Unlike budgets, law firm profit plans set goals, not limits. Your profit plan tells the story of how you will spend money to make a lot more money. What will you be doing next year?
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OK, I’ve said it: Budgets suck.
I don’t like anything that tells me I can’t do something. For example, I like to travel and usually do three international trips a year. The last thing I want is a budget — ugh, restrictive! However, I am very excited about my spending plan, which shows me all the things I get to do while I am on vacation.
It is the same with a business.
Most business owners understand they should have a budget, but they don’t have the time to spend on something that will do nothing but limit them.
We are entrepreneurs! We are all about possibility, not prohibition.
Why a Profit Plan?
Over the past few years, I have come to realize that what businesses really need is a profit plan — a document that spells out how you are going to spend money to make money — and how much money you will take home.
A profit plan sets goals, not limits. Because Winston Churchill was right, “He who fails to plan is planning to fail.”
So back to my trips.
I travel a lot. I love it. It is a priority for me. So, my profit plan takes this into account. I know how much I need to stash each month so I can go on great international trips. This year it was Budapest, Prague, London, Vienna, Budapest again, the English countryside and back to London again.
My profit plan tells me what fun things I get to do. And as you can tell, I have done plenty of fun things this year.
Budgets Set Us Up to Fail
Most of us don’t make budgets for a bunch of reasons — but, ultimately, we don’t want to do it because we don’t think it will be fun.
So here is what really frustrates me: Why do we go through the budgeting process and set ourselves up for failure every year?
We make this annual resolution and a part of us knows it will never happen. Churchill was right, we plan to fail.
“Plan” Is the Key Word
Don’t you want to have a plan for these things?
- Marketing campaigns (or a plan to do some organized marketing).
- Hiring new employees (to take care of all the new clients from the marketing).
- Buying new technology (like computers for the new employees).
- Offering benefits to employees. (It’s much cheaper to keep good employees than to replace them — not to mention what a pain it is.)
- That larger office space. (Employees have to sit somewhere.)
- Growth!
- Taking home more money!
And wouldn’t it be nice to have a plan to pay for all of these plans?
We call that your law firm profit plan.
How Do You Create a Law Firm Profit Plan?
Your profit plan shouldn’t be intimidating. It is nothing more than the story of how you are going to spend money to make a lot more money. And telling (and reading) a story is pretty fun — especially when you know it is going to end well.
Start with your plans for the coming year. What are your goals? What are the possibilities? What will it take to make it all happen? Spell it out.
Lay Out Your Plans for the Year Ahead
- What marketing are you doing to bring clients in the door?
- How much revenue will that produce?
- How many attorneys and paralegals will you need to take care of them?
- How many resources (office space, paper, software) will it take to keep them productive?
Rework Your Plan With an Eye on Profits
Most importantly, at the end of all of that, will you be making the money you want to make? If not, go back to your plan.
- Where is the fluff?
- What don’t you need?
- Where can you bump up something to increase revenue? More advertising? Better intake?
- Is it time to increase rates?
- Should you raise billing goals?
Play with your plan until it starts to tell a story you like.
Check Your Profit Plan Every Month
It’s much more satisfying (even fun!) to check your progress when you are working toward goals that mean something to you — like better pay for you and your team (or your next vacation). And, unlike dusting off the annual budget (if you have one), it is easier to see whether and how things need to change.
Open your profit plan at the end of each month and compare it to what actually happened.
- Were your assumptions correct?
- What do you need to do to get back on track?
- Or do you need to change some assumptions?
Bottom Line? Keep Your Eye on the Bottom Line
As a law firm owner, you are responsible for making sure the numbers add up. You should be properly compensated for the time and effort you expend and the risk you take as the owner.
More Law Firm Financial Tips from Brooke Lively
For more tips on building a more profitable law firm, read:
- A No-BS Way to Tell If Your Marketing Is Working
- What Should Be on Your Law Firm’s Dashboard
- Are Your Law Firm’s Financial Systems Ready to Scale?
- Law Firm Profits: 5 Ways You May Be Sabotaging Your Firm’s Growth
- The Best Compensation Plans Use the Law of Thirds
- Law Firm Overhead: What It Is — and What It Isn’t
- Building a Law Firm That Pays You First
- Understanding Law Firm Profits — And What to Do With Them
- How Are Law Firm Owners Paid? Total Compensation vs. Salary
- Funding Growth: Are You Starving Your Law Firm?
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