The Trial Lawyer Winter 2018 - Page 28

3. Create a Budget How much capital will you require? A goal may give you focus, but it will not mean much without a bit of reality. Pursuing any new direction for your firm is going to cost something. This is why preparing a budget is key. It maps out a solid financial plan for your firm. Budgeting is critical to ensuring you have the proper amount of financing in place to reach your goal — now and in the future. Without a budget, you may end up spending well over what is reasonable on advertising, case costs, etc., or worse, taking on more debt than your firm can repay. Budgeting does not have to be difficult. If you have an accountant, bookkeeper, CPA or the like, they can prepare an initial draft for you. Otherwise, you can easily create a budget yourself. Specify how you will use capital Before you can budget, you first need to think about how you are going to use funds. • Is your firm growing and you need to add staff? • Do you want to expand your business by increasing marketing and advertising? • Do you want to enter into the mass torts arena and need funding to invest in acquiring cases? • Do you need access to capital to fund case expenses? • Do you need a line of credit to help manage the ebbs and flows of associated with running a contingent fee practice? Once you determine what your firm needs are, you can start assessing how much it will cost to meet those needs, which will directly impact the amount of capital you’ll need. Calculate your current income and expenses Many law firms look at the cash balance in their bank accounts and from that assume they are either making or losing money. But, that is not a good measurement of success or failure, nor is it a good way to budget. You need to know how much it actually costs to run your practice. Put together your budget by month. With the help of your bookkeeper or controller, calculate the monthly “fixed” costs — rent, payroll, insurance, office leases, utilities, etc. Then determine your “variable” costs, such as office supplies, advertising, auto and travel expenses, just to name a few. You may be surprised at the costs incurred on a monthly basis when you put them down on paper. When that is complete, be sure to consider any “extra” costs that may occur on a quarterly, semi-annually or yearly basis, such as liability insurance, bonuses, income taxes, accounting fees, property and other miscellaneous taxes, annual bar dues and CLE costs. 26 x The Trial Lawyer Finalize your spending needs Once you have determined your annual budget through a month-by-month analysis, you can then go back and see where you’ll need to increase your costs in order to meet the needs that you have defined. This will give you a reasonable expectation of your “new” expenses and aid you in determining how much funding you’ll need to achieve all of your goals. For example, if your future projections show you need $2.5 million, but your cases will resolve at varying times, consider a revolving line of credit. You can borrow to cover the monthly fluctuations of your budget, but you are only charged interest on the amount you actually withdraw. That being said, just like a bank loan or any other type of financing you choose, be sure to go back to your budget and include any such interest or financing charge in your calculations. 4. Reevaluate How You’re Financing Your Firm Is your current method of financing sufficient? Once you have a budget in place, you will have a clear idea if you have the capital necessary to reach your firm’s goal. If you find a deficiency in the amount of capital you need, then you may want to consider getting a loan, line of credit, or other type of financing from a third party like a traditional business would. If you already have financing, think about refinancing. Your current lender may be willing to, among other things, extend your maturity date, permit interest-only payments over a period of time or maybe even reduce your rate or increase your funding, or alternatively, another lender may give you better rates. High-quality lenders may even introduce you to other financing sources or their network of attorney-clients in order to propel your practice forward and continue to develop a positive relationship with you. If your needs are not being met, or if your current source cannot accommodate your new ventures, compare other financing solutions to see if making a change is worthwhile. Even if you do have adequate funding, you still may want to go through this process to reassess if what has worked well in the past for your practice is still viable for the future. A law firm, like any business, is continually changing. Therefore, it follows that how you finance your firm may need to change too. With proper preparation and foresight you can adapt effortlessly. As Thomas Edison said, “Good fortune is what happens when opportunity meets with planning.” Most law firms can make good sense of such propitious foresight. Sources: https://www.dominican.edu/dominicannews/dominican-research- cited-in-forbes-article