A detailed law firm budget provides essential guardrails for your law firm’s finances, regardless of your company’s size, revenue, or how long you’ve been practicing. Without a structured budget, your practice could easily be at risk. But if you have a solid spending plan in place, you can safeguard your bottom line while staying ready for whatever challenge is around the bend.

A law firm budget, however, is only as effective as your commitment to tracking and maintaining it. While you can set a spending plan and simply revisit it at tax time, you can only maximize its benefits through regular, consistent tracking.

Why Law Firm Budget Tracking Is Essential 

Even if you have decades of legal work under your belt or your law firm earns the most revenue in the state, you need a budget to achieve the following:  

  • Anticipate cash flow fluctuations more accurately, helping you stay afloat in months with fewer billable hours or seasonal downturns.
  • Determine rates necessary to cover costs and turn a profit while remaining competitive.
  • Account for both predictable expenses and unexpected costs, allowing you to keep operations intact.
  • Make more strategic and well-informed business decisions, such as investing in new promotional efforts or expanding your services while keeping your financials in check.
  • Plan ahead for predictable lulls in casework and have the leeway to cover expenses even during leaner times.

To accomplish these, though, your law firm budget needs to align with your firm’s goals and objectives and adapt to changing economic conditions. As you explore the budgeting basics outlined below, consider your law firm’s current financial situation, as well as any ambitions you have for the future. You may also choose to review industry trends to ensure your budget and financial goals are realistic and align with those of similar law firms. 

3 Key Steps to Building a Law Firm Budget

Creating a law firm budget can help you manage resources more mindfully and build a financially stable practice. A solid budget allows you to plan for expenses, set realistic revenue goals, and adjust your financial strategies as needed. However, budgeting for a law firm comes with unique challenges, such as revenue patterns affected by seasonality and unforeseen expenses. 

By following a few foundational steps, you can create a budget that aligns with your goals, adapts to your business as it grows, and secures the profitability of your practice.

1. Identify all possible expenses you need to account for

To start your law firm budgeting, you should first figure out exactly how much it costs to start a law firm. Make a law firm expenses list covering everything you’ll need to keep your practice running smoothly. 

There are two main types of law firm expenses you should consider when planning your budget.

Fixed expenses 

Costs that don’t change from month to month (or year to year) are called “fixed” expenses. They’re predictable and don’t tend to fluctuate. Make a list of all of the bills that you pay regularly to keep your firm running, including but not limited to:  

  • Office space  
  • Employee salaries  
  • Utilities (phone, internet, etc.)  
  • Practice management and other software subscriptions  
  • Hardware (computers, copiers, etc.) 
  • Fees (malpractice insurance, bar dues, memberships, etc.) 

​Variable expenses  

Variable expenses are costs that change from month to month. For example, you might spend $50 on restocking office supplies one month and $125 the next. Professional development and training opportunities are another example — you might opt for an expensive retreat one year and a simple online webinar the next. Other common variable expenses include:  

  • Travel fees 
  • Marketing costs 
  • Postage for mailed documents  

Due to their inconsistency, these variable expenses may be difficult to forecast. If you aren’t sure how much room you should leave for them in your budget, try reviewing how much your firm has spent on variable expenses over the past few years. 

Of course, there will be unexpected or miscellaneous expenses that may not be top-of-mind, but are still important to maintaining smooth operations. This is why it’s vital to set aside funds to cover these costs.

Understandably, you may weigh what particular expenses you can go without to lower the overall costs. If this is the case, consider three factors:

  • Will the item save you time that you can use for billable work?
  • Will it help you attract new clients?
  • Do its benefits outweigh the cost? 

If your answer to these questions is “yes,” you’d be better off investing in the long run. 

When conditions are in flux, it’s tempting to overestimate rather than underestimate your projected expenses. Keep in mind that this can create budgetary slack, which can result in decreased efficiency, lower growth and profits, and increased difficulty in making planning decisions. Strive to be as accurate as possible!