2018 is almost here. It is inevitable, of course. So, have you budgeted for the success of your law firm in 2018? There is no time like the present to budget for the success of you law firm for the next 365 days.
Which now begs the question – what is the definition of “success” for your law firm? Is it to have a profitable practice or a sustainable practice? Whatever your definition of success may be, preparing a budget is the only way to get your law firm to achieve that goal. You cannot operate your law firm in a vacuum of not knowing, and not being prepared for, the cost of overhead to sustain your practice for the next 12 months.
Here are some simple steps that you can use to budget and forecast for the success of your law firm in 2018:
Run a year to date total of all expenses that your firm incurred during 2017 through the end of the year. If you do it now, you can run a 10 month expense report showing what your firm paid out in each category of overhead expense for each month. This will give you a fairly close number to work with. If you are planning on bonuses etc. calculate those in before you divide by the number of months you are using. Review each category for excess spending and see where you can cut costs of suppliers or vendors. In addition, you might want to include a miscellaneous or slush fund category if you really want to plan for the unexpected.
Prepare a strategy outline of where you plan to take the firm next year in terms of growth. Are you planning to add an associate or two, do you need to expand your support staff or is an office move in the future over the next 12 months that will increase the rent overhead? Project out what you will spend on an annual basis for any growth that you are anticipating and divide by 12. This will give you an idea of the added cost of growth.
A budget is really only good the day that it is prepared and it is always subject to change.
Your budget will give you a snap shot of where your firm will be in 2018. Although income projections are based on the previous year, it is a good starting place. At the end of every month, review your expenses and income and compare it to the budget that you prepared. You can then make adjustments for the following months accordingly.
Every law firm accounting program that I have worked with gives you the ability to easily generate the reports that you will need to prepare a 2018 budget. So if you can computer generate these reports, there is really no excuse not to prepare a budget.
Financial planning is an important part of managing the business of practicing law®. Do not fly by the seat of your pants. If you cannot do it, get someone who has the experience to prepare the budget and work with you on updating it as the year goes along. It’s your law firm’s money – manage it and don’t let it manage you! Here’s to your law firm’s continued success in 2018!!