Business Tech Playbook

#20 – IT Budgeting

4 months ago
Transcript
Robbz

This is the business tech playbook. Your source for it. Help for your business.

BJ

Do you hear how good that tastes?

Robbz

And we're live. I'm your host, Rob Zolson.

BJ

And I'm your host, Bjpot.

Robbz

I just want to complain to you listening audience, because I have no one else to complain to. I'm in Minnesota. He's in Redlands, California. And you have Del taco. All right.

BJ

We do.

Robbz

I hate you to your core because Del taco is far superior to Taco John's. Where I'm at in the midwest, the only thing that we have that's superior on the taco John's menu is we have these things called potato oles. I don't know if you've had them before or you even have a taco John's close to you.

BJ

What's a taco John's?

Robbz

It's a terrible excuse for this, like, midwestern or something. You know what a tater tot is, right?

BJ

I do.

Robbz

Right. So, you know, like, they have those little tater wheels. They're small tater tots. They have potato rounds, and they have this special kind of half zesty seasoning that us midwesterns call spicy. And they are addicting. No, it's a dry seasoning. They put on these deep fried potato rounds. They call them potato Olays. And we treat them like they're like french fried heroin. It's really good.

BJ

Welcome to Business tech playbook, where we talk about Dal taco and pretty much everything but it. Well, today, hopefully, that keeps you entertained and coming back.

Robbz

Right?

BJ

Like and subscribe.

Robbz

Like and subscribe. Today we got to go over because it's, for us, the beginning of the new year, the calendar year. But a lot of people, this is not necessarily the beginning of the fiscal year. Fiscal years change. They have to plan either per quarter or they start their fiscal years July, maybe on the end of the first quarter. But even if you started January 1, I hope someone goes back to this for next year. We got to talk about planning your it fiscal responsibility. Instead of just being reactive, we have to actually plan those dollars so that when you go back and ask, hey, this laptop blew up instead, you could have had a plan the whole time and said, hey, we have an upgrade path on when we should have replaced it all along.

BJ

Well, exactly. And I know we've covered this a little bit in previous podcasts, but we wanted to kind of talk about how to budget for it and then some kind of round numbers to expect as you're looking at what the costs look like and how I know how we charge. But then that gives you some idea of how to kind of look through how you can calculate numbers and kind of what it would look like. So if I add an employee, it's going to add about x amount of dollars to my spend every month. So not only are you calculating their burden to labor rate, so their hourly, their taxes, their insurance, whatever benefits are tied to that, it is part of that burdening, in my opinion.

Robbz

If you're a manager, what that looks like, if you're a manager or a business owner, you don't want to sit there and go, man, how much are you going to cost me to grow? No, you want to know that it's going to cost you four people to grow and do this particular job. And you already know that that employee loaded labor. That means how much it costs for benefits, how much it costs for taxes, how much it costs for that wages, and how much all of the it spend is all going to hit for that employee for that year going forward, how much is going to go? So you don't have anything holding you back and you have a path forward.

BJ

Absolutely. And we're going to talk about some kind of round numbers, round ideas. And so it's going to vary per industry. We know that. And we'll explain a little bit about what we mean by that. So a professional service industry. So legal accounting, engineering is very, the employees have to have computers, right? Like the computer is the only tool that they have. Obviously, the person is part of that tool set. But you're probably going to want to spend more and invest more on your per user spend or whatever that looks like, because they're typically higher wage earners, they're typically going to be more expensive employees. And so your percentage of spend is probably going to be a little bit higher than, say, maybe a contractor who's got 70 employees but only 20 people in an office. And so that's going to bring their per employee spend down a little bit. But that doesn't mean, again, it goes back to, and also, what's your reliance on technology?

Robbz

We want to give you the tools. The numbers that you've put into those figures are definitely going to be very much unique to your business.

BJ

Absolutely, 100% to start, we want to.

Robbz

Instead of just telling you, hey, software is going to cost this much, hardware is going to cost this much, you're going to have to have this for this user, you're going to have these tools. Just like we said, each industry is going to have separate tools. We want to said bake all of your math down to not only a per user, but we want to slice that up into a per user per month cost.

BJ

Exactly.

Robbz

Just like I would do my own house. I sit down my own personal finances. You sit down and you go, what's my mortgage? What's my electricity? What's my insurance? What is my groceries? What's my cell phone bill? I got to put Netflix in there. Got to put my Spotify.

BJ

You crunch some Amazon prime because you know that's going to happen, right?

Robbz

You crunch it down, you crunch it down, you add all of the ticky tax in there and you know that the end of the day x is what it's going to cost me, then what I'm left over at the end of the day for my capex to either reinvest in the rest of the company, keep for a rainy day fund, whatever I need to do. So same goes for you. Shouldn't treat your it spend any differently. If you have an employee in there, it should be per employee. And don't just generalize because your employees departments are different, your roles are different. It should be by role and by department. So let's pick on a single business. What business would you like to pick on?

BJ

BJ, actually, well, we were actually just literally talking about one of our clients. It's a tile distribution company, so they manufacture and distribute tiles across the country. And so I was running some rough numbers before this podcast to kind of get an idea of what their total spend is. And so part of what we do as a managed service provider is we gather all of your technology spend that we know about and can ask about. And so on a yearly basis, we go back and revisit what contracts do you have? What are you spending on? Let me pull it up here, and I'll actually just list off the things we have documented for this client before that.

Robbz

You pull that up, have that handy before that. This particular company, it's a medium large business. They have different departments. So they're going to have an accounting department, they're going to have a sales department, they're going to have manufacturing department, they're going to have a secretary up front. Each one of those different departments and roles each have a separate. We're not going to just lump an average cost. It would be nice to do that. But when you put there a secretary is going to cost you a different amount than accountant is going to cost you a different amount. But the IT spend as a general, they're still going to have a 365 license for their email, their software, they're still going to have to have access to their time clock. They're still going to have to have access to what we call their core software. So for it spend, generally we at least have a base, and then we have specific ones. So if they're an engineer or marketing, there might be a specific it spend for maybe Adobe your CAD products. If they're working for an accounting firm, they have special accounting products. Maybe it's Sage or something else. Each one would have what we like to put in their specific role. So continue from there since you have numbers close by.

BJ

Yeah, of course. So the tile manufacturer, for example, they use an ERP called SagE 100. So Sage 100 is about 30 grand a year. Right. So that's their licensing and support costs for Sage. Then they have an ERP vendor which helps them support Sage. And that's about another $20 to $30,000 a year on top of that. And then they also charge for upgrade projects. So they just went from 2020 to 2023, and that was about an $18 to $20,000 project for them and probably around ten for us because it was a lot of work involved. These guys use Office 365. They have Internet. So they have two Internet connections. They have Adobe creative cloud. They have their phone provider. They have effects. They have their copier contract. They have Asana. They have their label printers. All the things that go into like a warehouse type event or space, cell phones. We literally will just go in and ask, what softwares are you using, how much are they costing? And add them into our contract crunching tool.

Robbz

Effectively calculator, for a better word.

BJ

Yeah, for lack of a better word. And we literally just track how much our clients are spending on it every month. And so when I show them what their budget looks like, it usually freaks them out. So for this company, they're spending about 250,000 a year on technology. When they initially see that, they're like, wow, we're paying you that much? And it's like, whoa, whoa, whoa, whoa. No, we're a piece of that, right? We should always be part of that number. But at the end of the day, it's like, this is about your total spend on technology. In that 250 is also their planning for equipment replacement. So in almost all scenarios, our goal is we generally try to map out equipment replacements one to two years in advance, because then we're not coming back to them every single day saying, hey, give me money. Like, this thing broke. There's a lot more ability to plan stuff.

Robbz

Yeah. So checking out the list, our goal by the end of this thing is that per employee, per month, and per role, we will be able to set, say this is how much that role is going to cost, and then have it budgeted out. The next step is, like you said, we're going to plan hardware replacements. So a good goal to have is laptops don't last forever. They going to have an end of life, and if they're going to last longer than that, they're going to do an injustice to your users. And when I say that, if you have in a mind like, oh, my laptop lasts way longer than that, trust us when we say that that laptop is going to be much slower and going to make you so much more inefficient that we could have saved you the time of efficiency to give you back more money than you could have ever spent on three laptops just by replacing the darn thing in the first place. So if you're not in a replacement program used to be, for some really cheap companies, seven year replacement strategy don't do that. We recommend five at the bare minimum. But it used to be seven year replacement strategy. Five year replacement strategy is the longest we would recommend in my mind.

BJ

Correct. So to your point, we spend a lot of time thinking through the lifecycle of stuff, right. And that's the part that's really important. And then also understanding the role of the person. So secretary, or like a front desk reception. Unless they're doing a lot of creative creation or creative work like Acrobat pro, different Adobe suite pieces, they probably are okay with a standard business laptop or desktop. And that standardized business laptop or desktop typically is going to be on a three to five year replacement cycle. But you're also probably paying that person at least California minimum wage is $15, $16 an hour. So you figure with the amount of improvement that you get on a computer every three years, well, if you can speed up what they do 5% per year at that three year replacement cycle, you start getting the 15% to 30% efficiency improvement every replacement cycle. Or maybe it's working fine and you just know that that person is going to get a replacement when their computer dies, and it's like you're not paying them enough for it to matter.

Robbz

Right.

BJ

But then if you have an engineer that you're paying $150 an hour, well, gaining back even 1% of efficiency on that person is going to pay off a very expensive computer every year.

Robbz

Now, when you have this, take this plan and take every serial number that you would purchase. Say it's the Dell Lenovo. Take the serial numbers. When you purchase this computer, put it on an excel sheet and hand this to your accountant. Your accountant's going to smile. They're going to see this as an asset depreciation list and they're going to love you to death when you give this to them, they're going to say, hey, I bought this computer, let's pretend it's two grand. They're going to look at that $2,000 and they're going to allocate that $2,000 spend and let it depreciate on the tax books every year. For that $2,000 spread over that five years, they're going to love you for that. By the time that hits, it's not going to fiscally hit the books all at once. So that cap expenditure is spread over the five years. Making your accountants happy. And if you make your accountants happy, we did our job.

BJ

Honestly, that's so much of it. I don't give tax advice because I don't play an accountant on tv. But at the end of the day, we try to know enough about how a business operates, because we are a business. And being one of the owners, I spend a lot of time thinking through how does this impact our bottom line? Right. And as I'm sure you are as well, the goal is to know what you're spending, why you're spending it, and how is it going to impact you, and then at the same time, what's the return on my investment? We talk a lot about Capex and you've been talking about capex. That's typically where I would look at it for. You need to drop 20 grand on a server or 2000 on a laptop or desktop or whatever.

Robbz

Capital expenditures.

BJ

Capital, yeah, exactly. One of our clients is about a 70 person law firm. They finance everything. So we're monthly service because of how we've worked with them. Almost everything we do with them is basically subscription based. So they just bought ten laptops for $600 a month.

Robbz

They don't need to do the funny.

BJ

Accounting, and so they're going to have it on their books for five years, then at that point, everything. They keep paying that $600 a month. They get new laptops.

Robbz

Yeah, there's no hit to caps, plus they show that they have the asset. So again, we're not accountants here, but it is basic knowledge that when you have a business and you report that you own something, that's much better on the books. So when you have a business and you own the land, when you own the building, when you own the vehicle, when you own this, you can literally show that against the tax rate. And it helps out the books immensely. And the computers work the same way, and they want to depreciate the value against that. And it helps them, no matter where you live in the United States, on their taxes. And when you do this, not only did you not have to write the check for the two grand, you depreciate it the same way and you spend over time, no hit to the capex. Where do you lose in that scenario? You made your accountants happy, you kept your checkbook intact, and you still paid it over time.

BJ

Exactly. Well, and that's one of the things that we've been helping this law firm a lot with. So they've grown 25 to 30 people in the last two years. So they've had substantial amounts of growth, which is amazing, right? Like, that's been great for them and great for us, but that means they're being really careful with their cash flow. And so now that since they can pay it out monthly as a law firm, they get paid monthly, 30, 60, 90 days out. And so they're very protective of any cash on hand, and so they really prefer that payment cycle. Some of our clients are very, extremely cash rich and would way rather just cash pay. But again, part of our job as your enterprise IT department and what your IT department should be asking for is a seat at the table when it comes to budgeting. And anything that involves planning out that replacement cycle and saying it's still working isn't a valid reason. Just because something is still on is not a valid reason to keep it.

Robbz

And it doesn't matter if you're cash rich or not. You can't tell me a business that has cash on hand wouldn't go use that cash for something else in their business. Just because they have it doesn't mean they can't use it elsewhere. Just saying next thing is not just for hardware, but plan renewals. So even people that plan, hey, laptops need to be replaced. So does your software. I've seen many times, especially with people changing the way that software is done in the last 15 years, that people hold onto these antique office licenses and think that because they purchase office 2010, that has long expired out of support, can't even handle email anymore, and they held on to, well, I bought the program. I own that software that they're thinking is going to keep going. Software doesn't work that way. There's an expiration date, even if you quote unquote purchased the license to own it. It just doesn't work that way. And you have to plan for the end of life on it and you have to replace it just like you replace a computer.

BJ

Well, my aunt is a great example of this. Love her dearly. Well, I bought the software. It should keep working exactly like it's been working. And I'm like, well, no, in a perfect vacuum, I agree with you, but nothing in the world is a perfect vacuum, right? The office gets updates like, if there weren't bad guys out there, if there weren't hackers, it's like to my aunt, hey, you expect your laptop to be able to go online now and go to websites, right? So if in a perfect vacuum, 15 years ago when you bought this laptop and version of word perfect, I think is what she was using, you couldn't even go on the Internet, but now you expect it to be able to do the same thing. You're expecting it to be able to do all this new stuff, but it's good enough. It's part of why we really encourage, well, not encourage, all of our clients are required to be on a certain licensing of 365 because then we just roll out the latest version of Office 365 on their desktop and their laptop and everyone's on the exact same version.

Robbz

Yeah. So if you're on QuickBooks, plan your upgrades. I've seen so many times where people are on an old version, they never plan the upgrades. They let it go back too far and now they're scrambling because they're no longer under support. They have to move big company files for a nice sized company forward. Half of their stuff broke and now they're paying thousands of dollars to someone to hope they're going to get most of their data back. Don't do that. Plan ahead. And not only if you have an, if that has a path forward, but it generally costs more the longer you wait.

BJ

You're going to certainly pay me more the longer you wait.

Robbz

Yeah, you're going to pay us more. The longer you wait, you're going to pay a different upgrade path for some of the licensing because you waited. Different paths potentially on the software and the time frame and things that you're losing in efficiencies alone on some of those upgrades, not to mention security. There's just many different reasons to plan that. But I've been in scenarios where I've come into a new environment. Sure, they've been responsible. They planned laptop renewals, hardware renewals, but then they're like, hey, we have to upgrade the software. It's not going to work anymore. Well, we don't have that in the budget. What are we going to do now? They never planned it out. Now we have an extra, like you said, sage cost 30k for that one particular customer. Now we have to sit there unplanned 30k because no one sat there and told the experts that this three years ago was told to us, no one planned it in the books.

BJ

Well, some of these softwares, you should be doing a yearly upgrade, for example, 365. You're typically getting monthly updates to office. And so the nice part about a monthly update to office is you get security releases, you get feature releases, and it's a very small iterational change. But if you go from office 2007 to the current version of Office 365, you are not going to know how to send an email, you're not going to know how to create a new document. So much has changed in the last 15 years. Even going from like office 2013 to 16 to the current version of Office 365 is a big huge difference. Same kind of thing. So in this example with Sage, the company will only support up to three years of software. So they will support back to 2021 now. And so the company, we were in question sometime back in January, February, I told them, hey, you're no longer going to get support from Sage this year. I actually told them about three months before the end of the year. But last year was a harder year. 2022 was a harder year for them and they were willing to push it off because it was an acceptable risk. So sometime March, April, I started bringing it back up again. Hey, we're no longer able to get support from Sage. And they're like, okay, let's start getting this planned. We're in a good place now. So finally we went, we worked at the vendor, got everything scheduled, figured out what the costs would be, got it approved, and they finally went live, like October, November this year. Was it a longer planning cycle than I would have liked? Yes, but they are now good again for three more years. They're still having to pay software maintenance. They could upgrade every single year if they wanted, but they don't necessarily need to do that professional service. Spend every single year.

Robbz

Right. And that's a great example of how you got to find the financial and business risk combination. Sometimes doing it every year doesn't quite fit. But stay in the window of support and know that you're making a conscious decision. And don't just like, well, I ignored it because that's not acceptable. Make a conscious risk document why you did it. That way you can go back to the drawing board and go, we couldn't have at this time. Here's why and here's how we'll address it differently because of it. Because let's say people change jobs or different roles, I guarantee someone else wants that data.

BJ

Well, and that's exactly it. It's understanding the risk. I did a lunch and learn today at one of our bigger clients and was just talking about security awareness and what each of these things meant. And everything we do is on a sliding scale. Right. So one being terrible and ten being perfect. And so replacing upgrading Sage only every three years. Realistically, as long as it's under support, that's about an eight for me. Seven or eight. The risk is pretty low. It's a pretty good outcome doing it every three years. Not having security on your endpoints is a one, everything's a sliding scale and it's trying to find the best business outcome for the dollar spent. Yeah.

Robbz

Just like ease versus security, how secure do you want to make it versus how hard do you want to make it to work? Everything's a compromise.

BJ

Is everyone's back to using something with no Internet? Right.

Robbz

Then we're back to the stone Age.

BJ

Which is cool, but it's constantly a balancing act of like, security and efficiency.

Robbz

Right, so you've planned hardware replacements, you've planned software renewals. What growth have you done? And this is the bigger question. So, sure, you've done your normal, just everything stayed the same in your business. Questions for hardware and software. The thing is, how's stuff changing? Sometimes you have to draw it back. Maybe you're downsizing and scaling, but we're a positive company here and we're going to focus on your growth. If you're downsizing, that's a different conversation. You can message us and if you really want a podcast on us, we'll help with it, but we're going to focus on growth today. So how are you growing? Are you going to need more servers? You're going to need more hardware? Are you going to need more employees? Licensing, different types of licensing. More importantly, growth dictates different types of changes. So when you're doing this and you're doing a different type of growth and you're getting four different people on, it's not just, hey, I'm going to add four users to what we'll say, sage, it's generally, I'm going to be doing a different, let's say marketing, I'm going to be doing a different type of software. This time I have to research it. I have to figure out how I can incorporate from two people to six people, which this software won't work with. I have to incorporate different types of printers instead of just using the one small printer. Now I have to have a multifunction printer to handle all the different copies and I have to scale. It's a different question than just simply, well, it's going to cost that same capex. No, I have to change my business. It's a different scaling question. And you have to have that with your department leads. It's not just four more people. And if it is, great, but have the conversation with them. Okay, four more people. What else is changing? Well, we're going to be moving to a different office. Oh, well, we're going to have to have different cubicles. Well, we're going to be doing this conference room. All of that needs to go underneath a per department growth category. This year we are upgrading into blank.

BJ

Well, to your point, we have a client who, I don't know, three or four years ago when we brought them on was like, I need a server that's going to last me five years. It's like, okay, cool, what's your growth plan look like over the next five years? I think at the time they had ten or twelve employees and four or five dental operatories, right? And he's like, oh, we're going to probably add two more ops and five or six more employees. We're not planning on growing a ton until we can move our new building.

Robbz

Cool.

BJ

This should do the job for you really well, he's come back to me a couple since and I've talked to him about it since. I really think you need to look at upgrading and doing these two or three things. Well, you told me and promised me it'd be last for five years. Well, you also went to 25 employees and ten ops with 40 computers, which.

Robbz

Is not at all what you gave me for numbers.

BJ

Double what we talked about. So it's still working, it's still doing fine. But if you want it to be great, this is my recommendation. And so the earlier you can involve it. We do our best to see around the corner, but at the same time.

Robbz

And you did see around the corner, clearly you doubled his expectations and we're still maintaining stability somehow. Good on you. Right? A little bit of applause there. But still, that is the life that we have to live. We have to predict the future because not even you can give us an accurate estimate as a business owner.

BJ

And that's okay, that's a good problem. It's a great problem. And I'd way rather have that problem than others. But at the same time it's just, it's figuring out what that scale looks like and how do we do it.

Robbz

And you hit the nail on the head. When you're doing this growth report, not only do you have to give the dollars and what it's for, but you have to give the measurement behind it. So in the comments of each one of these, when you're making a business report and saying, this is what I need to spend over the x amount of time you need to put why I'm adding four users and this is supposed to last this long for this many users, so that when they come back and they go right back to you and you're an it guy or you're a CFO, and they said, hey, this lasts five years. Well, guess what? This was in my notes. It says here why that's what it was supposed to last for. That's a good problem now, and let's put some more money at it.

BJ

And so the other piece of that is very rarely is it a complete loss of spend. Right. So the conversation I had with this specific CFO was, you've had like 50% more growth than we talked about and it's still working. Are reports like 5 seconds slower? Yes, they are. Here's how I would recommend solving that. Well, you told me we didn't need to replace, well, you told me 50% less growth. And so we have this conversation. But the nice part is, I'm not going to say throw the server away, but if we add a new one, we can move part of it over. And now you have double the resources to split that load. You don't have to move 100% of things around. So the old server will still be there and good for two more years, but we only use it for part of their needs. Right.

Robbz

Right. So definitely define growth, be mature, and document exactly what your anticipation at that moment was. So you can go back and reflect on how you've grown or how you haven't met that. Then you have fiscal responsibility and people forget this step. I don't know why you have a fiscal responsibility that when it comes to budget season, you have to redefine and be mature and think about how to trim the fat. And I think a great way, especially in it, to do that, that I find businesses that have grown from small, medium or medium to large is that defining roles is really a good way of doing that. You see too often that people just get what they ask for and that's fine. That you're accommodating your employees, that's one thing. But giving someone a 6th monitor, giving someone other third laptop because they want a desktop at their station, because they don't want to plug into a dock, getting somebody their own printer when their printer is 20ft away in the hallway and it cost them, cost them less. I can give you many different ways. And that printer, by the way, in that example costs $600 a month for the user. In the example that I'm giving here, that was actual real dollars from the contract that cost them. Define roles.

BJ

And I want to take that thought there. If this is an ultra high income individual who has a very specific talent.

Robbz

Set, $600 might be worth it.

BJ

A month printer there might be worth it, right. And I want to be clear, like as an it person, our job isn't to judge, our job is to help you solve problems.

Robbz

Correct.

BJ

But it's around budgeting what to expect. And so if you have an office full of ultra high wage earners, you probably should spend more. Like the amount of technology spend will probably be a smaller percentage of their total income, but you probably should spend more frequently on them.

Robbz

Right. So here's the measurements and how. I'd like to give you recommendations on how to start. First, define what they need, what is required for the job. I'm going to pick on myself. I'm a technician, right. I'm going to need at least two monitors. I need to work on two monitors simultaneously. Three is probably a bit much. Maybe they'll work on certain projects and I can request that in the future. I'm going to need a keyboard, I'm going to need a mouse, I'm going to need a laptop. I might need a printer. In the future. I'm going to need access to my cell phone. You define that role. Maybe an accountant would need a special calculator, maybe a contractor would need a toolkit. And you define the role and make sure that they get everything precisely to like a role matrix. We talked about this before in working with your HR department with it. So in that role, matrix defines what they get, including softwares, company softwares. They get their 365, they get office 365, they get their emails, they get their PDF editor, they get their sage, their company programs, and everything is defined to their role. After that, if they want, I'm going to make something. We're going to make up a company. If they want blueberry pancakes PDF, because they didn't like Adobe PDF.

BJ

You know what, blueberry pancakes PDF.

Robbz

You know what? What they should do is you stop there. You're not the guy that says no, BJ, right? You shouldn't be the guy that says no, you're a happy guy. You're the CFO, you're a nice guy. Instead, you should look at them straight in the face and say, all right, Robbie, what's the business need? Give me a business case. Here's a piece of paper. I want you to come back and I want you to define me a business case. And on that business case, it should say either I bring you a lot of money and I really need this, or it should say, this is going to save the company this much money because it's more efficient than x. And maybe I should replicate Blueberry pancake PDF instead of Adobe because it saved us that much money. And you either one, right off the exception, because that guy's a winner. And that extra x money a month, let's pretend like it's the printer was worth it or two. It's something that you should probably adopt to everybody else.

BJ

Exactly it. I was having a conversation with one of our bigger clients. They're an engineering firm, and so they're very high wage earners on average, inside the company, doing very complicated things. And she's like, to her credit, the director of operations is doing a phenomenal job in getting us a list of all the software that they need to do their job properly, and was like, how do we make this better on the standardizing and onboarding? Like, well, who actually needs what we need to know who's in the group? Do engineers need all of these tools? But you want it to be perfectly standardized. But then some people get blueberry PDf 19 and some get blueberry PDF 21. So if you want it to be perfectly standardized, then perfectly standardize it.

Robbz

You're picking and choosing based upon who your winners are, which is not necessarily the worst thing, but you're not standardizing, right.

BJ

And so it's be okay knowing that you're not standardizing. If you're picking and choosing or standardize and just be okay with paying that a little bit extra and having to manage less.

Robbz

I'm going to make people angry by saying this. I don't care.

BJ

Bring it on.

Robbz

The world's unfair, right? Not everybody is equal. Not everything on the planet is. I get my equal share and you get your equal share, BJ. And in the light of that, I just have to deal with it. Some people are going to make more money for the company. Some people are going to be more valued than other people in the company. And if some people whine and complain and get something because they're a valuable asset to the company, I don't care. Do it. If it keeps them happy and it's a business asset and you wanted to write it off, that that's a business plan, do it. Know that it's a conscious decision. And it wasn't just someone that made it. Document it. Follow the money, make sure it's there and it's a conscious business decision. Don't be like what we talked about. Renewals where you just ignored it and now it's eating you in the know. Document it, go forward. It can be unfair, but you made that decision going forward based upon that person's earnings.

BJ

Well, and for example, to your very decision today. Or case like I literally bought Microsoft Copilot, which came out to general release. I think it's still beta release, but it finally came down to companies in our size, like that one to 300 range.

Robbz

Sure.

BJ

And I bought two licenses yesterday. I gave one to myself and I gave one to Brandon. Not because I don't value everyone else. And it's not that we won't necessarily get one to everyone else, but I don't know if it's worth it yet.

Robbz

BJ, that's not fair.

BJ

I think to what you just said, I don't care, I don't care.

Robbz

Life's not fair. That's how it's going to be. Business decisions are going to be made. Just make sure that you're noting them, you're writing them down, and you're not just letting them go by the wayside. Because then you're going to have everybody in the company starting to just have a pistol in their pocket, shooting left and right and buying softwares all over the place. I promise that will happen.

BJ

Please reference our shadow it rogue it episode where we talk about people just using the company Amex and standing up new software.

Robbz

Yes.

BJ

The amount of time we find, we get this expectation of support. Help me with this piece of program or this program. And it's like we've never seen that before. Right? You didn't even tell us you used it.

Robbz

And now I don't want to say write off on it without going through your it to make sure it's secure. That's understanding that this has already been approved by it, saying it's a clean program and it's at least safe. That has to be done first. But if it's safe vetted, we're just saying it's an expense.

BJ

Which is why we don't recommend using desktop goose.

Robbz

It's safe. It's safe.

BJ

It's not for a business computer.

Robbz

No, it's not. Put that on your daughter's computer.

BJ

Watch her play with it.

Robbz

Now again, I do have to stress that if you have a 100 employee company and you start writing those off, where's your line between standardization? How are you going to save money writing it off? Again, business case is the way of going forward.

BJ

Well, we were talking about some basic facts before we got on the podcast. And something that I've consistently heard and something I've consistently observed and just kind of pay attention to is like what percentage of spend should people be? Should a small to medium business spend? Like what percentage of gross revenue should they spend on it? And if you look at a couple of different sites, you typically see that companies under 5 million in revenue tend to spend around 7%, just under 7% of their revenue on it. If you look at a mid sized company, five to 20 million in revenue, around 4%, a little over 4%, and then companies over 20 million in revenue spend around 3%.

Robbz

And that's such a hard figure because every business is a different type of snowflake. So there'll be exceptions to the rule where some are 37%. So you really dial it into what you have. So when you're looking that up, go to, if you're a dental office, do that buy of your industry, don't go by the national average, find your industry and then look up those metrics for a, let's pick it up like a 25 person dental office. What am I looking against?

BJ

Well, and so to your exact point, we benchmark ourselves against other managed service it providers. And so what that means is we've standardized our finances against a benchmarking company so we can know if we're on track or not. The auto industry did this a lot with something called the 20. It was a peer group where people basically showed what they were doing for marketing, for finance, for it, all of these different areas of their business, and they started comparing. Why are you spending 10% of your income on marketing and you only get this kind of return? And this person spending 4% and getting this kind of return and allowed them to start standardizing what things should cost. Chances are your industry has something similar. There's some kind of industry benchmarking and the numbers we are giving are going to be fairly generalized. Right. But as an IT company, we probably spend closer to twelve or 14% of our gross revenue on technology because it's extremely important on saving headcount. So if we didn't spend the amount of money that we did on it or like technology, we would probably need to hire another person or two. So it's just a function of what makes sense for your business. Are there industry specific numbers that you can go look at? That way you know you're being competitive. If your closest competitor is outspending you two to one, we'll figure out what they're spending it on. And it might be a waste of money, but if they're winning, what are they doing to win?

Robbz

Now, I tried to do some other metrics, just to do more vanilla metrics on that per employee cost that we're trying to hit. Looking at this using more global data, we're looking at per employee per year of the lower end, $2,500 per employee per year for just software, not higher end spend than a more normal spend is $3,500 on just software for the employee, for just software, nothing else.

BJ

And so that might seem really high, but then you realize if they're getting business premium, that's $22 per user. If they're getting phones, that's $15 per user or 20 generally, I would bake kind of voice into that potentially. I don't know what numbers that is.

Robbz

Absolutely trying to bake into that. Yes, because most of the phone providers are all software based.

BJ

They're all software based now. So if you're spending three grand a month on your sage divided by 50 people, that's around $100 per user per month. If you have Asana, that's $35 per user. If you have Adobe Creative cloud, that's probably 55, between 50 and 60 for the top end. One.

Robbz

Your other line of business apps, your accounting software, who knows calendar integrations, but.

BJ

It'S only for three users. Again, it's understanding what you have and what you spend it on. And then, for example, for us to do managed services for our clients, it's around $225 per user per month. And so for our clients, it's pretty common to spend three to five or $600 per employee per month on technology. I'll say that's per user, not necessarily per employee per month, but then that's a very budgetable number. And that's usually also including all their hardware.

Robbz

Yeah.

BJ

So that bigger company we talked about at the beginning, they're about a $75 million a year company. When I do the math, the amount of money they're spending is about $25 to $30,000 a month on average, but it's less than 2%, less than 3%.

Robbz

Now, they did have some stats, and they did say that fun fact, that when you have a managed service provider, your average spends are generally lower because you have someone watching it, because you have less of the manager writing off exceptions for their favorite employees on different softwares and other expenditures that were doubling up on softwares that they didn't need. So that's a fun fact.

BJ

So, for example, this company, I did the math because apparently I can't do it in my head right off the top. I know we don't have 100% of their technology spend documented, but we're within probably $2000 to $3,000 a month. They're spending less than a percent. They're spending a third of a percent.

Robbz

Hard flex, baby.

BJ

And they're one of our bigger clients. Right.

Robbz

Man, we're like the doordash of their life.

BJ

Yeah. Especially when automated reports don't run. But that's neither here nor there. Sorry. Dealing with.

Robbz

No, I mean it like cost. Like cost, my friend. We cost them lunch. You know what I'm saying?

BJ

Right. And that's the thing. But I literally had a conversation with their CFO today because one of their marketing people said, I need admin. Give me admin. And I sent a screenshot of their insurance that said no local administrators back to them and said, I need approval from the CFO before we do this. And then I got a call, don't do it. And he's like, we rely on. Without what you do, we wouldn't be in business. I know, right? It was a really good feeling. But they also rely on it. They rely on it. Crazy heavy.

Robbz

Also, I need that screenshot for later. Call me.

BJ

Right. You're welcome.

Robbz

Well, this again, beginner topics that you should be putting together for getting your it budget be put together. You should be thinking about these. You should have them prepped. It should be a sit down. Think about these topics. Beginning three months ahead of time, minimum, before the beginning of your fiscal year. Most of the time, big businesses require you have it submitted three months before the fiscal year so they can begin reviewing it and revising it.

BJ

Well, and that's it. Whether it's your managed it provider, whether it's your internal IT director or CIO, these are all things that need to be coming up at the executive level because it's important and it's a huge part of how your business runs now. And if you're not paying attention to it, it's absolutely going to catch up with you. At some point it might not be today, it might not be tomorrow, but at some point it's either going to be a threat actor getting in because you didn't layer on enough defense. It's going to be something critical dies. It's that million dollar machine out in your warehouse that is still running a ten year old pc or 15 year old pc. At some point that's going to die. Plan to replace it because most of these things can't be changed on a moment's notice. At some point I'm not going to be able to replace that 15 to 20 year old computer. It's just there's no way.

Robbz

We have this cool podcast you've been listening to on the occasion that keeps telling you to be proactive, not reactive. You have to have the money to do that. So have the backing. You're already spending it and it costs less to do so. Just have the plan to be proactive throughout the year.

BJ

Well, and. Or accept that it's a.

Robbz

Or accept the business risk and document it.

BJ

Bingo.

Robbz

That's not a problem either. That's a mature thing. We talked about exceptions to the rule. Just make sure that you consciously made that decision.

BJ

Yeah, exactly. Make sure it was a decision. Because a lot of times what you're going to find is, especially with compliances that are coming down the pipeline or are here insurances. If you have an exception and they know it and they still bind you, then you're okay. Plan for it. It's an acceptable risk.

Robbz

And that goes for compliances as well. I just want to put the little asterisk there. It's not just insurances. Like let's say HiPAa say that you made a plan to move something and you moved the date and you had that in documentation and something happened with HIPAA. HIPAA very much works with you. As long as you have documentation that you made the effort, the compliances work with you as well. In some cases.

BJ

Well, almost all of these things are kind of like taxes. It's all about the story you tell and what the provider or your CPA is willing to help you back up. Right. But it is dead right if I have a really clear path forward and a journey mapped out for a client. So let's say we bring on a new medical office that has HIPAA and we know that it's going to take them probably two years to get to this point, and they get audited in six months. Well, they probably aren't going to have 100% of the things done that they need to do in that six month period. But I'm going to be able to sit down with the HIPAA auditor and go, hey, yes, you're right. You got us on these three things. They're on the roadmap for six months from now. Here's all the things we've checked off the roadmap over the last six months. How bad are you going to ding me? Right?

Robbz

Well, until the next podcast, go to businesstechplaybook.com. Otherwise you can check the show notes as well. [email protected] come say hi at the offices in Redlands, California at know give BJ a high five. And also, I don't know if you know this, but you know, send a duck call to Etop.

BJ

Oh, good lord.

Robbz

He really likes duck calls. I don't know why, but if you could play us out with one, be great.

BJ

The running joke here is Mr. Robbie sent me a duck call because I've got ducks in my backyard.

Robbz

He's a big duck enthusiast.

BJ

Yeah, I don't know about enthusiast, but duck tolerant at this point. And on that note, we're waiting. Subscribe.

Robbz

We're waiting. Barely picked up. Until next time. Our.

Episode Notes

For more episodes got to http://businesstechplaybook.com

Find more on LinkedIn: https://www.linkedin.com/in/william-pote-75a87233

This podcast is provided by the team at Etop Technology: https://etoptechnology.com/

Special thanks to Giga for the intro/outro sounds: https://soundcloud.com/gigamusicofficial