Ready to grow? Delve into these Financial Planning Basics for Lawyers.

Whether you like it or not, understanding financial planning basics can help you accelerate the path to sustainable revenue growth for your law firm. And the more revenue grows, the more confident you are about the future, and the more clients you can help.

First, let’s start by understanding what financial planning means to your law firm and you as a lawyer. 

Financial Planning, Defined

For law firms, having a financial plan means having to audit, plan, organize, and manage financial operations, including tracking profitability and expenses to predict and plan for revenue growth. This is crucial because law firms require hard work and risk to ensure success, and one of the factors to this success is having a solid financial plan. 

Lawyers have excellent earning potential but often need help with financial planning and management because they often have difficulty setting money aside. Proper financial planning can help. Lawyers can do this by taking stock of finances through cash management, asset protection, retirement planning, and estate planning for their future. 

Why is financial planning so important?

Simply put, a financial plan can profoundly affect the outcome of your financial future. It can also help with the following:

• Increased confidence in the future: Having a plan in place puts your mind at ease because you know what you want to achieve and what funds you have allocated for emergencies. 
• Boost savings: A financial plan can radically improve savings.
• Generate investments: With a plan in place, you can widen or strengthen your investment portfolio according to the economic climate or your needs.
• Create better habits: You will become more disciplined because you have a clear vision of your financial future.

At the firm’s level, a financial plan opens up the following possibilities:

• A plan to manage significant upcoming expenses 
• Substantial cash reserves to help with cash flow problems
• Having temporary emergency lines of credit to call on
• Knowing if you want to go ahead with partner distributions or reinvestment into the firm
• Being able to invest in law firm marketing to increase ROI

How do you get started with a financial plan?

First, consider your long-term financial goals and strategies. How much money do you want to achieve, and what’s your plan? Assess every bit of financial information and develop at least one year of operations in your financial plan. Here, we share a breakdown of what you should have:

1. Financial Goals

Considering current social, political, and economic climate and your firm’s current capacity, write down the monthly amount you want to generate based on your plan. Try to be realistic, as some months may generate more income than others.

2. Budget and Expenses

Budgeting is crucial for the success of every law firm or lawyer. It ensures that all spending and tracking are in order so your firm can be in the black. A well-thought-out budget helps you cover your operations costs over time, including rent, utilities, staff salaries, and insurance. 

However, tracking expenses can be time-consuming because every expenditure must be accounted for. In addition, you must be able to identify areas for cost reduction and see which areas to invest in to help your firm grow. 

CoreMatter can help you easily track and record expenses and generate insights that help you keep to your budget based on your financial data.

3. Financial Projections 

How many cases can your firm take on, and what do you expect to charge each client? List down what you wish to earn in your financial projections. Base it on historical data and reliable sources to back your projections.

4. Financial Strategy

Beyond budget, expenses, and projections, having a financial strategy helps build wealth and achieve your goals over time. You can determine your financial strategy with the assistance of a financial investment expert or start with a basic financial strategy:

1. Set up a separate account for emergencies, and build it by deciding how much you want to allocate to it every month. 
2. Look into diversifying investments beyond fixed deposits. Could you consider exchange-traded funds, gold, or bonds? Be sure to seek professional advice if you need it.
3. Relook into your tax optimization and debt-reduction strategies, if applicable. 
4. Have a succession plan to secure your firm’s future.
5. Revisit your strategy regularly to ensure you are on track.

5. Yearly cash-flow statement

Generate a yearly cash flow statement to know how much you earn and spend annually. It also helps to compare the cash flow statement to your financial projections and goals to help you keep track of your progress. 

 

If you’re overwhelmed with manual financial planning, consider using legal technology to keep financial matters in order.

CoreMatter is the perfect system to help you keep your firm’s finances in order. With its intuitive design and world-class legal practice management, accounting, and billing system, you will have a trouble-free experience planning, managing, and keeping track of finances. CoreMatter allows you to have a birds-eye view of the firm’s financial health, making it easy to review your financial plan.

When reviewing your financial plan, be sure to have proper evidence to support every goal, projection, and number. If your financial projections seem far from your actuals, consider alternative strategies to grow your law firm.

Financial planning is vital for both lawyers and law firms. It is the key to achieving financial stability and success in the future.

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