Budgeting Tips
- Develop a theme – In concert with the managing partner, it is critical to develop a simple theme around the upcoming year budget. Is it a year for growth? Cost cutting? Capital improvements? , etc.
- Exit rate - Annualize your financial results from your most recent three month period. This provides a preliminary look at next year based on our current year exit rate.
- Renewals – Get your benefit and major recurring expense renewals completed in the fall. Having your renewals in hand gives you better planning information on big ticket items.
- Know your clients – sit down with your managing partner or executive committee and understand your top clients and how they will influence the upcoming year. Get to at least 60% coverage of your revenue; usually 10-20 clients.
- Revenue ABCs – Revenue must be Achievable, Believable and supported by known Client demand.
- Singles and Doubles – As cash businesses, we should base our spending budget on fairly conservative assumptions. I call these singles and doubles, nothing fancy but steady results. Don’t put winning the biggest deal in firm history (a “home run”) into your budget.
- Diary to Cash – Use a rolling ninety day average of your diary to cash metric ((Work-in-Process + Accounts Receivable)/Billings) to forecast cash receipts.
- Revenue growth versus expense growth – You must have at least a 5 percentage point difference between year-to-year revenue growth and year-to-year expense growth to ensure profit improvement.
- EOP(Effect On Payroll) – Set a fixed percentage increase for the total effect of increases on your existing salaries. Individual increases can exceed this amount but the sum of all increases should be locked.
- Don’t sweat the small stuff – Remember the 80/20 rule. Eighty percent of our dollars flow through twenty percent of our accounts. Focus on these items only and do not spend time trying to figure our how many legal pads you need!
- Cost Savings – Identify four or five opportunities for cost savings. Meet with the vendors and your business team to set cost saving targets and put them in the budget. Then make them happen.
Listing compiled by Kevin Costello, Executive Director, Campbell
Campbell Edwards & Conroy, P.C., Boston, MA