How Can Our Law Firm Create a Budget?
Creating a budget doesn’t just help you better understand your firm’s finances — it helps you plan ahead. A well-considered budget lets a firm make informed decisions for the year to come and relieves some stress around when money can or can’t be spent.
Follow these steps below to create a budget for your law firm.
Decide on your expenses
Every firm’s expenses are different, and that’s especially true if you’re just starting out. But there are a few things you’ll have to pay for regardless of how long you’ve been practicing — though how much you want to spend on these areas may change over time.
Bar dues, malpractice insurance, CLEs, a computer, and software are pretty much unavoidable. Even in a post-Covid world, many law firms will need some kind of office space to meet with clients. But other attorneys, especially solos, may opt to work from home — between a year of remote working and the support of modern practice management software, this option has become easier than ever before.
The final common expense is marketing. (More on that later.) It’s also worth mentioning the importance of being prepared for unanticipated expenses, whether that’s a malpractice suit or a drastic shift in operations due to a pandemic.
Make revenue more predictable with streamlined billing
The predictability of revenue varies greatly across practice areas. But even attorneys with less predictable practice areas can look at averages and patterns to make informed choices.
No matter your practice area, strive for consistency by staying on top of billing. A regular billing schedule and automated reminders for overdue notices can help you get paid. After all, you can only plan with revenue you collect.
Know your benchmarks, track your patterns
Tracking billable and non-billable hours, accounts receivable, accounts receivable aging, and other data helps ground revenue estimates and averages in real numbers. This information should also be used to guide goals, which factor into your budget, particularly in terms of marketing.
While tracking and gathering data points may seem time-consuming, a practice management system can do this for you — and help you understand the patterns of your firm’s finances.
You have to spend money to earn money
One expense that can initially be hard for attorneys to wrap their heads around is marketing. Yet you need to market yourself to attract clients. While some firms may be more focused on networking to build referrals and others may aim to appeal directly to prospective clients, you shouldn’t put all your eggs in one basket.
Combine a few different platforms or approaches, depending on who you’re trying to appeal to, and track the results.
1. Building a Better Next Year: Crafting a Marketing Strategy for 2021