How to Financially Prepare Your Law Firm for 2022
Updated: Oct 18, 2021
Over the last year and a half, the landscape of every type of business has fundamentally changed, including law firms. As we step back into a culture of independence and striving to achieve our professional goals, it is easy to be intimidated by the new stakes of unforeseen circumstances. Nationally, we have learned the crucial nature of adaptability with the occurrence of unpredictable events. Now, more than ever, financial planning is the essential step in achieving your profitable law firm.
What is Financial Planning?
Financial planning is the process of projecting financial needs and developing strategies to achieve short- and long-term goals. It assesses the current state of your law firm’s finances versus the capital you expect to earn over the course of the next 12 months. Through these predictions, you can forecast revenue and future growth, develop a budget that will keep your law firm on track throughout the year, and minimize the risk of falling prey to unexpected events.
It is important to begin with understanding the goals of your firm. By knowing the legal practice areas that will have the most demand in 2022, you will be able to better serve your clientele and grow your law firm by adapting into the fast-changing environment.
Start by reviewing what tools and strategies will move your law firm forward. This includes:
● The cost of equipment/software
● The number of associates and employees
● The legal services you will provide
● Expected monthly profit
● Whether or not you require financing
From there, you will be able to assess the size of your firm and the cost of running it against the realistic expectations of revenue you anticipate earning over the year.
Working with a business advisor can definitely help develop a clear sense of the finer details needed to run your law firm so that you can build your budget.
Once your law firm’s needs are identified, it is important to ensure your monthly expenses do not outweigh your financing and projected revenue. This step focuses on managing the initial funding, generated streams of revenue, the impact of industry trends on your firm, and potential investments secured. From there, make monthly and quarterly check-ins to review your finances. Implementing software that tracks your finances, billing, and individual accounts can circumvent any potential discrepancies between your books and bank statements, therefore ensuring that your law firm stays on course.
Additionally, in evaluating the expenses of your law firm, you will be able to separate those necessary expenditures from unnecessary costs. Finding areas to save money creates a better and safer avenue for your firm’s nest egg.
Though having healthy savings, investing in insurance, and reviewing finances from the previous year may seem like a common and sensible plan for minimizing risks, law firms are not prepared for those circumstances due to the nature of prioritizing achieving short-term goals. It is imperative that all factors are considered. Unforeseen events are bound to happen and will inevitably affect your law firm. Evaluating and updating your insurance policy can help keep your firm running in times of crisis.
Additionally, analyzing the comings and goings of your cash flow allows you to determine which legal services are the costliest versus cost-effective, and provides you with a better sense of how to prepare your savings. By optimizing the most profitable practice, you will set your firm up for financial success in the long run. Moreover, factoring a business savings account into your budgeting can be just what is needed to stave off the harsher impacts of those realities.
At DesCPA Business Advisory, we are ready to help you build your 2022 Financial Plan. With strategic financial planning, you can develop the practices needed to build your successful law firm. Schedule an introduction meeting with us to take the next step in building a financially sustainable law firm.
Business advisors like our team at DesCPA have the education and years of experience to help you achieve your goals and more. We offer solutions to improve your law firm’s operations and increase your net profits and cashflow through our Business Advisory. Contact us today for your consultation to determine how we can help you.
All information contained in this post is for informational purposes only, the information found on Descpa.com and its affiliates does not constitute financial advice.