Income and Expenses: Planning the Budget for Your Success
No one wants to think about income and expenses, and that includes your law firm. As long as the bills are getting paid, there must be money, right?
Hence, often the bottom line comes as a surprise to the firm – how are we paying our overhead expenses? Clearly, the first sign of true financial success of your firm is predicated upon the expenses of the firm not exceeding its income. Seems pretty simple, and yet, you would be surprised at how many firms are not doing well financially and don't even know it.
The first step towards the financial freedom of your firm is income projections. It may sound impossible to do income projections because really, how are you supposed to know from one month to the next how many clients you will have?
Income projection does not only include how many clients your firm takes in, but the delegation of work each month on the client files that you already have.
Work is needs to be delegated to the most competent, least expensive staff member. By doing this, you make sure that each staff member is billing the required100 or 120 hours per month. For example:
Partner – 100 hours at $350/hour $35,000
Associate – 100 hours at $300/hour $30,000
Paralegal – 100 hours at $150/hour $15,000
Legal Assistant – 100 hours at $100/hour $10,000
Monthly total $90,000
Clearly, this delegation will yield a 4-person law firm income over $1,000,000.00 per annum.
Even if some or all of your firm’s work is flat fee, you can still do income projections.
The first step in preparing your firm’s annual budget is to figure out current and future potential expenses. Some of these will include:
· Phone services
· Staff overhead and benefits
· Utilities and repairs
· Technology – including computer devices and service; internet and software applicants
· Marketing strategies
· Outsourcing – paralegal, virtual assistant, virtual/part-time law office administrator
These are but a few of the monthly expenses that the firm needs to pay every month.
Plans for growth and staff expansion need to be considered. This may also mean larger office space, another computer, telephone, etc.
A budget is only a tool to help your firm succeed – if you use it. Going to the trouble of planning out income and expenses is a futile effort if it is not used for its intent. To help you manage the income and expenses of your firm – or – what is coming in and going out. This will also help you realize where money is being wasted and other areas, such as marketing, where additional expense will help the bottom line.
To make up a budget and then only look at it once or twice a year is like having no budget at all. It is too late to track wasted money 6 months down the road – all that money has already been spent. It is also too late 6 months down the road to know that the delegated work flow is not happening, therefore all that income is lost. I recommend that at the end of every month when you review the firm’s expenses, you should look at your budget and see what you budgeted and how much you spent. That's the time to catch money leaks.
Looking at the budget and the monthly income projections will enable you to catch where adjustments need to be made. Again, if a firm timekeeper is not performing, now is the time to catch it.
A budget is only accurate the day that it is written – remember that!
Being informed about your income and expenses is just good business practice. Preparing budgets and income projections is one of the things I specialize in. You cannot know where you are headed if you do not know what the financial situation will be.
Call me – Liz Miller, Law Practice Management Consultant - at 813-340-9569.
I can help you with the financial aspects of managing the business of practicing law including budgeting, income projections, and cash flow. Check out my recommendations and services on my website at: www.fromlawyertolawfirm.com.
Or email me at: email@example.com.