Budgets are a necessity for every business. A comprehensive budget allows you to put your financial goals and priorities into action by laying a solid foundation for your business’ finances. Read 8 Figure Firm’s blog to learn more about why you need a budget for your law firm.
What is a budget?
A budget is an overview of your planned revenue and expenses over typically one calendar year. When used correctly, budgets can give you the power to make clear and concise decisions that will benefit your business as a whole. Creating a budget is crucial to help you keep track of your finances and prepare you for unexpected issues that may arise.
What are the benefits of a budget?
There are many benefits to creating a budget for your law firm. Let’s walk through the five ways a comprehensive budget can help you grow your business.
First, a budget provides transparency on all expenses and revenue streams within your business. In a study conducted by McKinsey, they found that 57% of owners felt their company’s spending habits were not transparent enough. Determining where your spending is going is crucial to figuring out if rearranging your budget would yield more efficient and predictable results.
Without transparency in your organization, you won’t be able to grow. It’s the key to creating predictability. You must set clear expectations with your budget to properly outline your spending. In doing so, you will be able to create a more predictable business and thus scale your firm.
Next, using a budget allows you to properly allocate your money to the proper departments within your firm. It is critical when budgeting to think about the company’s future and plan accordingly. If you are planning on hiring multiple employees or changing office locations, that should be reflected in the budget with realistic numbers for the cost involved. In the same vein, solidifying the budget for your strategic marketing plan is paramount if you are focused on lead generation and brand awareness.
It’s easy only to include your current expenses. But, you need to make sure you are looking at the future of your firm and estimate those costs so that they don’t surprise you later on. If you prepare for growth when creating your budget, you won’t have to worry about unexpected additional expenses in the future. Take time to talk to your leadership team to discuss how the firm will grow over the course of the year and figure out what it will cost in order to properly accommodate that growth.
Reach Your Objectives
A clear budget will help you plan to reach your goals throughout the year. By dividing your overall budget into quarterly, monthly, or even weekly breakdowns, you provide your team both an opportunity to keep a close eye on meeting the goals set and also more reassurance when consistently meeting smaller goals.
If you have goals to grow your team, improve your office space, or even change buildings, you need to plan for that in your budget. Looking at your overall budget will help you choose which objectives you can aim to achieve this year and which will need to be completed at a later time.
Without a budget in place, it can quickly become challenging to keep track of all of your expenses. A budget is a fundamental part of your business plan, which should act as a guide for the decisions made for the company. Not only does it give you benchmarks to hit for your business, but it can also help you identify undesirable spending habits and work on correcting them for even more growth.
A budget is not something you create and then never reference again. It’s an ever-changing document that should be assessed multiple times throughout the year. It’s essential to regularly check your budget and compare it to your actual spending to ensure you are staying on track with your goals for the year.
There are lots of different ways to break down your budget. However, within the legal field, there are a few things we recommend you do. Make sure you are keeping track of expenses, including current firm debt and current anticipated costs. Revenue-based KPIs are also important, including stats like:
- Revenue billed per month.
- Revenue collected per month.
- Revenue per employee.
- Revenue per matter.
Finding KPIs that give you the necessary information is vital to growing your business.
Speak to the Experts
There are many benefits to creating a comprehensive budget for your law firm. Not only will you make more clarity and accountability, but you will also have a way to manage your metrics and expected revenue. Creating a thorough and robust budget is crucial to the success of your law firm.
Although they have many benefits, it can be challenging to write an effective budget. Here at 8 Figure Firm, we can help you through the process with ONE.Coach, our proven program to help you grow your firm.
If you’re ready to take your law firm to the next level, register for ONE.Coach today. We’ll help you turn your law firm into a law business.