Why Do I Need a Budget for My Law Firm? 

Everybody says you need a budget. But do you?

No, not exactly. You don’t really need to have a budget in the traditional sense. What you need is a “Profit Plan.”

If that sounds new to you, it’s because it’s not a real thing. We made it up. But once you understand what a profit plan is and how it differs from a budget, you’ll be able to understand why it is a better alternative to traditional budgets and budgeting.

What is a Profit Plan?

Budgets… Well, budgets suck. They’re also both extremely limiting and, at their core, not really that useful. What a budget does is tell you “this is how much money you have and this is what you’re allowed to do with it. Anything left over is yours.”

If it were math, it would be the equation:

Revenue-Expenses = Profit.

But that’s not really what we’re trying to do when we are running a business. We aren’t trying to limit what we can spend and then hoping we make money at the end. We’re trying to profit, and our “budget” is supposed to be what helps us create that profit.

Mike Michalowicz, who wrote the bestselling book “Profit First”, essentially turned this equation on its head when he stated that profit should be your focus, and everything else is more secondary. When we talk about money, it should be about what you need to do to profit as much as you want, and planning accordingly.

Essentially it is:

Revenue – Profit = Expenses. 

Your goal is to “plan for profit.” What does your budget need to be in order to make the profit you like? How much do you plan to take home this year, and what can be done to help you achieve that? Do you need to add staff or downsize, and what investments do you need to make to achieve your revenue and profit goals?

What a Profit Plan does is it gives you a budget that is designed to profit the amount you’d like to profit. It’s a plan/roadmap that you follow through the year in order to make the money that you wanted to make. Rather than limiting you to a specific dollar value and assuming a specific revenue, it’s a plan to make the money you need to make, spend the money you need to spend, in order to obtain the profit you wanted to gain.

That’s what makes it so much more valuable than a traditional budget. It gives you a guide for what matters most – to take home the profit you hoped to achieve.

For more information about how to use your financial statements in order to build a more profitable firm, click here for a free assessment at the link below