Accurately calculating how much IT is actually costing your business ensures that you’re not wasting money. Make the process easier with these guidelines and calculators.
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A Realistic Approach To TCO
Calculating the total cost of ownership (TCO) for any given piece of technology is the most basic kind of cost assessment. While this is a useful number, it’s worth recognising that you’ll probably never capture every relevant number.
Some costs are transparent and obvious: if you purchase toner for a printer or pay a monthly subscription for a cloud-based accounting package, that is clearly part of the TCO calculation.
Other costs are less obvious, but easily calculated. For instance, listing your computer systems on your insurance policy will generally change the amount you pay for insurance. That difference is in fact a cost of using the technology, and part of the TCO. You could find out that cost by asking your insurer for a PC-free quote. (That doesn’t mean you should ditch the insurance, but it does give you an indication.)
Still other costs are fiddlier to calculate. Increasing (or decreasing) electricity usage, for instance, is hard to computer, since you’ll rarely be able to separate out your computing costs from other variables. Phone plan charges may vary wildly month from month, making it tricky to decide if a different plan might save you more money.
Use Tools From Your Bank
If you search online for “small business calculators”, you’ll find dozens of options. One useful place to start: the calculators provided by your own bank. The best of these will let you incorporate business data from your statements, which gives you a more realistic picture.
Incorporate Depreciation
For more expensive hardware purchases, you’ll generally have to depreciate their value over a number of years, rather than including their whole cost as an expense in the relevant tax year. Depreciation rules can be complicated and this is where having a reliable accountant definitely pays off. However, the Australian Taxation Office has a handy basic calculator that will tell you how much you’ll be able to depreciate each year.
Remember To Include Your Own Labour Costs
A common mistake, especially in small businesses which don’t have a specific IT manager role, is not to calculate the labour costs involved in setting up and maintaining technology. If you’re spending four hours a week ensuring everything works, doing data entry and running back-ups, then that’s part of the overall costs of own that technology. It’s also four hours where you’re not working on other aspects of the business.
Not every single minute you spend on the business can be creative or profit-oriented — administration tasks are a fact of life — but it makes sense to calculate how much that would be costing you, even if you’re not formally charging your labour costs to the business. If nothing else, that gives you an indication of how much it would cost to hire someone to perform the same tasks — something that is likely to happen as your business expands even if it isn’t a realistic option right now.
Not All Costs Can Be Avoided
Your broad aim may to be minimise business costs, but not every single cost can be eliminated, and cutting costs isn’t always possible or sensible. A web site hosting plan which is half the price but which doesn’t guarantee a response time when there are problems doesn’t make sense if you’re selling online. It’s hard to imagine running any sort of business without a computer — even if you’re confident you could do all the calculations on paper, you’ll be outpaced by competitors. It’s useful to know your TCO, and it’s useful to examine whether it can be reduced. But it’s also useful to recognise when technology does save you time and effort and makes your future business plans possible.
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