Budgeting. It’s the cornerstone of any effective business plan. A budget allows you to allocate resources to the right projects and people. It helps you monitor performance and meet your objectives. It helps you make decisions for next week and for next year.
We can all agree on their importance – but do you have one?
Building law firm budgets usually isn’t a big part of law school curriculum. You either learn it on the job or someone else handles it. But knowing how to budget for a firm can make the difference between a practice that thrives and one that just survives.
Not all budgets are created equal and each firm may have different needs. If you’re a new solo practice, you’ll probably need to account for more in the way of startup costs like a computer and office supplies. Depending on your practice area, your software needs may be different too, so really think about what your specific needs are going to be.
If you’re just starting out
Whether you’re throwing out all evidence of a previous budget and starting over or you have an entirely blank canvas to work from, you’ll want to follow these four steps to building a good working budget.
What kinds of figures are you looking for?
List all your expenses and all your resources
Before you start thinking about incomes, get a handle on what your fixed and variable expenses are going to be. For variable expenses, like utility bills, play it safe by using the highest amount you’ve paid. Over time, you can determine what the average amount is, but at the outset, plan for higher expenses.
Office space and utilities
- Office location
- Internet and phone services
- Gas, electric, trash
- Laptop or desktop computer
- Modem and router
- Cloud drive backup
- Printer, scanner, fax machine, and supplies
- CLE subscriptions
- Technology, research, and business solutions software
Staffing and support (if applicable)
- Lawyer salaries
- Support staff costs
- Contractor and consultant fees for outsourced work
- Insurance, retirement and other employee benefit costs
Membership dues and fees
- Bar association dues (state and local bars, if you wish)
- Renters insurance
- Business cards
- Advertising costs (Google AdWords, Facebook ads)
- Networking events
What’s your revenue?
It’s fun to daydream about the income that you might generate, but it’s extremely important to project revenue accurately. If you are overly optimistic about potential revenue, you’ll find yourself in the hole quickly.
That being said, be honest with yourself about your goals. Only by being honest can you determine what the best tactics are for growing your business.
As you project your revenue, this will be impacted by how you set your rates. No matter if you’re a solo practice or an established firm, look at the averages for your practice area, location, and desired clientele. Check out our article on how to set rates for more information: How should I set my rates?
Document and track
Now that you’ve assessed and projected, all this data should go down on at least an Excel sheet. (Accounting software is great, but not strictly necessary for starting a budget.)
For the first year, track your budget on a monthly basis. It may be tempting to do it more often, but there’s a point of diminishing returns here.
As you track your budget, ask yourself where you might identify expenses that can be eliminated – or incurred. Weigh costs against what activities might help your productivity or bring in new clients.
For example, if you find that you’re spending a lot of time on social media marketing but to no real success, consider finding a marketing agency that provides that service. By being aware of what your revenue goals are, you can have a greater awareness of what your time is worth for your firm.
A budget should address the day-to-day and month-to-month, but you should also plan ahead with your budget. Ask yourself – what are annual recurring costs? Membership dues are a great example, as are capital expenditures. While some expenses might look like a one-time deal, you should have a plan for long-term capital expenditures. Computers need to be replaced. Office furniture needs to be refreshed. These line items can be expensive if they catch you off guard, but if you plan for them into your budget, they don’t have to trip you up.
Budgeting can be time-consuming and can leave you feeling like this kind of task takes away from why you got into law in the first place. But the lawyer who budgets is a lawyer who has an intimate knowledge of their practice – how it works, what it needs, and how to make improvements. And when you do that, you’re not just a lawyer – you can be a leader.