The Benefit of a Budget

For several reasons I have come to think that it is valuable to prepare a budget in nearly all sizeable legal matters.

The first reason is that I would not enter into a significant business venture without an idea of the cost, so I should not expect clients to hire me for a large legal project without a budget.  Cost is an integral part of almost every business decision.  Honestly, how have so many lawyers gotten away for so long with open ended engagements?  We could assume that lawyers are special and above the fray, or we can think one step ahead.

I made the mistake once in agreeing to have a painter paint our family room on an hourly basis.  The rate was very reasonable, there were some unique issues and the painter was referred to me, so I accepted the hourly agreement.  Well, after the work was done I thought the bill was outrageous.  I would never have agreed to that price if I had known it in advance.  I would have reduced the scope of the project, done some of the work myself, or gotten another bid.  I have not used that painter again.

A lawyer can learn a lesson from that example.  If we do not, we may just get fewer calls without realizing why.  The world is always changing and everyone should continue to assess how to deliver the most value to their clients, patients or employers.  For lawyers, budgeting may be part of the answer.

It can be difficult to estimate legal fees.  As the painter did, I have justified my inability to provide a fixed price or meaningful estimate on the uniqueness of each project.  Any time there is a party on the other side, there is no way to predict what the other party will do and the corresponding work it will require.  But I am not sure that logic completely holds water.  As the lawyer engaged to handle a matter, we are more experienced than the client and the best person to predict the scope of a project.  If we really have been down the road before, which in most cases we better have, we should be able to foresee the potential twists and turns with some degree of certainty.

When I am asked to provide clients with a budget, I have found it is incredibly valuable.  Preparing a budget forces me to think through a complex matter from start to finish…with my fee at stake.  Obviously the more complicated the matter, the more permutations of possible outcomes and the broader the range of the estimate.  The process can be time consuming and difficult but I think it is helpful to push the limits of what we can predict, as best we can.  This helps to avoid a crisis management situation when deadlines are looming, and is a much more efficient and effective way to serve the client.

A new client once asked me to evaluate the scope of several small projects.  One of them was to help them evaluate whether their independent contractors met the legal requirements of independent contractor under the Internal Revenue Code.  In estimating the work, I could see gathering facts, applying the law and writing the letter.  I could almost visualize the letter and strongly suspect that after spending about 10 hours of my time, the client would still be left with a fair amount of uncertainty.  I have gone down this road before.  So I suggested we take a step back and look at the purpose of the IRS regulations to model the business relationship, rather than taking a step forward to examine the details.  In this circumstance, the approach worked well and the client loved it.  Had I not been asked to provide an estimate of fees, I could have jumped into the project without really thinking in advance of the outcome and given the client a sizeable bill and no added value.

I have come to see that the most significant benefit of the budgeting process is really the strategic planning that it requires.  The planning helps direct legal efforts to arrive at the best results.  It also provides the client with a cost estimate to guide their decision making.

A written budget and summary of the case in advance also helps the lawyer and client focus later, if needed, on the assumptions that were made available when the matter began.

In summary, whether you are “the lawyer” or the client, I encourage you to make budgeting a routine part of the delivery of legal services.  As the lawyer, I expect you will reap the reward of happy clients.

Krista P. Harper is a shareholder of Harper Business Law, P.C.  She counsels clients in creatively structuring commercial transactions to maximize the net benefit.  She uses experience and business sense to help clients meet their objectives in a smart and practical manner.  She helps manage commercial litigation to focus efforts on the most efficient path to an acceptable outcome.