How to Make Your Legal Budget That Much More Predictable

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October 20, 2023

Every law firm needs a predictable budget.  Though the financial parameters of budgets will inevitably shift as time progresses due to the dynamics of legal work, you should have a general idea of how much money will be necessary to keep your firm humming along like a well-oiled machine. Put in the work necessary to develop a predictable legal budget and you won’t be reliant upon gut instinct and guesswork when forecasting your legal costs in the year ahead.

Rely on Historical Trends

It is often said that past performance is the best indicator of future performance.  This adage is applicable to law firms as well as people. Analyze your law firm’s historical spending trends for patterns.  This analysis reveals cost averages in prior years, ultimately helping you budget for the year ahead and also across posterity.  

Review quantitative data to get a sense as to how much of your budget was dedicated to specific expenses and you’ll rely on fact as opposed to intuition when budgeting for the upcoming year.  This ongoing analysis might even prove helpful in the context of determining whether it is financially prudent to settle cases rather than continue to litigate them at additional expense.  Continue to break down the financial metrics and you’ll obtain valuable insights pertaining to the legal services that proved the most expensive in the prior year as well as the most and least affordable service providers.

Consider Legal Work and Expenses Hanging in the Balance

When budgeting, it is important to consider accruals and legal work that have not yet been billed into reports.  These outstanding accruals and services have the potential to significantly affect the accuracy of your budget forecasting for the year ahead.  Though you can estimate such financial variables, doing so will make your resulting budget less accurate than desired.

Organizing the Requirements

Now that you have the relevant data on-hand, it is time to start gathering requirements to enhance budgeting predictability all the more.  Shift your sights beyond the legal department to gather insights across the entirety of the firm so your budget is as accurate as possible.  Sync with additional departments within the firm to analyze requirements and you’ll find the budget you create at the end of the process proves that much more accurate and predictable.  

As an example, the information you gather should pertain to expenses relating to human resources, sales, supplies for conducting business, the costs of appearance attorneys and so on. Consider these requirements and it really will be that much easier to reevaluate your firm’s ensuing annual legal budget.

Resist the Temptation to Deviate From the Budget

Enforcing your billing guidelines makes it that much easier to predict, track and stick to a truly accurate legal budget.  Legal billing guidelines detail the specific work that is not billed for as well as billable work, ensuring your team knows when charges are appropriate.  

Abide by these guidelines and it really will be that much easier to predict potential cost-savings and predict ongoing costs in the upcoming year.  Even if the analysis of your firm’s activity across the prior years leads to budget predictability that is merely 75% or 80% accurate, it is better than lacking a budget altogether or relying on an inaccurate outdated budget.

Your Budget is not set in Stone

Continue to refine and adjust your legal budget as time progresses and you’ll find strategic alterations help you remain in the black, pay your personnel on time and stay in business.  Though unforeseen changes and hurdles will inevitably arise, you can also budget in extra funds for those setbacks with each annual budget.