Do you know whether your firm's overhead is too hight in light of projected revenue? Have you projected what it will take for your firm to be profitable in the coming year?

To answer these questions, your law firm should have a budget. A budget provides a financial roamap of your firm's goals (revenue) and the reources allocated to achieve them (expenses).

STRATEGIC PLANNING
As a law firm grows, the firm's management can rely on the budgeting process to help control overhead and monitor operations. But, since a budget should also reflect a firm's future plans and prospects, budgeting is closely related to strategic planning. Essentially, the annual budget quantifies the financial impact of that year's strategic plan.

Your budget should not be overly optimistic, because this may only discourage lawyers and staff if they fall short of an unattainable goal. On the other hand, plans that are too conservative may not provide the inspiration necessary to push staff to fulfull your firm's potential.

WHERE DO YOU START?

Start with you general ledger catergories for revenue and expenses. If you have three revenue categories, adopt those categories for your budget. Alternatively, you can use the line items on your firms income tax return.

To determine revenue projections for each category take into account prior years' performance, future economic outlook, and competitive factors, as well as your firm's strategic plan. Estimates of salary, operating and other expenses can be based on prior years' expense history (adjusted for inflation) and changes in business volume.

Take your annual amount for each budget item and divide it by 12 to get started monthly numbers. Then make any necessary seasonal adjustments for certain items such as utility and bonuses.

A good budget is not rigid. Rather, it should be adjusted based on alternative outcomes and should include alternative action plans if mid-year projections are not fulfilled.

A DYNAMIC BUSINESS TOOL
Your budget is a management tool. Review actual revenue and expenses every month or two and compare them to your budget numbers. Identify variances and analyze them. Why did they occur? Use your findings to identify opportunities for cost savings and improved efficiency in your firm's operations.

Perhaps you would like help preparing a budget. Or, if you have already developed a working budget, you might want to obtain an independent evaluation of it. In either case, please call us at Lawson Rescinio Schibell for more information at 732 531 8000 or email us at lrscpa@monmouth.com