Predicting fee income and expenditure
Produced in partnership with Robert Mowbray of Taylor Mowbray LLP
Predicting fee income and expenditure

The following Practice Management guidance note Produced in partnership with Robert Mowbray of Taylor Mowbray LLP provides comprehensive and up to date legal information covering:

  • Predicting fee income and expenditure
  • Why do law firms need budgets and how might they be structured?
  • How do you predict fee income with more certainty to reduce risk?
  • Responsibility for delivering budgeted fees
  • How to budget for expenses and determine whether you are spending too much or too little

Why do law firms need budgets and how might they be structured?

Like any other business, a law firm needs some budgets each year so:

  1. it can properly control its income and expenditure, and, as a result

  2. reduce the risk of the final profit not being in line with expectations

It is worrying how many firms do not have budgets and when challenged the reason given is often that they are not a business but a professional firm. A law firm may be a professional firm but it still needs to be run in a business-like way.

Law firms are very straightforward compared to some other businesses: they are simply buying the time of fee earners and selling that time on to clients with a view to making a profit.

A law firm will also incur overheads in addition to the cost of the fee earners. This is necessary to:

  1. enable the fee earners to work efficiently and effectively

  2. ensure the services that are delivered to clients meet their expectations

A traditional law firm budget might therefore look as follows, with the fee income being around three times the cost of the fee earner salaries—note these figures have been used purely to illustrate a very simple worked example:

$1

This example demonstrates that there is a need to formulate:

  1. a fee income budget

  2. two costs

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