Most readers will be able to skip this page. Budgets are probably a routine for you and there may be little or nothing I can add. If, however, you have not done them before you may like to read on.......
 
Do you routinely produce annual budgets? And then monitor your performance against them? I cannot stress enough how important this is. It need take only a few hours but it will give you an insight into your business that you really do need.

You have to plan ahead. Until you understand how much profit you wil generate in the next year, how can you take any real decisions? How do you know whether you can afford to run a particular marketing campaign, take on a new family solicitor, or even just redecorate the reception area? A budget will help you to see whether your operating costs are under control or whether there may be room for savings. It will help you to see whether

If you have not done this before, it isn't complicated. You could ask your accountant to do it for you but frankly, as so much of what goes into this comes from your own intimate knowledge of your business, it is perhaps easier to do it yourself (and you will save on fees!). Simply get your last year's accounts onto a spreadsheet - an exact copy including the previous year's figures. Your accountant should be able to supply this as an Excel file to save you setting it up. Ask whether it can be emailed.

You should now have vertical columns for the last two years' figures for everything that matters - revenues, cost of sales, gross profit, operating costs and net profit. If using Excel, simply select one of these columns and copy and paste it to create a third. It will have the same figures as its source but, importantly, it will have all the formulae already embedded and it will also have all the things that otherwise can easily be overlooked, such as bad debts and interest. You will now only need to change the entries.

Now start from the top. For each entry make a reasoned, calculated judgment on what the new year's figure should be. Last year you billed £1,350,000 but business has been and continues to be good and you have decided to take on a further FE this year? You might think all this through and put in £1,500,000. And so on........and don't worry about very precise figures. You are forecasting here and this is a planning exercise, not an accounting one. You are not concerned as to whether something might cost £5,127 or £5,130, but you are concerned as to whether it is likely to be £5,100 or 7,100.

It really breaks down into two main areas. For revenues, simply prepare a simple list of all your fee earners by department and put your best estimate of what they will each achieve against each name. The total of these should be your total fees billed figure. Expenses in profesional firms do not tend to change much from year to year so htis part is quite straightforward.

By the end you have your basic financial plan for the year and can see where you are going. Who knows? You might be heading into real trouble, with heavy trading losses that will eat up your capital in the firm and no prospect of avoiding them. How much better it is to discover this before it happens! Or you might have ideas to grow a particular department. With a sound budget you can see whether the additional operating costs will be well invested.

Armed with your budget you can now add a further column, which will be your annual budget divided perhaps by 12 to give you monthly figures or by 4 if you want to do this quarterly. Yuo can look at how your revenues and spending are going against your budget and can take action if necessary, if anything starts to go wrong. Whether you do this monthly or quarterly is a matter for you but no business can be left for a whole year between these checks; too much damage can have been done before problems are spotted.

And, of course, keep in mind that, although you need to keep an eye on them, your expenses are likely to be reasonably stable. The bigger effect on your profits will come from variations in your bills delivered figures.

If you are new to this and would like any help please call or email - we'll be happy to talk it through.