How to Build a Law Firm Budget for Next Year
A law firm budget is a plan for next year’s revenue, expenses, and profit, built from your actual numbers. The most useful budgets start with realistic revenue by attorney or practice area, plan payroll and overhead carefully, and get compared with actual results every month.
Why Law Firms Need a Budget
To plan hiring, raises, and big purchases with confidence
To set realistic revenue goals for each attorney
To spot problems early, when actual results drift from the plan
To plan cash flow around slow months and large expenses
Start With This Year’s Numbers
Your budget is only as good as the numbers it’s built on. Before budgeting, make sure your books are reconciled and your profit and loss statement is accurate. See: Law Firm Profit and Loss.
Step 1: Forecast Revenue
Estimate billable hours for each attorney, based on this year’s actual hours.
Apply standard rates, then adjust for realization and collection, not just billed amounts.
Account for flat-fee or contingency work separately.
Step 2: Plan Payroll
Start with current salaries and planned raises.
Add payroll taxes and benefits.
Include any planned hires and when they’ll start.
Step 3: Plan Overhead
Rent, insurance, software, marketing, and professional fees
Known increases, such as lease renewals or software price changes
One-time purchases, such as equipment or office upgrades
Step 4: Plan for Cash Flow
Note which months are usually slow.
Plan the timing of large expenses and owner draws.
For contingency firms, plan around expected settlement timing.
See: Contingency Fee Accounting
Step 5: Track Budget vs. Actual Every Month
A budget only helps if you use it. Compare actual results with the budget monthly, look into large differences, and adjust the plan when circumstances change.
How Azar Insights Helps
Clean, reconciled books to build the budget from
Annual budget preparation with your firm’s leadership
Monthly budget-vs-actual reporting through our fractional controller and small business CFO services
Frequently Asked Questions
When should a law firm build next year’s budget?
In October or November, so the budget is ready before the new year starts. Building it alongside your year-end close keeps both on schedule.
What should a law firm budget include?
Revenue by attorney or practice area, payroll and benefits, overhead, planned purchases, and owner draws. It’s also helpful to include a monthly cash flow view.
How do you forecast revenue for a law firm?
Start with each attorney’s actual hours and collections from this year, then adjust for rate changes, staffing changes, and expected caseload. Base the forecast on collected revenue, not just hours billed.
How often should we compare budget to actual?
Monthly. A monthly comparison catches problems early and keeps the budget useful all year.
What if our books aren’t accurate enough to budget from?
Start with a catch-up project to get the books current and reconciled. See Law Firm Bookkeeping Cleanup.
Related Reading
Year-End Checklist · Law Firm Profit and Loss · Monthly Law Firm KPIs
About Azar Insights
Azar Insights provides outsourced bookkeeping, accounting, and fractional controller and CFO services for law firms nationwide. With 15 years of accounting experience, we work remotely with solo attorneys and multi-partner firms using secure, cloud-based tools.