How to present a state-of-the-art budget for your legal department
As General Counsel, you may have the responsibility of creating or maintaining a departmental budget for the legal department. Think of it as a puzzle: the larger the organization, the more pieces that have to fit together, increasing the complexity. Strategic financial planning at all levels is key for forecasting future profits and minimizing shortfalls.
So how can you generate a budget that allows straightforward visualization of all of these factors and still be clear for everyone involved to understand?
Step 1 Gather business intelligence for your budget
Start the budgeting process by collaborating with members of your team. You will need to know critical details from the prior year’s budget and actual records, your current year to date, and the reasons for a surplus or shortfall. You may need to gather this information from multiple stakeholders, but be cautious to take in facts rather than opinions. Everyone wants a piece of the pie and you will have to determine where the money is best allocated. Using historical data will give you an overall view so you can drill down into different categories. Review this in your presentation. Here are some high-level categories:
- Salaries & benefits – this usually comes from HR, but it accounts for salaries, benefits, bonuses, and anything else that goes into the “fully loaded” cost of each employee in the department.
- Allocations – this number comes from Finance and accounts for the Legal Department’s share of the rent, utilities, technology, copiers, phones, and any other costs associated with operating the company that is spread among the different business units and staff groups.
- Department-specific technology – besides technology generally provided by the company, the Legal Department may have its own specific technology such as a contract management system, e-billing system, matter management, etc.
- Training – every Legal Department needs to keep its people trained and up-to-speed. Includes conferences, seminars, and so forth.
- Travel – Travel involves a lot more than the cost of airfare. Spend some time thinking about each month of the year and who will travel where and what will they will realistically spend per trip.
- Legal memberships – this includes state bar fees, membership in organizations like the CLOC or ACC.
- Subscriptions/Books /Newspapers – these cover things like Practical Law, CEB, and any other subscriptions or books/periodicals, etc.
- Outside counsel fees/Contractors – Other than perhaps salaries/benefits, this will be your biggest line item. Split the budget in recurring legal support and specific project support.
- Team events – Have a holiday lunch, or work a charitable event, or planning on an offsite? You need to account for it.
- Miscellaneous – basically, everything else, like translations, notary public license fees, trademark watch services, corporate secretary services, mobile phone reimbursement, etc.
Step 2 Define and Evaluate Department Goals
Ask specific questions when preparing your budget:
- What is management looking for?
- What expectations are set for Legal?
- What kind of services do you provide for other departments?
- What kind of metrics do you operate under – cost, customer satisfaction, risk control, or qualitative output, or even quantitative goals?
Understand the big picture: think like your board. Plan out effective strategies for how your department affects other areas. Target your previous profits. Set individual or team expectations. Prepare several scenarios for each of these categories and evaluate their effectiveness to stay within budget. Keeping your finger on the pulse will help you justify or make an argument for additional funding.
Step 3 Know the company’s plans for next year
It’s very difficult to plan a budget if you have no idea what the company’s business plans are for the next year. Is the company expanding into new geographies or new lines of business? Is M&A on the horizon? Will there be new products coming online (which may need trademarks, copyrights, or patents)? Do you need to prepare to go after a large number of accounts receivable that are way overdue? Whatever it may be, you need to know about it now, because now is when you are planning your budget.
Step 4 How to Budget
After collecting all of the information you sit down to make the actual budget. There are many budgeting tools to choose from that will help you prioritize your goals. You may be faced with difficult decisions as you will be working with other people’s priorities and you’re always going to want to do as much as possible with what you have. Evaluate different directions, communicate with other department leads, and determine which course of action will work best. That being said, it’s a good idea to build two or three different “what if” scenarios. Life is never black or white. Presenting alternate scenarios before situations occur will prove you have forethought and are a true leader!
Don’t assume that every legal-related cost must be borne directly by the legal budget. Depending on your ability to “make the case” it’s possible to convince Finance or various business units that certain costs should be borne on either a special cost center or paid for directly by the business unit. For example, M&A work is something that should not fall on the everyday operating budget of the Legal Department unless the budget process allows you to account for that spend at the time you set the budget. Otherwise, the cost of legal services related to a merger, acquisition, or disposition should just be assigned to a special cost center where all the expenses for that project are placed.
Step 5 Monitor the Progress Regularly
Make a plan for periodic touchpoints to make sure goals are being met and your team is sticking to your budget. Share this plan in your presentation and ensure you follow up. You don’t want to be scrambling for answers if things falter because of your inactivity. Remember what your grandmother said: “an ounce of prevention is worth a pound of cure!”. Sometimes even the best-laid plans need to be adjusted based on circumstances. Keep adding to your alternate scenarios as situations arise so that you are prepared before events occur that are irreversible.
Why You Need to Use the Right Budgeting Tools
Find out what makes sense for your presentation. Do the company decision-makers respond better to raw data in the form of a spreadsheet or a nicely laid out visual presentation? There are many tools that can help you compile budgets, make sense of past records, and collaborate with other teams in the organization. And make sure you use clear, concise, and visually appealing software for your presentation to your company director that will blow their minds!