Budgets are the essence of a successful plan, and any business can and should operate according to a budget - whether it makes widgets or provides professional services. Unfortunately, lawyers too often believe preparing a budget is impractical.
Here are three common excuses:
- Providing legal services depends on too many variables that can’t be anticipated - for example, what motions opposing counsel will file, or what problems might turn up when doing due diligence.
- The quality of negotiating a deal, drafting a contract, or litigating a dispute should not be constrained by budget limitations.
- Budgeting a matter is merely an attempt on the client’s part to reduce the fees that they are willing to pay.
But if clients, especially business clients, ever accepted such reasoning, they certainly don’t today. And in reality, preparing a budget at the start of any matter ensures greater productivity and cost effectiveness for both sides.
A budget can only be an estimate of what’s going to happen. The lawyer should not pad expenses, the client should not lowball expectations. Creating a budget shows clients - whether they are individuals, small businesses or corporate counsel - that their lawyer understands their needs and is providing value and not just a block of hourly time. Also, by including in every engagement letter a budget that addresses events, time and money, a firm increases its chances of collecting the fee because the client knows what to expect.
Two crucial parameters
The best way to begin the budgeting process is by getting as much information as possible from the client about goals and expectations. Information should cover parties, issues, anticipated strategies and desired outcomes. Understanding the client’s objectives will define the two crucial budget parameters:
- Time
Use common sense, be realistic and communicate accurately about the amount of time it will take to complete any work. Err on the side of caution and be sure to build in more than adequate time.
Except when dealing with statutory or transactional deadlines, the client is less concerned with exact time and more concerned about being hit by surprises.
- Money
Clients should have in mind how much money they want to spend to resolve a problem, just as they know what they want to spend on a piece of equipment. In either case, a higher initial cost may be acceptable if the long-term return on investment justifies it.
Sometimes a legal problem is large enough that spending big sums on it is justified. Most issues, however, involve everyday costs of doing business. It makes no sense to budget $2 million to try a case if a $100,000 settlement will meet the client’s objectives
Communication and collaboration
The best approach is to secure as much information as possible from the client about goals and expectations. Understanding the client’s objectives is essential to defining budget and payment obligations.
The key here is not just preparing the budget, but involving the client in the preparation. The client should also formally approve the final budget. Without client buy-in, the process is less effective.
After the budget is in place, all subsequent communication about it must continue to be collaborative. Because lawyer and client will each have unique information at any given time, both must be in constant communication about developments to keep the budget on track. The budget document should be periodically reviewed, with the client being told how much he or she has already spent and being asked to approve any necessary changes.
The budget’s ultimate benefit is serving as a benchmark for the firm’s work as it is completed and billed. A bill that shows work performed in the context of constant budget communication is one that speaks clearly and directly to clients about the value of legal services.
Because these are often intangible, the more budget information the firm can provide in the bill, the more likely the client will perceive the bill as fair. A bill that describes promises made and kept, complete with examples of value and service as defined by both parties in the budget, eliminates “sticker shock.” The client knows what to expect - and is more willing to pay promptly.
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Growing Your Law Practice in Tough Times
By Edward Poll
Following the worst economic crisis since the Great Depression, and facing a sea change in clients' demands and expectations, law firms must respond and adapt quickly and effectively. Law firms must choose the kind of law practice they will be; the marketing and business development tactics they will use; the overhead that is critical to their functioning; how to price, bill and collect for services; and how to manage the cash flow cycle. Success lies in identifying and capturing the right kinds of clients, providing the services those clients need in ways that add value, and ensuring prompt payment and the ability to grow profits. This book, based on the experiences of the author and his clients over 20 years of coaching and consulting, provides the keys to successfully thriving in the new era.
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