Budgeting for a Solo Law Firm: Or, How I Sleep at Night
I'm probably the last person you should be taking budgeting advice from. Turns out, majoring in English and going to law school didn't really do a lot to prepare me to run a business. (This is a bit of a misstatement. Truth is, majoring in English helped instill in me the values that I use every day to advocate for consumers against some of our country's most powerful industries. What I mean is that majoring in English and going to law school didn't really give me a whole lot of insight into the logistics and practicalities of starting and running a law firm.)
That being said, I want to share a spreadsheet with you that I've developed for my own practice and life that has helped me figure out exactly what I need to be making each month to survive as a business and person. Basically, it's a two-sheet workbook. The first is for determining my monthly business expenses and the second is my monthly personal expenses.
I determine my monthly business expenses by totaling all the monthly expenses, totaling all the annual expenses, dividing my annual expenses by 12, and adding my monthly expenses and 1/12th of my annual business expenses together.
Then, I carry that figure over to the second sheet of the workbook. The second sheet contains all of my personal monthly expenses. After totaling those expenses, I determine taxes by multiplying my personal monthly expenses by 1/3. (This is not a technically accurate measure of my tax liability. Technically, my tax liability will be on the net profits of my business, not the money I take to pay personal expenses. But, because at this point of my practice all net profits go to pay personal expenses, this is a "close enough" measure for me.)
Adding my monthly personal expenses and my tax liability gives me my "Personal Monthly Nut"—the amount of money I need to pay personal bills, my country, and my Commonwealth.
I've carried over my "BCL Monthly Nut" from Sheet 1 of the workbook and add that to my "Personal Monthly Nut" to determine my "Great Big Monthly Nut"—the amount of money I need to make it all work.
Finally, and this is what let's me sleep at night (or, keeps me up at night), I've calculated the amount of money I "Must Bill and Collect Each Day" to make my "Great Big Monthly Nut". I determined this amount by dividing 365 by 12 to get the average number of days a year and multiplying that number by 5/7 to allow myself two days each week of not billing anything. Ostensibly, that's to account for a weekend. This gives me 21.72 working days each month to work towards my "Great Big Monthly Nut".
Knowing how much money I need to bill and collect each day gives me one metric by which I can measure any given day. Sure, it's nice when a client calls and gives you good news. It's nice to talk with someone who says, "You're the only person who has called me back." Those are other metrics that I use to measure my day. But, if you're going to run a small business, you've got to be using the "Must Bill and Collect Each Day" metric, too. I can't pay rent with warm fuzzies and I can't pay court filing fees with good karma.
You can view, download, and modify my budget to suit your purposes. I should say that mine is constantly changing as I grow, cut services, move offices, etc. The goal is not down-to-the-penny accuracy, but rather to give me a goal to work towards and to measure my performance against.