Proven Strategies Measurable Results

Budgeting (Exactly What Does That Mean?)

August 09, 2017
Budgeting (Exactly What Does That Mean?) - blog post image

Most firm (business) owners begin to think about how their business has performed for the year and also begin thinking about how to improve upon that performance for the next calendar year around November. Without a target to measure against, performance is usually simply measured against how the firm did last year. Although better than no measuring stick at all, “better than last year” is not the optimum standard for which to gauge financial performance.

Ok…what is the optimum? Answer: a well prepared budget of expenses and a projection of expected revenue compared to actual performance. In other words, “What did we think would happen and what actually happened?” It is also at this time that we should be asking “What do we think will happen next year?”

Before we go further, let’s define, for purposes of this article, the word budget. (By the way, my wife’s only definition of it is that it is a rent-a-car company.) Budget is only meant to mean “what we expect to happen, given the circumstances as we know them today.” It does not mean that a certain amount of money is “set aside” to be spent on certain line items or groups of expenses and we will spend no more. As we all know, situations change and plans need to be somewhat flexible as the circumstances dictate.

So, how does one construct a budget of expenses? There are a myriad of different approaches, but the most simple is to actually begin with last year’s line item expenses analyzed on a monthly basis...then ask those “in the know” or those responsible for the spending decisions what they expect for the upcoming year, on a monthly basis, and why they expect “that” amount. This approach will create a valuable thought process and discussion. Each month a budget to actual analysis should be produced with all material variances scrutinized. If there is good reason for the variance….then great….no issue. But if we don’t know why there is a variance, the reason should be investigated and resolved. This is financial expense management 101.

Often we hear that in a plaintiff firm revenue projections are “impossible.” Untrue….they may be less accurate to predict… but not impossible. We go by the adage that if you aim at nothing, you hit it with amazing accuracy! We should set reasonable goals. You know, or should know, what cases are in inventory, your average case fee, and your time on desk. (If you don’t know these things, it is time for another conversation!) Armed with this information, reasonable expectation of revenues should be possible. You may also find that this information can be shared with individual attorneys so that they will have individual targets based on their case loads. We have found that the conversations that these projections provoke are valuable in themselves.

This goes without saying…but I am going to say it anyway! Even though we are attempting to predict the future for the firm financially….ultimate case handling (settlement, trial, etc.) must be dictated by what is best for the client. Never, should a case be resolved to “hit” financial objectives of the law firm.

By spending the time to create an “as accurate as possible” expense budget and revenue projection, profitability targets can be established. A review of “how we did last year” according to our plan and “what does next year’s plan look like” are the basis of a sound financial review and planning process.

It has been our experience that the firms that follow this process get better at it year after year and the budget to actual variances are rarely surprises. The work put into the monthly and annual budget to actual comparisons and the annual budget/projection exercise, substantially reduce the stress of simply not knowing where the firm stands at any given time….thus improving the quality of life for the stakeholders of the firm.

And that is what it is really all about, isn’t it?

Jerry Parker
"Vista has been a consultant to our firm for almost 2 years. One of the best business decisions I made was to retain Vista. They know plaintiff personal injury firms A-Z. And that's how they analyze your firm, its efficiencies (or lack thereof or worse), office design/flow, reception procedures, telephone procedures, equipment of all types, etc. If you think your office is running at the top of its game and you don't need them, you're probably wrong. I can't imagine Vista not being able to improve even the best run firms. The payback from what they do is likely to be realized within the 1st 3-6 months."
- Jerry Parker
Bill Berg
“… They have also worked with us in ways to improve how many new cases we sign-up – they constantly are coaching us in ways we can do things better in that regard. In our weekly meetings we go over our new case sign-ups, our demand times and various other statistics and topics. They hold us accountable to ourselves… I could go on & on – our accounting department was also restructured based much on their recommendations. And, Vista also researched and found a new CPA firm for me which actually keeps up on telling me what needs to be done instead of just keeping things as the status quo.”
- Bill Berg
Kenny Harrell
“The Joye Law Firm would whole-heartedly recommend Vista Consulting’s services. It’s been nearly two years since Vista did the initial needs assessment at our firm, followed by several weeks of ‘boots on the ground’ work. With the benefit of hindsight, I can easily say that improvements we’ve made as the result of their services have easily more than paid for the costs of the same (and that was probably true a few months in.) This is true based on improvements in our case management efficiency and especially in regard to better intake procedures. Our average new cases per month have increased 50%, and this is due in large part on our doing a better job of following up on potential new clients.”
- Kenny Harrell / Managing Partner