How to Build a Budget You Can Count On

Transcription

1 May 22-25, 2016 Los Angeles Convention Center Los Angeles, California How to Build a Budget You Can Count On Presented by Michael E. Palmer FM20 5/24/2016 8:00 AM - 9:00 AM The handouts and presentations attached are copyright and trademark protected and provided for individual use only.

2 How to Build a Budget You Can Count On Mike Palmer 2016 ALA Annual Conference May 24, 2016, 8:00am 9:00am Topics To Be Covered Budgeting concepts Building the budget Getting the budget approved Reporting against the budget 1

3 Uses Of Budgets Objective is to provide quantitative information that is useful in making decisions As a planning/income forecasting tool What we expect to accomplish As a control tool Actual vs. budget Just because Not used for anything Types Of Budgets Operating Headcount Time, including hours and value Revenues and expenses Cash flow Capital expenditures Case management Uniform task-based management system Special - remodeling, moving, etc. 2

4 Basic Financial Statements Income statement Balance sheet Cash flow statement Income Statement Earnings during a period Cash vs. accrual Revenues Expenses Net income 3

5 Balance Sheet Financial position as of the end of the period Assets - resources Liabilities - obligations Equity - interest of the owners in the firm Cash Flow Statement What happened to cash during the period This is what you can distribute Cash requirements Ties together the income statement and balance sheet 4

6 The Process Is More Important Than The Results Start with a clean slate Determine the level of service expectations What do we need and expect? Which services are critical to delivery of services to the clients What is the competition doing? Understand your practice requirements Litigation, transactional, IP, new areas You must play a key role Build It And They Will Come Delegate to those who are responsible Get ownership (buy-in) Detailed enough to manage the results, including accurate monthly break down Reflect your management reporting Document assumptions Important to sell/defend the budget Analyze the actual-to-budget differences later Build it up from the detail don t start with the bottom line 5

7 How Much Variance Can You Expect? Maturity of the firm and growth cycle Care in preparation Philosophy -- conservative or aggressive Ownership Is budget adjusted during the year? Revenue By Timekeeper Estimate hours based on past performance; talk to practice heads Estimate actual matter rates; don t just use stated rates Must consider write-down s and write-off s Delays for cash collection Conservatism is usually best 6

8 Personnel Costs For Timekeepers Based on past compensation Bonuses should reflect hours assumptions Don t forget summer associates, bar stipends, etc. Realistic estimates are usually best Personnel Costs For Staff Depending on size, may not want to budget individually Don t forget salary adjustments Payroll taxes, overtime, retirement plans - use percentages of compensation Realistic estimates are usually best 7

9 Rent And Office Operating Costs Remember growth in timekeepers Price and cost escalations, extra costs (afterhours air conditioning, etc.) Realistic estimates are usually best Professional Costs Remember growth in timekeepers Talk to the hiring partner Firm meetings as much detail as possible Reference materials, seminars, etc. influenced by growth in timekeepers Price escalations Conservative estimates are usually best 8

10 Other Costs Talk to your insurance broker Industry trends Growth in the firm Taxes and licenses extrapolate from prior year Interest costs wait until cash flow is completed Write-off of client costs generally increasing Conservative estimates are usually best Getting The Budget Approved Refer to the agreed assumptions and level of service Show comparisons with prior budgets and actual results Use graphs and ratios to summarize Pie charts Amounts per lawyer, etc. In the end, it s their firm 9

11 Reporting Monthly reporting Focus on the year-to-date variances Provide narrative discussion, but must be focused and concise Use graphs and ratios to summarize Provide a game plan for corrective action Summary Objective is to provide useful information to make decisions make sure there is a reason to do it Focus on the process Push down preparation and monitoring responsibility to the lowest management level Get buy-in on the assumptions Be conservative Frequent reporting with explanations and corrective action 10

12 Your Opinion Matters! Please take a moment now to evaluate this session Thank you and enjoy the rest of the Conference! 11