Most new law firms are pretty frugal with their money—they’re watching every dime they spend so that they can stay in business and be prepared for the lean times. But despite this trend towards frugality, there are a few common money and budgeting mistakes that new law firms make.
Spending Too Little
Just like with anything, there is such a thing as spending too little. When it comes to budgeting, you don’t want to cut out budget items that are essential to keeping your law firm operating and thriving. Here are three expenses you should never cut back on:
- Marketing and Branding. Marking and branding are the foundation of your law firm’s sales pipeline. People can’t hire you if they don’t know you exist. No matter how tight money is, you must allocate money and/or time to your marketing efforts. You must always spend time letting potential customers know that your law firm exists. Cutting back on this expense will kill you law firm eventually.
- Technology. Technological tools such as software and hardware are a necessary investment for law firms. Well designed tech tools such as Smokeball’s case management software, can take a one hour job and turn into a 15-minute task. And for law firms that could mean a savings of thousands of dollars over the course of the year. When you’re budgeting and deciding how you will allocate your money, decide what software tools can help your law firm grow and earn more profits.
- Hiring. There is a difference between cutting back on non-essential staff and cutting back on hiring that will make or break your law firm. For growing law firms, cutting back on hiring new associates could mean leaving new business on the table because you don’t have the capacity to do the work. Don’t let that happen. Plan ahead by estimated how much new work you will bring in within the next year and be prepared to add new staff when necessary.
Spending Too Soon
While it is important to not spend too little on necessary expenses, some new law firms spend too soon on items that can wait. For example, you may not need to bring on administrative staff immediately, especially in the early days of your law firm. You may consider outsourcing your administrative tasks so that you can quickly hire temporary administrative help when you’re too busy to answer the phone or return emails. You also may want to hold off on leasing expensive office space with all the amenities when your law firm isn’t bringing in significant income and such expenditures will do nothing for your bottom-line.
Not Hiring Professionals
There are certain things that you don’t want to try to DIY, one of them is managing you financial books. If you want to avoid headaches and possible problems in the future—hire a tax accountant. The last thing you need is an audit because you failed to file your tax returns correctly or failed to pay taxes for your employees. Hiring a professional for taxes and other necessary skills you don’t have is a great investment that shouldn’t suffer from your budget cuts.
When making budget cuts take care not to harm your law firm’s ability to survive and thrive by cutting out the meat as well as the fat.