It’s unfortunate, but there aren’t any accounting psychics with crystal balls that predict your law firm’s financial future.
Fortunately, crystal balls aren’t necessary.
Unfortunately, it takes more work than waving hands and muttering magic words.
Fortunately, there is accounting software specifically for law firms that has budgeting and forecasting functions that predict the financial future.
Let’s look into what the future has in store, so you can boost profits and avoid financial emergencies through proper planning and informed decision-making, using sophisticated accounting software like Sage Intacct.
Creating a Realistic Budget
Budgets deal with cold, hard facts that focus specifically on expenses and revenue. They give you an uncompromising view of your monthly, quarterly, and yearly financial health. However, there are a few things you need to do to keep your budget realistic and accurate.
- Update annual budgets to accommodate changes in expenses or revenue.
- Ensure data is recorded accurately, otherwise, you might as well invest in a crystal ball.
- Use software that tracks revenue and expenses to measure your financial performance.
Remember your budget reflects your law firm’s unique situation. Comparison with other firms, even those of a similar age and size is futile.
Also, the future isn’t set in stone. There will be unexpected expenses. You must set aside funds so you’re not staggered by unpleasant financial surprises.
Expense Categorization and Monitoring
It’s surprisingly easy to lose track of expenses. A little bit here for extra cleaning before meeting a wealthy new client. A little bit there because you’ve been burning the candle at both ends and ran out of coffee. It adds up, so it’s essential to record and categorize every transaction.
Compare your budget for the month with the actual incoming and outgoing transactions. This can be painful if you know you’ve overspent for the fourth month running. But comparisons identify financial leaks, so you can take steps, like rationing your coffee, to gain control of your spending.
A legal accountant can help you by accurately categorizing expenses and tracking time, so you can better manage your hours, stick to the budget, and create a cushion for major future expenses.
Forecasting for Financial Resilience
Data trumps psychic power. That needs qualification. Accurate data trumps psychic power. Accurately collecting, categorizing, and analyzing data can shine a light on future trends, opportunities, and challenges. The key to accurate forecasting is sophisticated accounting software designed purely for the legal industry.
Sage Intacct, for example, provides industry-specific solutions and customizable modules, so not only can you get legal accounting software, but you also get software that can be made to fit your law firm’s unique needs.
The upshot is custom reports that are updated in real-time so you can check your firm’s financial performance on any given day, but that’s in the present, not the future, and we want the future. We want predictive analytics.
Predictive analytics provides the insight you need to make informed decisions to secure a financially resilient future.
Strategies for Effective Budget Management
You’ve got a law firm. Your practice might help new business owners cover their legal requirements (waivers, for example). You’re not an accounting firm. You go to legal accounting specialists to cover your financial requirements.
Even if your practice consists of you and you alone, you need a professional to set up the correct accounting systems. A few appointments with a consultant will help you nail the essentials.
- Create a realistic budget.
- Set realistic revenue targets.
- Manage your budget to hit your targets.
It’s a good idea to see your consultant twice a year to review your financial performance.
- Are you managing your budget effectively?
- Are you on track to reach your goals?
- Are adjustments needed to accommodate growth?
Together you can analyze data to forecast future financial performance and develop new strategies to optimize your budget.
Overcoming Budgeting Challenges
Every business has budgeting challenges. Even Mark Zuckerberg and Elon Musk had sleepless nights when their budgets hit the wall.
Some challenges are expected and you can prepare for them, like weathering unforeseen major expenses with an emergency account.
Some challenges aren’t expected and can knock you flat. COVID-19 took the world by surprise. Even healthy emergency accounts surrendered.
Pandemics aside, it’s possible to overcome budgeting challenges with foresight and a little help.
Legal accounting specialists and software can get you out of most trouble. Software automation solves data-related challenges, including inaccuracy, poor categorization, and outdated reports.
Professional accountants can help with change management, unrealistic expectations, and poor stakeholder communication.
Collaboration ensures solutions remain relevant to your law firm. After all, your law firm is your baby and your baby’s health is your primary concern.
Closing
Fortune telling is so passe. Accurate forecasting, however, never goes out of style. Law firms can set themselves up for success with accounting systems that facilitate budget management and forecasting tools to predict their future financial performance.
There’s no point in using the best accounting software available if you don’t understand the information generated. Outsourcing your law firm’s accounting to experts in the industry is a cost-effective solution that can help build financial resilience for now and the future.
