Law Firm Budgeting


We are in mid-tax season. As an attorney, you might be looking at your records and your bottom line and thinking….

“where did all the money go?”

Maybe you ask your tax professional, and they go into depth about a line of credit, loan, or something you have on the books affecting the bottom line. Maybe you purchased an asset like a brand new fancy website that has to be capitalized. You may ask your bookkeeper, and they might not even have an answer for you.

It doesn’t matter whether you’ve been practicing law for three years or 23 years; it’s always a best practice to have a budget and try to stick to it. But having a budget for your law practice makes logical sense. If you’re staring at the bottom line and it’s not what you expected, now is the time to do it.

We can all see the economy is starting to grind in slow down. Now is the time to prepare for perhaps fewer clients coming in the door. Maybe you are flush with cash and want to start to put aside a savings account to have that little cushion. It’s never a bad idea.

Fixed Expenses
There are fixed expenses in a law firm that should be budgeted. Here are just a few:

  • Payroll wages
  • Local Bar Association dues
  • Malpractice insurance
  • Payroll taxes
  • Rent

These are your mandatory expenses. But there may be some expenses that will give you some wiggle room to research and maybe start to take some time to find some savings.

Discretionary Expenses
Apps and software: how much did you spend on applications and software in the past? Are you overpaying on the legal software because you’re paying for unused seats? Could you get a better deal if you paid for it annually?

Marketing:  Marketing is always a significant expense. Are you getting the value out of your marketing dollars? Do you know where your leads are coming from? Do you know which ones are becoming clients? How profitable are those clients? What practice area is giving you the most pump for your dollar?

These are some of the questions that we would ask you if you worked with our firm to help you set up a reasonable budget.

Budgeting can bring back some memories of when you were a child and thinking of how difficult it was to stay on track. But it doesn’t have to be that painful if presented in the right way.

Accounting Lingo

If you work with an accounting professional, here are some of the terms that may come up in a conversation:

Revenue: Your revenue (sales) is the total amount of income you generate through your practice.  This is at the very top of your profit and loss report and is the amount of all of your invoices before deducting the expenses and overhead and other expenses.

Operating or overhead expenses: These are the expenses required for regular business operations, including rent, insurance, salaries, and marketing.

Profit margin. This is all of your firm’s revenue, minus the total of your expenses, and is typically expressed as a percentage.

Recommendations - Old School Style

This article got your mind spinning and thinking about heading some budgets to your law practice.

I highly recommend gathering up all operating bank statements and credit card statements for the most recent month, photocopying them and taking out a highlighter, and marking all the expenses for your firm.  Analyze that in your accounting.  Look at the totals for each for the year.  This deep dive can be eye-opening.  

"Where can you possibly reduce the expenses?"

That is where I start.  

Next, start to look at your revenue (sales).  What is a reasonable expectation for increased revenue for this year?  What can you do to increase this figure? What actions can you take?  How do clients find the law firm?  This is where you deeply examine your marketing.  Maybe you are mostly referral-based.  How can you explore increasing your client base using other methods?

If you want to learn more about budgeting and increasing your profit margin,  Artesani Accounting can help you with your law firm's finances, call us today!


Or book time on our calendar