A DIYer’s quick guide to Profit First for law firms.

We’ve spent this month on the blog going through different budgeting philosophies, including what we’ve seen work, and why. We’ve talked about both Profit First and YNAB as great budgeting strategies for law firms. Today, we bring you an intro to how to implement Profit First for your firm. Of course, to get the most out of it, we definitely recommend you read the book (affiliate link).

Profit First starts with several bank accounts, the first of which is a checking account that you’ll call Income.  It’s where you deposit every penny your clients pay you (other than trust funds, of course – earned income only).

Now, you’re going to open up several more bank accounts.  This list may be different for each firm, but many firms will start with the following bank accounts:

• Comp ← If your law firm owner is on payroll, then this is a savings account, because you won’t take money out of it more than once per month, or more commonly, once per quarter.  If your owner is not on payroll, then this is a checking account, so owners can take draws to pay themselves more often, at least twice per month.
• Opex ← This is another checking account.  It’s the account you pay your day-to-day business expenses from, ie, your operating expenses.  Hence the name “Opex.”
• Payroll ← This account funds all your payroll, and payroll-related expenses, like employee health insurance.  Firms that don’t have employees will skip this account.
• Reserves ← This is a savings account.  It’s your firm’s “rainy day fund,” and you’ll only draw on it when the firm needs to temporarily supplement cashflow in other accounts.
• Taxes ← This is another savings account.  This bank account will be used to pay both the business’s income taxes, as well as the owner’s personal income taxes and tax deposits.
• For Fun ← This is a savings account.  It’s like your firm’s “fun money.”  It can be used for employee or owner bonuses at the end of the year, investment projects, or anything else that’s a special, one-time expense or investment for the firm.

Now, twice per month, you’re going to go into your Income account, and move all that revenue into your other bank accounts.  You’ll have pre-determined percentages that you’ll allocate to each of your other accounts.  For example, maybe at first, you’ll move just 1% of your revenues into Comp.  Next you’ll put 49% into Opex.  Then 40% into Payroll.  The remaining 10% will go 6% to Taxes, 2% to Reserves, and 2% to For Fun.

You’re Off On Your Profit First Adventure!

Congratulations, you’ve just given yourself a budget, and that budget includes money for you!  You’ve also made financial decisions infinitely easier, because most decisions you can make simply by checking your bank balance to see if the funds in your account cover the expenditure you want to make.

Of course, this is just scratching the surface of how to make Profit First make great strides for your firm. At Skepsis, we love doing the financial analysis that will get your Profit First adventure started off right, with the right percentages. And then, we help firms set their Profit First goals to increase the firm owner’s paycheck. Finally, we help firms develop a path and strategy for bridging the gap between where they start, and where they’d like to be. Set up your successful budget with us today.