- What are the top 2-3 benefits you’ve seen from having a good budget?
The ability to benchmark and better track where cash is spent in the business is a great benefit. Additionally, a great exercise is to build a bottom up budget, which means start with your profit projection for the year first, then enter your expense budget, and finally after that calculate how much revenue you have to make in order to cover expenses and meet your profit goals.
- Why do you think lawyers drag their feet on creating a budget?
I feel most lawyers drag their feet for one of two reasons. One, they don’t feel it is important or do not see the benefits and results that a budget can produce. And the other reason is, accounting and budgeting is a part of their business that makes them uncomfortable. According to a 2019 study by Clio, 53% of attorneys are uncomfortable with the business side of their firm.
- For a law firm without a budget, what’s the first step they should take?
The best first step is to take a look at last year’s data. Is the data complete and accurate (Question for your Accountant)? If yes, then take last years numbers and start projecting where this year may be different from the last year.
- Where should an attorney keep track of their budget?
It is best to keep your budget in your accounting software so you can run a Budget Variance Report Monthly.
- Do you recommend hiring a bookkeeper? A CPA? Both?
I do not recommend hiring a bookkeeper. Hiring a bookkeeper is a very low level of accounting. I recommend finding an Accountant who is a specialist in working with law firms and can provide high level Management Accounting Services and Reports. The insight is much greater and with today’s technology, you can hire a remote specialist very reasonably and less than what it would cost to hire someone in-house full time.
- What are the essential components of a good law firm budget?
First a good, reasonable projection on revenues. Then, account for all potential expenses, recurring and one time. For help with the expenses look at the prior year.
- Are there any differences between a solo attorney’s budget and multi-attorney firm?
The biggest difference would be in relation to payroll and distributions or owner pay. Obviously, a solo is only going to have to worry about their pay and other payroll is likely small. In a multi-attorney firm payroll projections can be much more difficult to budget, especially if the firm has a complicated bonus structure. Additionally, for growing firms, projecting payroll when the firm is adding attorneys can be very difficult as well. Finally, if the partners are taking distributions based on a percent of revenue that can be difficult to project as well as revenue is probably the hardest numbers to project in a good budget.