As the end of the year approaches, as a law firm owner or manager, you often reflect back on the year. You reflect on the good that has happened and the areas where you fell short of some goals as well.
To plan for the next year, it’s important to look back at your law firm’s budget. In particular, after looking at the revenue that was brought into the firm, you need to break down by category where those funds went. Were the funds spent wisely? Or were there any funds that were not put to the best possible use?
Additionally, is their money you spent that if you could do it over again, you would not spend your funds in that way again? It’s critical that you look at this thoroughly at least one time a year.
From top to bottom, you’ve got to look at where that money went. Break those funds spent down into categories. The categories really could be endless. Broadly, that money could have been spent on the following:
- Rent & utilities;
- Insurance (endless varieties);
- Office supplies;
- Technology; and
- Endless miscellaneous items.
But when you get more specific into these areas, you likely have a litany of subcategories. Obviously, there are areas where you really cannot cut back. There are areas as well where the cost may continually creep up no matter what you do. Take salaries, taxes, rent and insurance for example. The cost of these areas can seem go up year after year no matter what you do. And you may have little choice about the matter.
However, if you look at your budget thoroughly, there are likely areas where you did not get the bang for the buck that you wanted. There are also areas where, over time, you probably slash the item from your budget for the upcoming year.
Take a look at what you are spending on marketing. Are you spending any marketing funds in ways that are not delivering? If so, you might go back to the vendor and try to renegotiate your contract. Or, in cases where the money is not delivering at all, you might just cut that item altogether from the budget. If it isn’t delivering any longer, it isn’t delivering and it ought to go.
With office supplies and vendors, do you feel like you are over-spending? If so, now is the time to go around and shop for a better rate. If you can find a better rate, it might be time to make a move.
Is your telephone bill creeping up there? Now, might be the time to shop for better office or cell phone rates. There are likely lots of vendors out there who would like to have your business.
If your lease up and the landlord wanting to raise the rent (as they almost always want to do), do you really want to pay more money to stay in the same space? Or, could you move elsewhere and get a better rate. With some space, the landlord might even be willing to pay the costs of retrofitting the space for your law firm. Many landlords will even give away some free rent to get you in the space.
Look at your employees as well. You likely have employees who work hard and that you would hate to lose. On the other hand, are there certain employees who are not really earning their keep? Maybe now is a good time to cut back some of your excess staff or hire somebody else to do the job with greater output.
Is the cost of insurance getting out of hand? From health and dental, malpractice, general liability, worker’s compensation, employment practices, crime and cybersecurity, officers and director’s, etc., the cost can be astronomical. And the cost will go up every year if you just let it happen. Each year, you ought to get some different quotes, look at some different plans and shop around for the best possible rate.
At the end of the day, there are numerous possibilities in terms of trimming your law firm’s budget. But for most law firm owners and managers, this is the time to give that budget a hard look. Where you can do so responsibly, now is the time to trim the fat in your law firm’s budget for next year.
If you do not do so, the impact can be great. You will find over time that your expenses can get out of hand — and you might not know how it happened. You will also end up spending more and more money over time in areas that are not helping your law firm or your law firm’s clients. So, take some time (at least once a year) and find out what you can line out or reduce from your law firm’s budget.
If you have any thoughts, feel free to share them below.