or support agreement, listing security costs separately shows what’s funded and what still needs approval.
Yes. Microsoft 365 keeps deleted items for a limited time, but that retention isn’t the same as a backup you control and can restore from on your schedule.
