Budget Season 2023: Tips For Preparing and Learning From Your 2024 Budget

Your budget should align with your Firm’s strategic goals.  Even if you don’t have a big bow on your strategy or like most, just have a general idea of what you would like to do in the coming year, you can still benefit from a well prepared budget.

Many firms I work with have budgets but seldom do I see them used as an effective business tool.  When prepared and utilized properly a good budget is invaluable.  It is a grounding force in volatile business environments, it holds groups and team members accountable and most importantly it allows Firms to see when they may need to pivot and do things differently.  Even if your firm is extremely profitable a budget can help you isolate why, so it can be replicated for even greater benefit.  This ability to analyze and reflect upon results that were expected versus those that actually happened is the most valuable attribute of a good budget.

Below are some tips that can help you prepare your budget effectively and get the most out of it as a business tool.


  1. Start early – An effective planning process requires thought and input from multiple parties.  Give yourself the time to get the information needed to gather feedback, gain participation and develop key benchmarks that will help keep your firm or department on track when the chaos of the year ensues.
  2. Make it measurable – The more specific and measurable you can make your budget the better since you will want verifiable information when you are comparing actual performance to the budget.  If you are a 5 attorney firm, budget for your people, your top 10 vendors, then specific events (conferences to attend, firm parties, etc) and finally everything else, which can be done using broader assumptions, such as 10% more than last year.  If you are 50 attorneys you would want to increase the number of vendors to an appropriate amount (think 80/20 rule).  Also, the above exercise should be performed at the “Firm” level for overhead expenses and the department or practice area level for revenue and those expenses directly attributable to delivery.
  3. Use the correct groupings – Your budget should be grouped and categorized in a manner consistent with your financial statements.  Better said, your financial statements should be categorized to match your budget.  This means that each account number in your general ledger system should have its own budget.  If you find this challenging, it may be time to re-organize your chart of accounts.  And, if you find that certain accounts are too difficult or inconsequential to budget for, its usually an indicator that you need to stop using them.
  4. Isolate volatility – If you find accounts are too hard to budget because they are seemingly unpredictable, you need to isolate the cause of the volatility and find appropriate correlations.  I know its hard, but if Coca Cola can predict with a fair degree of accuracy when I am going to have a sweet tooth then there is no reason we all can’t take a stab at forecasting employee bonuses or client cost outlays.  Carve out the parts that you can easily predict and make some assumptions about the others. Study the results and adjust your assumptions accordingly.  After a few cycles you will learn from the process and improve accuracy.
  5. Think ahead – When preparing a budget it helps to think ahead to the measurement process.  Some questions I ask myself when budgeting are:

    • Will tracking this impact financial performance?
    • How will this look in the financial reports?
    • Who is most in control of this revenue or expense item and do I have their input?
    • Are there any outside influences (IT requirements, compliance needs, etc) that I may not yet know about?  And can I get that information now?
    • Have I spoken to relevant vendors about pricing changes or projects that are required/recommended?

Monitoring and Reporting:

  1. Make it easy – Comparison to budgets should be up there with the easiest reports you can run.  If you find your budget reports are lagging, something needs to be changed.  Your accounting system may have good options but Excel also does just fine, even for complex budgets and reporting.
  2. Review monthly – Consistent use will make your budget even more valuable as your firm leaders.  Anything less them monthly does not cut it.
  3. Format reports around the budget – Your budget should be the highlight of monthly financial reporting, most of which should support the ability to study and act upon any relevant variances to what was planned.  If you find your budget is disjointed from all other financial reports then you should re-think how you are preparing it.  Any key financial metrics of the firm (hours, billings, new cases, rates, realization etc) worthy of a spot on monthly management reports should be in some way tied to your budget and your current results.
  4. Use multiple dimension – When you compare budget to actual you should not just look at each month in isolation.  Viewing as compared to monthly, year to date and projected performance for the remainder of the budget period will help you gain the insight you need about your Firm.
  5. Act!! – If you are budgeting correctly, you will have things to follow up on after each monthly review.  Ensure you are assigning and managing those tasks to see them through.

The more you budget, the better the organization will get at it, and then it becomes second nature.  In time, day to day decisions will start to correlate back to the budget and you will constantly be thinking in terms of those important strategic benchmarks.

The above concepts pertain to any budget, no matter the complexity but you can certainly expand on this with concepts like budgeting for contingency practices, cash flow projections, capital budget and project based budgeting.

Happy budgeting!!

Improve Processes Using OPI

It may feel a little unnatural but understanding and visualizing your desired results will allow you to design your procedures to ensure you get clear measurable information out of your processes.  This is key to constant improvement.

Read More »

What is quality information?

Quality information is the foundation of any good decision making. When running a law firm, the quality of the information you use can significantly impact your client relationships, and sometimes even your ability to practice.

Read More »