Law Practice Management Asked and Answered Blog

Category: Budget

Sep 22, 2015

Law Firm Budgeting – Is a Budget Necessary

Question:

I am the managing partner of our six attorney firm in Fresno, California. I recently went to a management seminar that stressed the importance of creating a budget for the firm. We currently do not have one. The budgeting process looks like a lot of work. Is it really worth the effort?

Response:

I believe that a revenue goal budget is the most important aspect of the budget and it does not take that much time to develop. It establishes revenue accountabilities for the revenue producers (attorneys). Insufficient revenue is the most common financial challenge that most law firms face.

While expenses are important and should be managed as well – the bulk of a law firm's expenses are office rent, employee cost, and in some firms marketing expenses. Most of these costs are fixed and once set in motion can't be managed.

Unless you have an office administrator that you want to hold accountable for managing the operations of the firm and the expense side of the ledger – you could start by just budgeting the revenue and see how that works for you. If you have an administrator a revenue and expense budget is important so that you can delegate and allow the administrator to manage operations without having to second guess each and every operational decision that they need to make. The budget provides the accountability tool.

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John W. Olmstead, MBA, Ph.D, CMC

Nov 11, 2014

Law Firm Budgeting – Creating a Financial Budget for 2015

Question:

I am the managing partner of a 12 attorney firm in Springfield, Illinois. We have never had a financial plan or budget but I have been thinking of creating one for next year. I would appreciate your thoughts as to whether the time invested in putting one together is worth the effort.

Response:

I believe that successful firms:

Are focused
Have a sense of where they have been and where they are heading
Have a vision and a strategy
Have business and financial plans
Have goals and measured attainment
Foster accountability from self and others
Are proactive
Work the books and aggressively managed and balance the RULES (Rates, Utilization, Leverage, Expenses, and Collections)

Lawyers that fail to focus their practices; set goals, measure accomplishment, and foster accountability will fall short and not meet their financial objectives.

Attorneys need to begin focusing their practices, setting firm and individual performance goals, measure accomplishment, and implementing systems to instill accountability from all members of the team – attorneys and staff alike. Budgeting is a tool that can help you measure goal attainment and how well you are doing.

What is measured is what gets done

With budgeting law firms and attorneys can:

Reduce worry and stress at home and at the office
Improve productivity and profitability
Increase accountability – yourself and others
Focus the practice
Improve balance between personal and professional life
Maximize practice value for eventual practice transfer/transition

Keep in mind that budgeting entails both financial and non-financial goals.

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