October 24, 2006
Law Firm Planning and Budgeting
George O’May, the founder of what is now PricewaterhouseCoopers, once wrote something to the effect that it would be impossible to measure income (of a business) in so short a period as one year if it were not absolutely essential to do so.
Rough and inaccurate navigation has a better chance of getting you where you want to go than no navigation at all. Yet, 80 percent of midsized law firms do little in the way of navigation. Success, for whatever period it exists, appears to be accidental. Partners in those firms that do plan and budget earn two to seven times more than those that do not.
Planning is a continuous process, one that shapes a firm’s decisions and, at the same time, is shaped by decisions. Budgeting lays out expectations and goals for the coming operational period. To be effective, planning and budgeting have to be accompanied by programs that measure progress and that hold people accountable.
Prior posts have dealt with the Strategic Planning process. For example, see The Structure to Structured Planning. Budgeting is more down to earth. It is closer to home in terms of time. We are not planning based on assumptions about the future as much as we are dealing with the here and now.
The Juris development team recently invited existing Juris law firm clients to provide input for expanding the budgeting functionality of the Juris suite of software. The Juris software suite already includes features for budgeting at the timekeeper, client/matter, and firm level; the development team is looking for improvement ideas. They are particularly interested in budgeting requests related to decision-support features in Juris.
What we continue to find is that the majority of midsized firms do little in the way of budgeting. Budgeting firm expenses is more common than budgeting for the enterprise as a whole, including, for example, complete financial performance and cash flow. Budgeting at the matter level is largely nonexistent except where required by the law firm’s client.
The law firm's revenue producing resources are its legal professionals. The most elementary (and important) budgeting step would be to develop individual “budgets” or plans for each individual timekeeper. Why an individual plan? Every member of the team is an individual—each with a different balancing act in their daily life. Billable hours are just one part of that balancing act. Firms that have successfully adjusted to new work/life balance environments will vary compensation and timekeeper plans based on the individual’s plan. The plan should include:
- Business Development
- Professional Development
- Management or Administrative Activities
- Work on Non-Billable Matters
- Work on Billable Matters
Budgeting fee revenue for a law firm for so short a period as one year (let alone one month) would be impossible if it were not absolutely essential to do so! You can’t do it just by adding up available hours of the professional staff. You can’t do it just based on past experience. You can’t do it just by reviewing the work already in-house. You have to do it using all of those pieces of information plus a large dose of judgment. The fact that it is difficult makes it all the more imperative that it be done.
Morepartnerincome.com is sponsored by Juris, Inc. For information about Juris® products and services for increasing law firm performance and partner income, go to www.Juris.com.
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Filed under Planning by Tom Collins