What is a legal budget?
A budget is a plan that allows you to control your finances and ensure you are able to fund your present obligations. Moreover, it enables you to make steady financial decisions and reach your objectives. It also ensures you will have money for any future projects. Budgets outline what you will spend your money on and how that money will be financed. A budget is not a forecast, it is a planned outcome for what your business wants to achieve.
Furthermore, there are certain things you should include in your budget. These include things like the cost of your premises, rent, and the utilities you use. It should also include staff costs and equipment costs. Moreover, a legal budget will incorporate legal and professional costs including insurance.
There is a big legal risk when businesses are dealing with a large sum of money. Hence, it is essential to have a legal budget to assist in these situations.
Planning for a legal budget
Businesses often focus on their day-to-day problems rather than the bigger picture. However, successful businesses set aside time to create and manage budgets. They also review business plans and regularly monitor their financial performance. Businesses should consider potential legal matters during this planning stage. Legal budgets are useful when businesses can identify potential legal risks from their future transactions. The business can use its legal budget and consult lawyers to help them without having to remove money from other budgeted plans.
Additionally, the speed and complexity of today’s economic environment pose an extra challenge to annual budgeting. As a result, traditional planning processes are no longer a good fit for most organizational needs.
To stay on top of things and deal with the unexpected, companies should first step away from traditional budgeting schemes and develop new ones. Second, all organizations should focus on stress testing their business to check if they’re able to handle an economic crisis. Third, companies should leverage budget flexibility more than ever. A flexible budget will help you track your spending and adjust it on a monthly basis.
Benefits of a legal budget
Planning allows your business to anticipate potential areas of need in your business. This is particularly important in high-risk businesses which are likely to face problems. There are many benefits to having a legal budget. These include being able to:
1. Enhance Planning
The right model improves legal department planning by applying expected limitations to enterprise legal spending. These limitations provide a parameter for legal leaders to evaluate risks relative to costs, and to implement more cost-efficient litigation and settlement strategies.
2. Improve Predictability
The best budget models provide an objective, historical context for managing matter costs that enables more accurate annual projections.
3. Informed Decision-Making
Tracking legal spending while using more innovative budgeting approaches provides both a context for decisions about when to bring in external partners and a means of understanding potential risks based on historical trends.
4. Align Provider Performance
A model that involves partners in the budgeting discussion not only improves matter management but can also improve the relationship with providers, by creating commercial alignment on spending limitations and enterprise business priorities.
5. Identify Departmental Strengths and Weaknesses
A process that incorporates a line-item budget can help analyze ongoing legal department costs and prior legal outcomes. The right kind of budgeting exercise can expose where there are unusually high-cost centers within the department. Conversely, it can shine a light on the parts of the legal department that have been relatively effective at mitigating costs, while producing superior outcomes. Previous strategies that have yielded high costs can be re-evaluated in the context of the higher-performing intradepartmental teams and matters.
6. Expose Employee/Cultural Concerns
Budgeting models that examine employee expenses not only provide context for expected labor and talent costs but also uncover metrics to address employee turnover, which can lead to meaningful insights on lawyer satisfaction and management issues within the department.
7. Engage with Peers
Developing an approach that includes coordination with other functional leaders regarding legal spending, budgeting, and analysis fosters cooperation between legal and the business units it serves.
Legal expenses, like legal outcomes, can be unpredictable whether you or your company is planning several big transactions, is facing the threat of litigation, or is simply proceeding in its ordinary course of business.
In light of the above, you or your companies should plan proper legal budgets to prevent potential legal problems from arising in the future or for any legal requirement for the business.