Blog post originally shared on iridium-technology.com. Iridium Technology is now part of BigHand. Learn more here.

Budgeting season is now upon us. In over a decade of experience serving law firms, we have noticed that firms are always looking to streamline their budgeting process and improve the quality of the final budget. In an effort to continue steering firms in the direction of building better budgets, our next two blog posts will be focused on budgeting and forecasting.  This first post covers the four pillars for effective budgeting and forecasting, and next time we will provide our top tricks to achieve a better outcome. 

Four Pillars for Budgeting and Forecasting

Here are our four key pillars to ensure you create an effective budget.  

1. Resources – First and foremost is resources. Whether it be personnel or associated costs, resources are your biggest expense and are also responsible for generating all your firm’s revenue. Accurately breaking down factors such as overhead, benefit costs, and payroll taxes is crucial for evaluating the fully loaded cost of your resources. This part of the budget is where firms have the greatest opportunity to plan for future growth (such as a new class of associates).  

2. Revenue – The second pillar is revenue, which includes current inventory levels. Revenue and resources directly impact each other, as not every hour worked by headcount is billable. Evaluating what you expect to bill and how much of those billings you will collect is critical for maintaining your cash flows throughout the year. 

3. Operating expenses – The third pillar is operating expenses, such as cost of rent, marketing, business development, and other non-resource related costs. Many processes can be streamlined through use of historical data, and this pillar is where those changes are reflected most often.   

4. Cap Ex – The final pillar is capital expenditures. If you know what is planned for the year, you can automate the process, allowing for the accounting of initial depreciation and underlying costs. 

Budgeting is known for being an especially daunting process, especially when the data is not at your fingertips. Adhering to the four pillars above and having timely access to data in all supporting systems can make budgeting much easier and less stressful, while also giving firm managers a clearer picture of their financial outcome for the whole year.

If you’d like to strengthen your firm’s budgeting process, you can request a demo of our Budgeting and Forecasting module. We’d be happy to share our insights with you.