How to create a financial forecast for a family 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 family law firm.
Putting together a family 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 family 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 family law firm?
Creating and maintaining an up-to-date financial forecast is the only way to steer the development of your family law firm and ensure that it can be financially viable in the years to come.
A financial plan for a family law firm enables you to look at your business in detail - from income to operating costs and investments - to evaluate its expected profitability and future cash flows.
This gives you the visibility needed to plan future investments and expansion with confidence.
And, when your trading environment gets tougher, having an up to date family law firm forecast enables you to detect potential upcoming financing shortfalls in advance, enabling you to make adjustments or secure financing before you run out of cash.
It’s also important to remember that your family law firm's financial forecast will be essential when looking for financing. You can be 100% certain that banks and investors will ask to see your numbers, so make sure they’re set out accurately and attractively.
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 used as input to build a family law firm financial forecast?
A family law firm's financial forecast needs to be built on the right foundation: your assumptions.
The data required to create your assumptions will depend on whether you are a new or existing family law firm.
If you are creating (or updating) the forecast of an existing family law firm, then your main inputs will be historical accounting data and operating metrics, and your team’s view on what to expect for the next three to five years.
If you are building financial projections for a new family law firm startup, you will need to rely on market research to form your go-to-market strategy and derive your sales forecast.
For a new venture, you will also need an itemised list of resources needed for the family law firm to operate, along with a list of equipment required to launch the venture (more on that below).
Now that you understand what is needed, let’s have a look at what elements will make up your family law firm's financial forecast.
The sales forecast for a family law firm
From experience, it usually makes sense to start your family law firm's financial projection with the revenues forecast.
The inputs used to forecast your sales will include the historical trading data of your family 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 family 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:
- Changes in local demographics: As the demographics of your local area change, the types of family law cases and clients you serve may also change. For example, an influx of younger families may lead to an increase in divorce and child custody cases, while an aging population may lead to an increase in estate planning and elder law cases.
- Changes in legislation: Changes in state or federal laws related to family law can have a significant impact on your business. For example, if new laws are passed that make it easier for couples to get divorced without an attorney, you may see a decrease in divorce cases and a decrease in your average price per case.
- Competition from online legal services: With the rise of online legal services, more individuals may turn to these services for their family law needs instead of hiring a traditional law firm. This could lead to a decrease in your number of monthly transactions and a decrease in your average price per case.
- Economic conditions: Economic downturns or recessions can impact the demand for family law services. During tough economic times, individuals may be less likely to spend money on legal services, resulting in a decrease in your number of monthly transactions and potentially leading to a decrease in your average price per case as clients may seek out more affordable options.
- Changes in societal attitudes: As societal attitudes towards marriage, divorce, and family structures change, the types of family law cases you handle may also change. For example, as non-traditional family structures become more widely accepted, you may see an increase in cases related to same-sex marriage, domestic partnerships, and adoption by same-sex couples.
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 family law firm
Once you know what level of sales you can expect, you can start budgeting the expenses required to operate your family law firm on a daily basis.
Expenses normally vary based on how much revenue you anticipate (which is why, from experience, it is always better to start your forecast with the topline projection), and where your business is based.
Operating expenses for a family law firm will include some of the following items:
- Staff Costs: This includes salaries, benefits, and any other expenses related to your employees, such as taxes and healthcare. In a family law firm, this may also include any additional support staff, such as paralegals or administrative assistants.
- Accountancy Fees: As a legal practice, you are required to keep accurate financial records and file taxes. Hiring an accountant will ensure that these tasks are done correctly and efficiently.
- Insurance Costs: Running a law firm comes with certain risks, so it is important to have adequate insurance coverage. This may include professional liability insurance, property insurance, and workers' compensation insurance.
- Software Licences: In today's digital age, most law firms rely on various software programs to manage their cases, communicate with clients, and handle billing. These software licenses come with a cost that should be factored into your operating expenses.
- Banking Fees: As a business, you will have to maintain a bank account for your firm. This may include fees for transactions, wire transfers, and account maintenance.
- Rent/Lease: If you operate out of a physical office space, you will have to pay rent or a lease for the space. This expense may also include utilities, maintenance, and other related costs.
- Marketing/Advertising: To attract clients, you may need to invest in marketing and advertising efforts. This may include creating a website, running online ads, or printing marketing materials.
- Professional Memberships/Associations: Joining professional organizations or associations related to family law can be beneficial for networking and staying up-to-date on industry trends. However, these memberships often come with a cost.
- Travel Expenses: Depending on the nature of your practice, you may have to travel for court appearances, meetings with clients, or conferences. This may include costs for transportation, lodging, and meals.
- Office Supplies: Every law firm needs basic office supplies, such as paper, ink, pens, and folders. These small expenses can add up over time.
- Client Expenses: In some cases, you may need to cover certain expenses for your clients, such as filing fees, court costs, or expert witness fees. These should be accounted for in your operating expenses.
- Continuing Education/Training: As a lawyer, you are required to complete a certain number of continuing education hours each year. This may include attending seminars, webinars, or other training programs, which often come with a cost.
- Office Equipment/Supplies: In addition to basic office supplies, you may also need to purchase or lease equipment, such as computers, printers, and copiers. These expenses should be factored into your operating budget.
- Office Maintenance: Similar to a home, your office space will require regular maintenance, such as cleaning, repairs, and upgrades. These costs should be included in your operating expenses.
- Client Entertainment: In some cases, you may need to entertain clients or potential clients as part of your business development efforts. This may include meals, tickets to events, or other entertainment expenses.
This list will need to be tailored to the specificities of your family law firm, but should offer a good starting point for your budget.
What investments are needed to start or grow a family law firm?
Your family 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 family law firm, these could include:
- Your office space: This includes rent or mortgage payments for your office space, as well as any renovations or improvements needed for the space.
- Legal software and technology: As a family law firm, it is important to invest in reliable and efficient legal software and technology to assist with case management, document creation, and communication with clients.
- Furniture and equipment: This includes desks, chairs, filing cabinets, printers, and any other necessary equipment for your office. It is important to have functional and comfortable furniture and equipment for you and your staff.
- Legal library and resources: As a family law firm, you will need access to a variety of legal resources such as books, journals, and online databases. These resources can be expensive, but are essential for providing high-quality legal services to your clients.
- Office supplies and stationary: While these may seem like small expenses, they can add up quickly. It is important to budget for necessary office supplies such as paper, pens, printer ink, and postage stamps.
Again, this list will need to be adjusted according to the size and ambitions of your family 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 family law firm
The next step in the creation of your financial forecast for your family 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 family law firm?
Now let's have a look at the main output tables of your family law firm's financial forecast.
The profit & loss forecast
The forecasted profit & loss statement will enable you to visualise your family law firm's expected growth and profitability over the next three to five years.
A financially viable P&L statement for a family law firm should normally show:
- Sales growing above inflation
- Stable or expanding (ideally) profit margins
- A net profit
This will of course depend on the stage of your business: a new venture might be loss-making until it reaches its breakeven point in year 2 or 3, for example.
The projected balance sheet
The projected balance sheet gives an overview of your family law firm's financial structure at the end of the financial year.
It is composed of three categories of items: assets, liabilities and equity:
- Assets: are what the business possesses and uses to produce cash flows. It includes resources such as cash, buildings, equipment, and accounts receivable (money owed by clients).
- Liabilities: are the debts of your family law firm. They include accounts payable (money owed to suppliers), taxes due and bank loans.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The cash flow forecast
Your family law firm's cash flow forecast shows how much cash your business is expected to consume or generate in the years to come.
It is best practice to organise the cash flow forecast by nature to better explain where cash is used or generated by the family law firm:
- Operating cash flow: shows how much cash is generated by the operating activities
- Investing cash flow: shows how much will be invested in capital expenditure to maintain or expand the business
- Financing cash flow: shows if the business is raising new capital or repaying financiers (debt repayment, dividends)
Keeping an eye on (and regularly updating) your family law firm's cash flow forecast is key to ensuring that your business has sufficient liquidity to operate normally and to detect financing requirements as early as possible.
If you are trying to raise capital, you will normally be asked to provide a monthly cash flow forecast in your family law firm's financial plan - so that banks or investors can assess seasonal variation and ensure your business 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 family law firm's financial projections?
Building a family law firm financial forecast is not difficult provided that you use the right tool for the job. Let’s see what options are available below.
Using online financial projection software to build your family law firm's forecast
The modern and easiest way to build a forecast is to use professional financial projection 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 family 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 family law firm's financial forecast?
Creating an accurate and error-free family law firm financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting 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 forecasting templates available.
Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own family law firm, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.
Takeaways
- A financial projection shows expected growth, profitability, and cash generation for your business over the next three to five years.
- Tracking actuals vs. forecast and keeping your financial forecast up-to-date is the only way to maintain visibility on future cash flows.
- Using financial forecasting software makes it easy to create and maintain up-to-date projections for your family law firm.
You have reached the end of our guide. We hope you now have a better understanding of how to create a financial forecast for a family law firm. Don't hesitate to contact our team if you have any questions or want to share your experience building forecasts!
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 projections
- How to create a turnover forecast for a business?
- Financial forecast template for a business idea
Know someone who runs or wants to start a family law firm? Share our financial projection guide with them!
Founder & CEO at The Business Plan Shop Ltd
