Law Firm Budget: 6 Things to Settle Before You Set One
Sam's List Editorial | 2026-10-12
A law firm budget built from billed hours tells you what the firm hoped to earn, not what it will have in the bank. Between a timesheet entry and a deposit sit write-downs, slow payers and matters that pay only when they end.
Here are six things to settle, in order. This checklist is not ranked. For a bookkeeper who works with law firms, Legal Ease Bookkeeping is a Fort Worth firm whose profile lists law firm bookkeeping as its specialty. Legal Ease Bookkeeping is a paid featured member of Sam's List.
1. Start Your Law Firm Budget From Collected Fees, Not Billed Fees
The revenue line should be cash you expect to collect. Hours worked become billed fees after write-downs, and billed fees become cash only when clients pay. Many firms call these steps realization and collection rate, but definitions vary, so write down your own.
Here is an illustration with made-up figures.
| Illustrative step | Amount | Share of prior step |
|---|---|---|
| Time at standard rates | $200,000 | n/a |
| Billed after write-downs | $180,000 | 90% |
| Collected | $153,000 | 85% |
The firm that budgets $200,000 has a $47,000 hole before it pays anyone. Set the percentages from your own history, by practice area.
The limitation: history is a guide, not a promise. A new practice area or a few large slow payers can break the pattern, so recheck quarterly.
2. Build the Law Firm Revenue Forecast on Timing Assumptions You Can State
Contingency and flat-fee matters make revenue lumpy. A contingency case may pay nothing for two years, then a lot in a week, and only if it succeeds. A flat fee may be collected up front, in stages or at the end, depending on your agreement and your state's rules on advance fees.
A usable law firm revenue forecast does not predict each case. It states assumptions in plain words: how many matters you expect to resolve this quarter, the typical fee, and when the cash lands.
The limitation: a forecast can look precise and still be wrong. Use ranges for contingency income, and budget fixed costs against the steady lines only.
3. Sort Fixed Overhead From Variable Costs in the Law Firm Budget
Fixed overhead is what you owe whether or not work comes in: rent, staff salaries, software, bar dues and malpractice insurance. Variable costs move with the matter load, such as contract help, filing fees, experts and court reporters. The split tells you your breakeven.
List each fixed cost with its due date, not just its annual total. Malpractice premiums, bar dues and software renewals often land in one month and can empty an account that looked healthy.
The limitation: the line between fixed and variable is not clean. Salaries are fixed until you hire or let someone go, and some costs are billed back to clients. Classify each one and apply it the same way every month.
4. Treat Client Cost Advances and Trust Money Separately
Two kinds of client money get mixed into a law firm budget. When the firm pays a filing fee or an expert for a client, that advance is generally something the client owes back, so it is tracked as an asset until reimbursed, not as firm revenue. Your agreement and accounting method decide the exact treatment.
Trust funds are different. Trust funds belong to clients; check your state bar rules for how they must be held and reconciled. They never belong on the firm's revenue line.
The limitation: advances that are never recovered, such as when a contingency matter loses, can become a real cost. Budget a reserve and ask your bookkeeper how unrecovered advances are handled.
5. Put Partner Pay After Operating Expenses
Draws and distributions come after operating expenses, not inside them. A budget that treats partner pay as one more bill makes the firm look profitable when partners have simply paid themselves from money the firm still needed.
Budget in this order: collected revenue, operating expenses, then what is left for owners. For a steady draw, set it from a conservative forecast and true it up when cash arrives.
The limitation: how owners are paid, and how that is taxed, depends on your entity type. Ask your CPA how draws, guaranteed payments or salary apply to your firm before you fix the number.
6. Review Law Firm Budget vs Actual Monthly, With a Named Owner for Each Variance
A budget is a hypothesis, and the monthly comparison is the test. Put budget and actual side by side for every line, with the dollar and percentage gap. Give each meaningful variance one named owner who explains it in a sentence and proposes a change.
A good law firm budget vs actual review asks why, not just how much. Was billing late or collection slow? Did a lumpy fee shift a month? Fix the assumption behind the miss, then roll the budget forward.
The limitation: monthly review depends on books closed on time. If last month is not reconciled until the 20th, the review comes too late to matter. Agree on a close date before you set the budget.
Where Legal Ease Bookkeeping Fits
Legal Ease Bookkeeping is based in Fort Worth, Texas, was founded in 2016 and has about 12 employees. Its profile lists law firm bookkeeping as its specialty, nationwide service, and a $500,000 minimum in revenue.
Legal Ease Bookkeeping has 9 verified client reviews on Sam's List as of 2026-10-02. Each review is submitted by an individual who identifies as a client of the firm and rates it on communication, subject-matter knowledge, and overall satisfaction. Reviews reflect those individual experiences and do not represent an endorsement by Sam's List. Legal Ease Bookkeeping is a paid featured member of Sam's List. Ratings and rankings are not indicative of future performance or results.
The limitation: the $500,000 minimum leaves smaller firms outside its range. The profile does not say the firm builds budgets or forecasts, so ask what the monthly work covers and how soon after month end you get the budget vs actual report.
Frequently Asked Questions
How do I set a law firm budget?
Start from the cash you expect to collect, not hours billed. Add fixed overhead with due dates, variable costs, and partner pay after expenses. Keep trust funds and cost advances off the revenue line, base percentages on your own history, and review against actuals monthly.
How do I build a law firm revenue forecast with contingency cases?
Separate steady work from lumpy work. Forecast steady income by month and contingency income as a range, with stated assumptions about how many matters resolve and when cash arrives. Budget fixed costs against steady lines only.
What is law firm budget vs actual?
It is a monthly line-by-line comparison of what you planned to collect and spend against what happened. Each large gap gets a named owner and a short explanation, so you fix the assumption behind a miss, such as slow collections, rather than only note it.
Is trust account money part of a law firm budget?
No. Money held in trust belongs to the client until it is earned or properly disbursed, so it is not firm revenue. Each state's bar sets the rules for holding and reconciling it, so check with ethics counsel and ask your bookkeeper how trust activity is kept apart from operating cash.
To find a bookkeeper who knows law firms, browse bookkeepers on Sam's List and ask each to show a sample budget vs actual report.
About the author: Kimberly Green is cofounder of Sam’s List, a directory and matching platform for financial professionals.
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