Tax Day is here… and it’s also the end of the first quarter! For law firms, this is an excellent time to build your budget if you don’t already have one in place. Budgets might seem daunting, but they are essential for creating a clear financial roadmap. I think about budgets every day because, well, it’s what I do, but recently, I’ve been approaching them from a slightly different perspective. I realized that building a budget is a lot like working on a puzzle, which also happens to be one of my favorite hobbies.
When starting a puzzle, it can feel overwhelming. You open the box, dump 1,000 mixed-up pieces onto the table, and stare at the chaos. Unless, like me, you had someone like my Grandmother Yowie teach you the rules of puzzle working, you might not even know where to begin. For example, you’ll often start by identifying the corner pieces, separating out the edges, and creating a frame before tackling the middle. Same with a budget: You should start with the big-picture pieces—your revenue, fixed costs, and essential expenses—before filling in the finer details. It’s all about breaking down what seems complicated into manageable steps. Once you get started, the picture becomes clearer, and everything starts falling into place.
By breaking down budget creation into clear, actionable steps, you can take control of your finances with confidence. Think of a budget as a tool to help you build a solid foundation for your financial future. Here are the essential steps to simplify the process and make budgeting work for you.
Turn over all the pieces to the right side before you do anything else. You have to be able to see everything from the right perspective in order to get started. The same holds true for building a budget—it’s all about understanding the bigger picture. Start by thoroughly reviewing your prior year’s financials to get a baseline of performance. Then, examine what has happened so far in the current year, identifying any trends, unexpected expenses, or changes in income. Pay close attention to how much money has come into and gone out of your firm, breaking it down into categories like operational costs, investments, and revenue streams. By piecing together all these details, you can create a budget that not only reflects your business’s current financial health, but also sets a clear path for future growth and stability.
Work the frame first. Don’t you dare even THINK about putting a “middle piece” in until that frame is finished! Building a solid financial plan starts with a sturdy framework, and that’s exactly what Vista’s condensed P&L Analysis provides—a strong, clear outline for your budget. We understand that forecasting revenue in a PI law firm can be tricky. It can't be just about guessing; it has to be about being strategic. Start by analyzing your revenue from the past few years. What trends do you see? Then, take a hard look at your current caseload. What cases are likely to close soon, and what’s their potential value? Finally, evaluate your pipeline—what’s on the horizon that could impact your bottom line? Pull all of this together to set a realistic revenue goal.
You’ve heard us say this a million times, and we’ll say it again because it works:
Revenue minus marketing/case acquisition costs, minus attorney compensation, minus non-attorney compensation, minus other expenses, equals profit.
This simple formula gives you the frame to build a stable financial strategy. Once that frame is in place, you can confidently start adding the middle pieces, knowing your budget is built on a solid foundation. There’s your frame. Done. Now, let’s get to work!
The hardest part… the middle. Use the budget frame to guide you here, as well. Just like starting the middle of a puzzle works best by identifying standout pieces—by color, by object, or other recognizable patterns—handling the middle of your budget becomes more manageable when you break it into categories. Start with something like marketing and case acquisition—focus on that section and map out your plans. What marketing campaigns are essential this year? Are there new strategies or digital tools you plan to invest in? Once you've tackled that, move on to the compensation section, which often requires a bit more thought.
When reviewing compensation, ask yourself: Will it be similar to last year, or are there changes on the horizon? Do you anticipate hiring additional team members, and if so, in which quarter will those hires take place? This is also a great time to evaluate the structure of your team's compensation. Is your current bonus or commission structure still the most effective for motivating your team and aligning with revenue projections? Could introducing a new system improve performance? You should also consider whether outsourcing some of the non-attorney duties, such as administrative work or IT support, might free up your team to focus on higher-value tasks while improving overall efficiency.
Once you've worked through those categories, move on to the other expenses section, which tends to be a bit more straightforward to calculate. These are the remaining pieces of your budget puzzle, and prior-year expenses can provide a solid foundation. Use those numbers as a baseline, then adjust for changes or updates. For example, factor in new lease agreements, updated vendor contracts, or upcoming office expense needs, such as equipment upgrades or software licenses. By systematically addressing each section, you’ll create a comprehensive, well-thought-out budget that positions your firm for success.
Take a look at the finished product. Take a close look at your profit. Is it where you want it to be, or is there room for improvement? Does the projected profit provide enough cash flow to effectively run the law firm, cover operational expenses, and adequately support the firm owners? It’s important to evaluate whether your projected revenue aligns with your expense percentages. For instance, are you overspending in certain areas or missing opportunities to allocate resources more efficiently? From there, make the necessary adjustments to ensure your financial goals are achievable and sustainable. Don’t forget to regularly compare your actual results against what you projected to happen—this step is key to staying on track and identifying any gaps early. The good news? Vista is here to help you with these critical evaluations and adjustments, ensuring your firm stays financially healthy and on the path to success. Let us help you make sense of the numbers and plan strategically for the future!
By prioritizing effective budgeting and taking a more creative approach, law firms can achieve greater financial stability and long-term success. A well-structured budget helps allocate resources efficiently and provides a clear roadmap to meet operational and strategic objectives. It ensures firms are prepared for unexpected challenges while focusing on profitability and growth. At Vista, we understand the complexities of managing a law firm’s finances and are committed to providing the tools and expertise necessary to build and maintain robust budgets.
I’m sure my Grandmother Yowie didn’t anticipate that teaching me to work puzzles would one day translate into my professional life, but I am certain she’s looking down from Heaven with a big smile and getting quite a kick out of it. She always believed in the value of patience and problem-solving, though I doubt she imagined it would play such a role in shaping my career. I can even hear her unforgettable chuckle, that warm, familiar sound that always made me feel so loved. Those hours we spent together over jigsaw puzzles were lessons in focus, determination, and celebrating small wins. Now, I think I’ll work on another puzzle and smile, thinking of her.
