How to create a financial forecast for a bankruptcy law firm?
If you are serious about keeping visibility on your future cash flows, then you need to build and maintain a financial forecast for your bankruptcy law firm.
Putting together a bankruptcy law firm financial forecast may sound complex, but don’t worry, with the right tool, it’s easier than it looks, and The Business Plan Shop is here to guide you.
In this practical guide, we'll cover everything you need to know about building financial projections for your bankruptcy law firm.
We will start by looking at why they are key, what information is needed, what a forecast looks like once completed, and what solutions you can use to create yours.
Let's dive in!
Why create and maintain a financial forecast for a bankruptcy law firm?
The financial projections for your bankruptcy law firm act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability.
To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.
During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis.
Your bankruptcy law firm's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What information is needed to build a bankruptcy law firm financial forecast?
The quality of your inputs is key when it comes to financial modelling: no matter how good the model is, if your inputs are off, so will the forecast.
If you are building a financial plan to start a bankruptcy law firm, you will need to have done your market research and have a clear picture of your sales and marketing strategies so that you can project revenues with confidence.
You will also need to have a clear idea of what resources will be required to operate the bankruptcy law firm on a daily basis, and to have done your research with regard to the equipment needed to launch your venture (see further down this guide).
If you are creating a financial forecast of an existing bankruptcy law firm, things are usually simpler as you will be able to use your historical accounting data as a budgeting base, and complement that with your team’s view on what lies ahead for the years to come.
Let's now zoom in on what will go in your bankruptcy law firm's financial forecast.
The sales forecast for a bankruptcy law firm
From experience, it usually makes sense to start your bankruptcy law firm's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your bankruptcy law firm (which can be used as a starting point for existing businesses) and the data collected in your market research (which both new ventures and existing businesses need to project their sales forward).
Your bankruptcy law firm's sales forecast can be broken down into two key estimates:
- The average price
- The number of monthly transactions
To assess these variables accurately, you will need to consider the following factors:
- The level of competition in the local market can impact the average price and number of monthly transactions for a bankruptcy law firm. If there are several other bankruptcy law firms in the area, this may drive down prices and make it more difficult to attract clients, resulting in lower transaction volumes.
- The complexity of the cases that a bankruptcy law firm handles can also affect the average price and number of monthly transactions. More complex cases may require more time and resources, leading to higher fees, but they may also result in fewer monthly transactions as they take longer to resolve.
- The reputation and experience of the bankruptcy law firm can also play a role in the average price and number of monthly transactions. A well-established and highly respected firm may be able to charge higher fees and attract more clients, while a newer or less reputable firm may struggle to maintain a steady stream of clients and may need to offer lower prices to remain competitive.
Once you have a sales forecast in place, the next step will be to work on your overhead budget. Let’s have a look at that now.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The operating expenses for a bankruptcy law firm
The next step is to estimate the costs you’ll have to incur to operate your bankruptcy law firm.
These will vary based on where your business is located, and its overall size (level of sales, personnel, etc.).
But your bankruptcy law firm's operating expenses should normally include the following items:
- Staff Costs: This includes salaries, benefits, and any other expenses related to your employees. As a bankruptcy law firm, you will likely have attorneys, paralegals, and administrative staff.
- Accountancy Fees: As a law firm, you will need to hire an accountant to handle your financial records and taxes. This is an essential expense to ensure compliance with tax laws.
- Insurance Costs: As with any business, you will need to have insurance to protect your firm from any potential lawsuits or claims. This can include professional liability insurance, general liability insurance, and property insurance.
- Software Licenses: As a bankruptcy law firm, you will need to invest in software to help manage your cases, track billable hours, and handle client communications. This can include legal case management software, accounting software, and document management software.
- Banking Fees: This includes any fees associated with your business bank account, such as transaction fees, monthly maintenance fees, and ATM fees.
- Rent: If you have a physical office space, you will need to factor in rent as an operating expense. This can also include utilities and maintenance fees.
- Marketing and Advertising: To attract new clients, you may need to invest in marketing and advertising efforts. This can include creating a website, running ads, and attending networking events.
- Professional Memberships and Conferences: As a bankruptcy law firm, it is important to stay up-to-date on the latest industry trends and regulations. This may require paying for memberships to legal associations and attending conferences.
- Office Supplies: You will need to purchase office supplies, such as paper, ink, pens, and folders, to keep your firm running smoothly.
- Research and Reference Materials: As a bankruptcy law firm, you will need access to legal research databases and reference materials to assist with your cases. This can include subscriptions to online databases or purchasing reference books.
- Travel Expenses: If you need to travel for court appearances or meetings with clients, you will need to include travel expenses, such as airfare, lodging, and meals, in your operating expenses.
- Office Equipment: This includes purchasing or leasing essential office equipment, such as computers, printers, and phones.
- Malpractice Insurance: As a bankruptcy law firm, you will need to have malpractice insurance to protect your firm in case of any errors or omissions in your legal work.
- Continuing Education: To maintain your license and stay updated on changes in bankruptcy law, you will need to invest in continuing education courses for yourself and your employees.
- Client Expenses: Depending on your client's financial situation, you may need to cover certain expenses related to the bankruptcy process, such as court fees or credit counseling fees.
This list is not exhaustive by any means, and will need to be tailored to your bankruptcy law firm's specific circumstances.
What investments are needed to start or grow a bankruptcy law firm?
Your bankruptcy law firm financial forecast will also need to include the capital expenditures (aka investments in plain English) and initial working capital items required for the creation or development of your business.
For a bankruptcy law firm, these could include:
- Office Space: This includes expenses related to renting or purchasing office space for your bankruptcy law firm. This could include lease payments, property taxes, and utilities.
- Furniture and Equipment: As a bankruptcy law firm, you will need furniture and equipment such as desks, chairs, computers, printers, and other office supplies. These are considered fixed assets and will need to be included in your expenditure forecast.
- Legal Software: In order to efficiently manage your bankruptcy cases, you will need specialized legal software. This could include bankruptcy case management software, document management software, and accounting software.
- Legal Library: As a bankruptcy law firm, you will need access to legal resources and research materials. This could include subscriptions to legal databases, law books, and other reference materials.
- Security Systems: To protect your clients' confidential information, you may need to invest in security systems such as surveillance cameras, alarm systems, and data encryption software.
Again, this list will need to be adjusted according to the size and ambitions of your bankruptcy law firm.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The financing plan of your bankruptcy law firm
The next step in the creation of your financial forecast for your bankruptcy law firm is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for a bankruptcy law firm?
Now let's have a look at the main output tables of your bankruptcy law firm's financial forecast.
The forecasted profit & loss statement
The profit & loss forecast gives you a clear picture of your business’ expected growth over the first three to five years, and whether it’s likely to be profitable or not.
A healthy bankruptcy law firm's P&L statement should show:
- Sales growing at (minimum) or above (better) inflation
- Stable (minimum) or expanding (better) profit margins
- A healthy level of net profitability
This will of course depend on the stage of your business: numbers for an established bankruptcy law firm will look different than for a startup.
The projected balance sheet
Your bankruptcy law firm's forecasted balance sheet enables you to assess your financial structure and working capital requirements.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The projected cash flow statement
A projected cash flow statement for a bankruptcy law firm is used to show how much cash the business is generating or consuming.
The cash flow forecast is usually organised by nature to show three key metrics:
- The operating cash flow: do the core business activities generate or consume cash?
- The investing cash flow: how much is the business investing in long-term assets (this is usually compared to the level of fixed assets on the balance sheet to assess whether the business is regularly maintaining and renewing its equipment)?
- The financing cash flow: is the business raising new financing or repaying financiers (debt repayment, dividends)?
Cash is king and keeping an eye on future cash flows is imperative for running a successful business. Therefore, you should pay close attention to your bankruptcy law firm's cash flow forecast.
If you are trying to secure financing, note that it is customary to provide both yearly and monthly cash flow forecasts in a financial plan - so that the reader can analyze seasonal variation and ensure the bankruptcy law firm is appropriately capitalised.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Which tool should you use to create your bankruptcy law firm's financial forecast?
Using the right tool or solution will make the creation of your bankruptcy law firm's financial forecast much easier than it sounds. Let’s explore the main options.
Using online financial forecasting software to build your bankruptcy law firm's projections
The modern and easiest way is to use professional online financial forecasting software such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our forecasting software for free by signing up here.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional bankruptcy law firm financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your bankruptcy law firm's financial forecast?
Creating an accurate and error-free bankruptcy law firm financial forecast with a spreadsheet is very technical and requires a deep knowledge of accounting and an understanding of financial modelling.
Very few business owners are financially savvy enough to be able to build a forecast themselves on Excel without making mistakes.
Lenders and investors know this, which is why forecasts created on Excel by the business owner are often frowned upon.
Having numbers one can trust is key when it comes to financial forecasting and to that end using software is much safer.
Using financial forecasting software is also faster than using a spreadsheet, and, with the rise of artificial intelligence, software is also becoming smarter at helping us analyse the numbers to make smarter decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and keeping your projections up to date as the year progresses is manual, tedious, and error-prone. Whereas financial projection software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Use our financial projection templates for inspiration
The Business Plan Shop has dozens of financial forecast templates available.
Our examples contain a complete business plan with a financial forecast and a written presentation of the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own bankruptcy law firm, looking at our financial forecast template is a good way to:
- Understand what a complete business plan should look like
- Understand how you should model financial items for your bankruptcy law firm
Takeaways
- Having a financial forecast enables you to visualise the expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial projections up-to-date is the only way to get a view on what your bankruptcy law firm future cash flows may look like.
- Using financial forecasting software is the mordern and easy way to create and maintain your forecasts.
This is the end of our guide on how to build the financial forecast for a bankruptcy law firm, we hope you found it useful. Don't hesitate to contact us if you want to share your feedback or have any questions.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Also on The Business Plan Shop
- Example of financial forecast
- Example of financial forecast for business idea
- How to project sales for a business?
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Founder & CEO at The Business Plan Shop Ltd
