Top five tips to help SME law firms budget for the new normal
Charlotte Parkinson, practice manager at Geoffrey Miller Solicitors, explores what to consider when financial planning for unfamiliar territory.
A new financial year begins, and, with it, new possibilities and considerations. As practice manager, I’ll be assisting the managing director to prepare for the ‘new normal’ steered by an empowered digital age with homeworking as the favoured option for people across the country, post-Covid-19.
As we consider a more permanent move towards flexible working, an expense I predict to feature in our budgeting for the year is software development so that we can provide our staff with improved independence and guidance, because let’s face it, supervision has evolved beyond the set-up of traditional law firms. But what else do you need to consider?
- Tally your income sources
Overnight lockdown restrictions brought us to a halt last year with courts closed, people staying indoors, and staff being placed on furlough. However, lockdown also brought opportunities to reflect and revisit ventures we previously prioritised daily business above.
If you’re working on generating new income sources, only include these in your budget if the new business is going to operate under the existing firm.
If you still have staff on furlough, the scheme has been extended until 30 September 2021 and you should record payments from HMRC as other income.
- Review fixed costs
Avoid simply mirroring these in the new budget. Going out to tender is very satisfying when you can make a significant saving for the firm from exploring your options. Don’t let what feels familiar and safe blur your judgement. Be innovative. Do your research, discuss your needs with potential suppliers and prepare yourself to make an informed decision. Quality comes first, but if you can also make a saving, take the leap!
Could you decrease your fixed costs and generate new income simultaneously by renting out office space spared by homeworkers?
- Investigate variable expenses
Usually, a big variable expense is marketing – as we buy new domains and plug-ins more often than I can keep up with. But, with empty seats to be seen as we experiment with flexible working, I will expect a reduction in other expenses such as utilities, stationery and refreshments. I would use averages here but don’t tackle these alone; if there’s a particular area of the business that attracts variable expenses without exposing a trend, communicate with the department – incorporate their knowledge and future plans into your calculations.
- Predict one-off purchases
Flexible working policies are on the rise with homeworking a new favourite. One-off purchases such as softphones and laptops are going to be popular in the budget. You may be a firm making a late transition to cloud hosting and while making this initial switch may be a huge expense and logistical headache, be sure to cover all set-up costs in the budget.
Last year, PPE dominated our one-off purchases, but with lockdown restrictions continually easing, we can hopefully leave those in the past. Wellbeing is the growing focus for the future, whatever that may look like for your staff. Monthly Zoom Pilates sessions are going into the budget for us!
- Stay on track
Regularly reviewing the budget versus actual figures, cashflow, and encouraging commercial awareness across the firm help to stay on track with the budget – but understanding how the managing director measures the success of our firm is the key to steering us towards that goal. If you don’t know how your firm measures success, make that your first task before you pull together the budget otherwise you could well be setting yourself up to fail. Communication is paramount – a lesson perhaps we have all learned from this last year and something to be mindful of as we enter the new normal.
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