How to Budget and Build an Expense Spreadsheet for Your Firm

Whether you’re in the startup phase of building your firm or looking to get organized, a budget system can help you align your business strategy with your long-term vision. A law firm expense spreadsheet can help you track your fixed and variable expenses, understand your profit margins, and gain valuable insights to help you scale and grow your business. Read more to learn tips on building an effective budget and access our free law firm expense spreadsheet that we’ve created for firm owners and attorneys just like you.

How Budgeting Helps Your Law Firm

Law firm budgeting, expense tracking, and sales forecasting might not be on an attorney’s list of favorite things to do, but they are essential to the operations and growth of your firm. Having a budget gives you the numbers and data needed to make smart financial decisions and avoid costly mistakes.

Here are the top reasons why a law firm budget can help you and your law firm:

Make smart financial decisions. When you’re armed with accurate, up-to-date information about your firm’s financial snapshot, you can make wise decisions that align with your short and long-term business goals.
Develop a strategic plan. When you understand your profit margins and overhead costs, you can leverage this information when building your business roadmap. This valuable information can help firm owners understand when to invest in things like marketing, advertising, technology, and staff to help grow your firm.
Be proactive instead of reactive. As with any business, there are times when revenue slows, or unexpected expenses pop up. A reliable budget can help you recognize any issues in your business model before these issues become a crisis.
Spot opportunities to increase profit margins. A smart budget can help attorneys and firm leadership spot areas where the firm can cut expenses or grow revenues, empowering you to increase profitability and efficiencies.
Secure funding needed to scale your business. Whether you’re looking to grow or sell your firm or need a line of credit, prospective business partners and investors will require a strong business plan and a healthy budget.
Align key stakeholders. Suppose your firm is part of a partnership or includes leadership with a vested financial stake. In that case, these key stakeholders will need assurance that their assets and interests are protected and secure.
Relieve unnecessary anxiety or stress. By keeping an accurate snapshot of your firm’s financial picture and being able to access it at any time, you won’t waste time worrying about your cash reserves, income, or expenses.
Increase the likelihood of long-term success. The strength and longevity of your business are directly dependent upon its financial stability. A budget keeps you on track and allows you to scale incrementally and profitably.

In the end, a well-prepared and detailed budget can empower you to strategize and scale your business efficiently and profitably. With the proper fundamentals and healthy habits in place, you’ll be on the right track and moving forward quickly.

7 Steps to Create a Budget for Your Law Firm

Creating a budget can be a simple, stress-free process that pays dividends for months and years to come. Here are some helpful steps to follow when building a budget for your firm:

1. Review your business plan. Before creating your budget, it’s essential to take a look at your business plan. If you haven’t developed a business plan already, now is the time to take a step back and make sure that you have a formal roadmap for your business, including objectives and goals, a market analysis, as well as key performance indicators. This business plan is a vital component of your firm’s financial strategy.

2. Conduct market research. Whether you’re starting up a firm or building a budget for the first time, it’s important to understand the competitive landscape and industry standards. Perform research to understand market size for your specific state or region and demand and trends in your practice areas. This information will help analyze projected revenues, income potential, and profitability.

3. Project your expenses. First, it’s a good idea to understand the different types of costs that your firm will incur, such as fixed, variable, and one-off costs. Then, to forecast your expenses, we take a deep dive below and outline the most common expenses for a law firm.

4. Project your revenue. Using historical data and trends in your business, you can forecast your firm’s estimated sales and revenue for the next 12 months. This data will provide information to determine your profit margins as well as future profitability. If you’re just starting up, you can estimate your projected revenue by analyzing your market’s billable and hourly rates, standard salaries, and average costs of goods and services.

5. Build a contingency fund. Liquidity is key to financing your business and keeping it afloat during slow periods. These cash reserves allow you to spot any issues and, when they do arise, you’ll be able to take proactive steps to protect your business. It’s a good idea to have 3-6 months of operating expenses in cash or, as a backup, a line of credit with a low interest rate.

6. Document and track your monthly budget with a spreadsheet. A law firm expenses spreadsheet can help your firm get organized and have the information needed to make smart financial decisions. Once you’ve prepared your business plan and compiled your actual expenses and revenue, you can record your data in your budget worksheets.

What Are Law Firm Expenses? Understanding the Most Important Costs

Expense tracking helps you identify recurring expenditures, so you know exactly where your dollars go every month. It also provides insight into whether specific categories of spending are growing faster than others.

Fixed vs. Variable Expenses

Below are examples of fixed and variable expenses that you should include in your law firm’s expense spreadsheet.

Fixed Expenses

Fixed expenses are those costs that remain the same each month, making it easier for law firms to predict and plan. These monthly expenses include:

Rent or mortgage payments
Property taxes
Utilities
Employee salaries and wages, including payroll taxes
Bank charges (including IOLTA account fees)
Equipment service plans or leases (including phone, fax machine, computer, copiers and printers, etc.)
Business loans
Insurance (professional malpractice, business interruption, health, etc.)
Professional memberships
Software or technology subscriptions (such as CRM, CM, billing, receptionist, and court docket systems)
Website hosting
Marketing and advertising costs

Variable Expenses

Transportation and travel
Furniture and office decorations
Employee or staff payroll, such as law clerks or temporary associates
Events and conferences
Business credit card fees

It’s a good idea to be diligent when categorizing your law firm’s anticipated expenses, as these are the foundation from which your firm will grow. By outlining and organizing these items, you will be able to keep an accurate snapshot of your firm’s financial health and pivot as needed if any emergencies arise.

Tips to Build an Effective Law Firm Budget

We’ve discussed the benefits of budgeting and walked through a step-by-step process on how to develop your plan. But, before getting started, here are some helpful reminders on keeping your firm’s budget accurate, up-to-date, and sustainable for the long term.

1. Start with a plan. The 7-step process outlined in this article is a great blueprint to get started. By having a plan in place, you’ll be sure to set yourself up for success.

2. Assess your plan frequently. It’s important to set up a recurring time to review your budget on a monthly, quarterly, and annual basis. This may be helpful if you can review it bi-weekly, and it doesn’t detract from your billable work. With each review meeting, it’s good to establish healthy money habits, review your expenses and income over the previous period, and adjust your future projections.

3. Cut costs when possible. When reviewing your plan and budget spreadsheet, keep an eye on opportunities to cut costs. Don’t hesitate to research new vendors that may offer the same services for less. By being diligent with your expenses, you’ll ultimately increase your profit margins and be able to scale the business more quickly.

4. Tap into budgeting software. A spreadsheet provides a good foundation for the early work in building your budget. It’s also helpful for firms and solo practitioners that have not yet reached the high volume of work to require a bookkeeper or full-time staff member. However, once your firm grows, there are several software tools that can help with heavy lifting. Some of the best tools on the market include:

5. When needed, hire an expert. If your firm is growing rapidly and your growing revenues can support an additional staff member or consultant, you may want to consider hiring an experienced bookkeeper or office manager. Small law firm owners tend to wear many hats, but it’s important to devolve the work to the experts when it’s outside of your skill sets or pulls you from the billable work that is very valuable.

With these tips, you should be able to expedite your budgeting process and align your business strategy and goals so that you can increase profits and scale quickly.

Free Law Firm Expense Spreadsheet

If you’re looking to build a law firm expense spreadsheet, we’ve saved you the headache and hassle and have built a free template for you. To get your free copy, click the link below.

Law Firm Budget Template

Download

In case you’d like additional versions or formats, here are templates that are specific to small business or preview versions:

Set Your Firm Up for a Profitable Future

With the right tools, your firm can secure its financial health through a well-structured budgeting plan.

Whether you’re just starting out or looking to refine your financial processes, Firm Innovators is here to help optimize and streamline your business so that you can grow efficiently and scale profitably. Click here to schedule a 15-minute discovery call to discuss your firm’s goals and how we can help support your business growth.