It’s not easy to make money; and, it’s even harder to predict how much money you will make when you start a business, especially if it’s the first business you’ve started.
Since this can be a frustrating task, it’s tempting to just throw up your hands, and tell yourself that, truly, you’ll know what you’re going to make when you make it. The downside of that approach is that it’s difficult to make any plans that way, and to begin to define a strategy for business growth. Without revenue goals, there are no targets to hit. You won’t know whether to judge your year as a success or a setback. Establishing revenue markers is a method for implementing steady (not overwhelming) growth) — and, it doesn’t mean that the overarching goal is no longer to make as much money as you can. If you hit or exceed your goal, be more aggressive about establishing next year’s goal.
These are some basic tips for developing revenue projections for a new law firm:
Start with Your Overhead. At a very basic level, you need to meet your expenses to stay in business. So, start there. Figure out what you need to meet your personal and business expenses, and then build revenue goals on top of those.
Ask Around. Lawyers hate to share information about their rates. But, for almost every other category of law firm business management, you won’t be able to stop them talking. So, find a mentor in your practice area, and have her review your financial projections, to see whether what you’re thinking jibes with her experience.
Create Three Test Cases. If you’re having difficulty deciding on just one revenue model, try out different test cases. Create an aggressive financial model, a moderate one and a conservative one. See which one you nail, and then you’ll have a better idea about your growth pattern for year two.
Don’t Get Too Far Ahead of Yourself. It’s likely not valuable for you to project too far ahead, especially as a new business owner. While you might feel some comfort running out financial projections to year five (which will be far rosier than what you would have developed for year one), so much will change in your business by that time, that that projection is likely garbage as soon as you mark it down. Consider developing financial projections for the first year of operation a victory.
Simple is Best. You needn’t go crazy trying to find a financial projection model that suits you. Just create a spreadsheet. List your expenses, including line items. List your projected revenue, including total matters and hours. There is no prize for the prettiest financial modeling.
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