Key Takeaways:
- Only 64% of law firms budget for technology despite it being essential for competitiveness—and the firms that do budget consistently see better financial outcomes and fewer cash flow crises
- QuickBooks Online Plus or Advanced is required for budgeting features, but without legal-specific integrations, you’ll still face manual workarounds for trust accounting and matter-based tracking
- Rolling/continuous budgeting models outperform traditional approaches, with 60% of legal departments using this model receiving budget increases in 2024—proving that agile financial planning pays dividends
You’ve made it through another year of billable hours, client demands, and the daily chaos of running a law firm. Now comes the part nobody warned you about in law school: building a budget for next year.
If you’re like most attorneys, the word “budget” conjures images of endless spreadsheets, guesswork, and a vague sense of dread. You’re not alone. According to the ABA Legal Technology Survey Report, only 64% of law firms budget for technology—and if they’re not budgeting for something as critical as tech, imagine how many are skipping comprehensive fiscal planning altogether.
Here’s the thing: a well-constructed budget isn’t about restricting your firm’s growth. It’s about understanding where your money comes from, where it goes, and how to make smarter decisions with both. And if you’re already using QuickBooks Online for your accounting (as many successful mid-sized firms do), you have a powerful budgeting tool at your fingertips—you just need to know how to use it.
Let’s walk through exactly how to set up a fiscal year budget in QuickBooks Online, step by step. By the time you’re done, you’ll have a clear financial roadmap for the year ahead.
Why Law Firms Need a Formal Budget (And Why Most Don’t Have One)
Before we dive into the how-to, let’s address the elephant in the room: why bother?
The legal industry has a budgeting problem. Despite the fact that employee costs alone consume 40% or more of revenue at most firms, many partners still don’t track expenses against budget monthly. The result? Profit leakage, cash flow surprises, and missed growth opportunities.
Consider these sobering statistics:
The average law firm realizes just 85% of billed revenue due to write-offs and collection issues. If you’re not budgeting for this reality, you’re planning based on fantasy numbers. Meanwhile, 61% of General Counsels expect budget increases for 2025, with an average increase of 5%—but only those with clear financial visibility will capture that growth.
The firms that thrive aren’t necessarily the ones with the best lawyers (though that helps). They’re the ones that combine legal excellence with financial clarity. And that starts with a budget.
Before You Begin: Setting Up Your QuickBooks Online Foundation
Check Your Subscription Level
First things first: QuickBooks Online budgeting features are only available in Plus and Advanced subscriptions. If you’re on Simple Start or Essentials, you’ll need to upgrade before you can create budgets.
To check your subscription:
- Click the gear-shaped Settings icon in the header
- Select “Account and Settings” under Your Company
- Review your subscription level in the Billing & Subscription section
For mid-sized law firms handling complex billing arrangements and multiple practice areas, QuickBooks Online Advanced is typically the better choice. It offers enhanced reporting, custom fields, and deeper integration capabilities with legal billing software like LeanLaw.
Verify Your Fiscal Year Settings
Your budget will automatically align with your fiscal year, so make sure this is set correctly before you start.
To check or update your fiscal year:
- Click the Settings icon (gear) in the header
- Select “Account and Settings” under Your Company
- Click the “Advanced” tab in the left menu
- Look at the “Accounting” section at the top
- Check the “First month of fiscal year” field
Most law firms operate on a calendar year (January through December), but if your firm uses a different fiscal year, set this now. Changing it later can create reporting complications.
Pro tip: If you need to change the fiscal year start date, click the pencil-shaped Edit icon. Just be aware that this affects all historical reporting, so think carefully before making changes mid-stream.
Ensure Your Chart of Accounts Is Clean
A budget is only as useful as the account structure behind it. Before building your budget, take time to review your chart of accounts and ensure it reflects how you actually want to track finances.
For law firms, your chart of accounts should typically include:
Revenue accounts:
- Legal fees by practice area (litigation, corporate, real estate, etc.)
- Retainer income
- Alternative fee arrangements
- Court costs and filing fee reimbursements
Expense accounts:
- Salaries and wages (often your largest expense)
- Office rent and utilities
- Professional development and CLE
- Technology and software subscriptions
- Marketing and business development
- Professional liability insurance
- Bar dues and memberships
Trust accounts (critical for compliance):
- Client trust deposits (IOLTA)
- Trust disbursements
If your accounts are disorganized or don’t reflect your practice areas, fix them now. Adding new categories mid-year is possible, but starting with a clean structure makes everything easier.
Step-by-Step: Creating Your Fiscal Year Budget in QuickBooks Online
Now for the main event. Here’s exactly how to set up your budget.
Step 1: Access the Budgeting Feature
- Log into QuickBooks Online
- Click the gear-shaped Settings icon in the upper right corner
- Under the “Tools” column, click “Budgeting”
If this is your first budget, you’ll see a welcome screen with information about budgeting. If you’ve created budgets before, you’ll see a list of existing budgets.
Step 2: Create a New Budget
Click the green “Add budget” or “Create budget” button. You’ll be taken to a setup wizard that walks you through the configuration options.
Step 3: Configure Your Budget Settings
Budget name: Give it a descriptive name that includes the year and any relevant details. For example: “FY 2026 Operating Budget” or “2026 Litigation Practice Area Budget.”
Budget type: For most law firms, choose “Profit and Loss.” This covers your income and expenses—the core of operational budgeting. Balance Sheet budgets are available but are typically used for more specialized financial planning.
Fiscal year: Select the appropriate fiscal year from the dropdown. QuickBooks will automatically set the date range based on your fiscal year settings.
Interval: Choose how you want to break down your budget:
- Monthly: Best for most law firms—provides detailed tracking and allows for seasonality adjustments
- Quarterly: Good for high-level planning, but less granular
- Yearly: Only useful for very simple budgets; not recommended for active budget management
For mid-sized firms, monthly budgeting is almost always the right choice. Legal work tends to have seasonal variations (Q1 slowdowns, year-end rushes, summer dips), and monthly tracking lets you plan for these patterns.
Step 4: Pre-fill with Historical Data (Highly Recommended)
QuickBooks offers the option to pre-fill your budget with actual data from previous periods. This is incredibly valuable—use it.
From the “Pre-fill data” dropdown, you can select:
- Last fiscal year: Pulls in actual revenue and expenses from the prior year
- Current year to date: Uses current year actuals as a starting point
For most firms, “Last fiscal year” is the best starting point. It gives you a realistic baseline and helps identify patterns you might otherwise miss.
Important: Pre-filling doesn’t lock you into last year’s numbers. It simply provides a foundation. You’ll adjust these figures based on your growth plans, known changes, and strategic priorities.
Step 5: Choose Your Budget Format
QuickBooks Online offers two budget formats:
Consolidated budget: Creates a single budget for your entire firm. All income and expenses are combined into one view. This is simpler and works well for smaller firms or those without complex departmental structures.
Subdivided budget: Allows you to break down your budget by:
- Customers/clients
- Classes (if you’re using class tracking for practice areas)
- Locations (if you have multiple offices)
For mid-sized firms, subdivided budgets by class (practice area) provide powerful insights. You can see which practice areas are profitable, which are underperforming, and where to invest resources. However, this requires that you’re already using class tracking consistently in your transactions.
If you’re not currently using class tracking but want practice-area visibility, consider implementing it before building a subdivided budget. Half-implemented class tracking is worse than none at all.
Step 6: Enter Your Budget Numbers
Now comes the actual budgeting. QuickBooks presents a spreadsheet-like interface with:
- Rows: Your chart of accounts (income and expense categories)
- Columns: Each month (or quarter) of your fiscal year
- Reference data: If you pre-filled, you’ll see actual historical amounts for comparison
Work through each row methodically. For each account:
For revenue accounts:
- Start with your historical baseline
- Adjust for known changes (new clients, departing clients, practice area shifts)
- Factor in your growth targets (be realistic—overly aggressive projections cause more problems than they solve)
- Remember your realization rate—if you bill $100, expect to collect about $85
For expense accounts:
- Review historical spending patterns
- Identify fixed costs (rent, insurance, salaries) versus variable costs (marketing, travel)
- Account for known changes (new hires, lease renewals, technology upgrades)
- Build in a 5-10% contingency for surprises
Adjusting for seasonality:
Law firms rarely have flat revenue or expenses throughout the year. Account for:
- Q1 slowdowns as clients recover from year-end pushes
- Summer dips during vacation season
- Year-end rushes as matters close before holidays
- Seasonal expenses like annual insurance renewals or CLE conferences
QuickBooks makes it easy to enter different amounts for different months. Use your historical data to identify patterns, then adjust accordingly.
Step 7: Save Your Budget
When you’re satisfied with your entries, click “Save” or “Save and close” in the bottom right corner. Your budget is now active and ready for tracking.
Configuring Budget Reports: Seeing Your Performance at a Glance
A budget without regular monitoring is just wishful thinking. QuickBooks Online provides several reports to track budget versus actual performance.
Running the Budget vs. Actuals Report
This is your go-to report for budget management.
- From the Budgets page, find your budget in the list
- Click the dropdown arrow in the Action column
- Select “Run budget vs. actuals report”
Alternatively, access it through the Reports menu:
- Go to Reports
- Search for “Budget vs. Actuals”
- Select the appropriate budget from the dropdown
The report shows:
- Your budgeted amounts for each category and period
- Actual amounts from your transactions
- Variance (difference) between budget and actual
- Percentage variance
Interpreting Variances
Not all variances are created equal. Here’s how to think about them:
Revenue variances:
- Positive variance (actuals exceeding budget): Generally good, but investigate why. Is it sustainable growth or a one-time windfall?
- Negative variance (actuals below budget): Dig deeper. Is it a timing issue, or do you have a pipeline problem?
Expense variances:
- Positive variance (spending below budget): Could be good (cost control) or bad (underinvestment). Context matters.
- Negative variance (spending above budget): Not automatically bad if it’s driving growth, but needs justification.
The 10% rule: Variances exceeding 10% in any category warrant investigation. Smaller variances are typically noise; larger ones suggest either your assumptions were wrong or circumstances have changed.
Automating Budget Reviews
Manual reporting is tedious and easy to skip. Consider:
- Setting calendar reminders for monthly budget reviews
- Using LeanLaw’s reporting tools to automate financial analysis
- Creating dashboards that pull real-time data from QuickBooks
The goal is to make budget monitoring a regular habit, not an annual exercise.
Integrating Your Budget with Legal-Specific Workflows
Here’s where things get interesting—and where QuickBooks alone starts to show its limitations.
The Trust Accounting Challenge
QuickBooks excels at general business accounting. It does not, however, understand IOLTA trust accounting, matter-based billing, or the compliance requirements that make law firm accounting unique.
When budgeting, you need to account for:
- Trust deposits and their impact on cash flow
- Work in progress (WIP) that hasn’t been billed
- Accounts receivable aging and collection patterns
- Matter profitability across practice areas
A budget that ignores these legal-specific factors will consistently miss reality.
Bridging the Gap with Legal Billing Software
This is where integration between QuickBooks and legal-specific software becomes essential. LeanLaw, for example, provides:
- Real-time trust accounting: See trust balances and transactions without manual reconciliation
- Matter-based reporting: Understand profitability at the client and matter level
- Realization tracking: Know your actual collection rates, not just your billing
- WIP visibility: Factor unbilled work into your financial planning
With proper integration, your budget becomes more than a static document—it becomes a living tool that reflects actual firm performance.
Advanced Budgeting Strategies for Law Firms
Once you’ve mastered the basics, consider these advanced approaches.
Rolling Forecasts: The Agile Alternative
Traditional budgeting creates a fixed plan at the start of the year. Rolling forecasts update continuously, typically looking 12-18 months ahead regardless of the fiscal year.
Research shows that 60% of legal departments using rolling/continuous budgeting received budget increases in 2024—significantly outperforming those stuck in annual cycles.
The concept is simple:
- Create your initial budget as described above
- Each month or quarter, extend the forecast forward
- Revise earlier projections based on actual results
- Always maintain a 12-month forward view
QuickBooks makes this possible through budget copying. Each quarter:
- Copy your current budget
- Adjust actuals for completed periods
- Extend projections for future periods
- Save as a new version
Zero-Based Budgeting: Starting Fresh
If your firm has been using “last year plus 3%” budgeting for years, you’re probably carrying forward assumptions that no longer make sense.
Zero-based budgeting (ZBB) forces you to justify every expense from scratch. Instead of adjusting last year’s numbers, you ask:
- Does this expense directly support our strategic goals?
- What would happen if we eliminated it?
- Is there a more efficient way to achieve the same result?
Companies implementing ZBB typically achieve 10-25% cost savings within 12 months. For a $5 million firm, that’s $500,000 to $1.25 million straight to the bottom line.
Practice Area Budgeting
For firms with multiple practice areas, consider creating separate budgets for each area using QuickBooks’ subdivided budget feature.
This approach:
- Identifies which practices are truly profitable
- Reveals where overhead is being absorbed unevenly
- Supports informed decisions about resource allocation
- Creates accountability for practice group leaders
The key is consistent class tracking. If you’re not already categorizing transactions by practice area, start now—the insights are worth the effort.
Common Budgeting Pitfalls (And How to Avoid Them)
Pitfall 1: Over-Optimistic Revenue Projections
The problem: Assuming every prospect becomes a client and every invoice gets paid in full.
The solution: Use historical realization rates (typically 85%) and build in collection delays. Conservative projections that you exceed are better than aggressive ones you miss.
Pitfall 2: Forgetting About Taxes
The problem: Planning as if revenue equals cash in pocket.
The solution: Set aside 30-40% of profit for taxes. This should be a line item in your budget, not an afterthought.
Pitfall 3: Ignoring Seasonality
The problem: Assuming steady monthly revenue and expenses.
The solution: Use 12-month historical averages to identify patterns. Budget higher in historically strong months, lower in traditionally slow periods.
Pitfall 4: Set-and-Forget Mentality
The problem: Creating a budget in January and never looking at it again.
The solution: Monthly reviews are mandatory. Automated reporting makes this sustainable.
Pitfall 5: Cutting Investment to Hit Numbers
The problem: Slashing marketing or technology spending to show short-term profit.
The solution: Protect investments that drive long-term growth. A budget should enable growth, not restrict it.
Pitfall 6: Missing the Technology Budget
The ABA reports that firms should allocate 4-7% of their total budget to technology, including hardware, software, training, and support. Yet 36% of firms still don’t budget for technology at all.
In an era where 73% of firms use cloud-based legal tools, failing to budget for tech isn’t just an oversight—it’s a competitive disadvantage.
Your 30-Day Budget Implementation Plan
Ready to put this into action? Here’s a practical timeline:
Week 1: Foundation Work
- Verify QuickBooks subscription level and upgrade if needed
- Check fiscal year settings
- Review and clean up chart of accounts
- Pull 12 months of historical data (Profit and Loss reports)
Week 2: Budget Building
- Access budgeting feature and configure settings
- Pre-fill with historical data
- Adjust revenue projections based on known factors
- Work through expense categories systematically
Week 3: Refinement and Integration
- Review budget with partners and key stakeholders
- Adjust based on feedback
- Set up Budget vs. Actuals reports
- Configure legal-specific integrations
Week 4: Launch and Monitor
- Finalize and save budget
- Schedule monthly review meetings
- Create reporting templates
- Begin tracking actual performance
The Bottom Line
Creating a fiscal year budget in QuickBooks Online isn’t complicated—but it does require intention. The steps are straightforward: configure your settings, pull historical data, enter thoughtful projections, and monitor regularly.
The real challenge isn’t the mechanics. It’s committing to financial visibility as a core business practice.
Law firms that master their numbers don’t just survive—they thrive. They make confident decisions about hiring, technology investments, and growth opportunities. They weather economic downturns. They distribute profits fairly and retain top talent.
Your budget is the foundation of all of this.
QuickBooks Online provides the tools. Legal-specific integrations fill the gaps for trust accounting, matter management, and compliance. What’s left is the decision to treat your firm’s finances with the same rigor you bring to your legal work.
Ready to take control of your firm’s financial future? Schedule a demo with LeanLaw to see how integrated financial management can transform your budgeting from a painful annual exercise into a powerful strategic tool.
Frequently Asked Questions
Q: Do I need QuickBooks Online Advanced, or will Plus work for law firm budgeting?
A: QuickBooks Online Plus includes full budgeting capabilities and works well for basic budget creation and tracking. However, Advanced offers enhanced reporting, custom fields, and better integration options with legal-specific software. For mid-sized firms with complex compensation structures or multiple practice areas, Advanced typically provides better value despite the higher cost.
Q: Can I create multiple budgets for the same fiscal year?
A: Yes. QuickBooks Online allows multiple budgets per fiscal year, which is useful for scenario planning (optimistic, conservative, most likely) or for creating separate practice area budgets. Just give each budget a descriptive name so you can distinguish between them.
Q: How do I handle trust account funds in my budget?
A: Trust funds shouldn’t appear in your operating budget since they belong to clients, not your firm. However, you should budget for the timing impact of trust-based work. When clients pay retainers, you’ll have cash to deploy for expenses, but the revenue isn’t recognized until earned. Proper trust accounting integration helps manage this complexity.
Q: What if my actual results vary significantly from budget?
A: Investigate variances over 10% immediately. If the variance is temporary (a large settlement hit earlier than expected, for example), note it but maintain your annual projections. If it represents a trend (consistently missing revenue targets), revise your budget and strategy accordingly. The goal is understanding, not perfection.
Q: How often should I update my law firm budget?
A: Review monthly, update quarterly, and completely rebuild annually. Monthly reviews catch variances early. Quarterly updates reflect changing conditions. Annual rebuilds ensure you’re not carrying forward outdated assumptions.
Q: Can I import budget data from Excel into QuickBooks Online?
A: Yes. QuickBooks Online supports budget imports via CSV files. This is particularly useful if you prefer building your initial budget in Excel with complex formulas, then uploading the final numbers to QuickBooks for tracking. From the Budgeting page, look for the “Import budget” option and follow the template format provided.
Q: What’s the difference between a budget and a forecast?
A: A budget sets financial targets and constraints for a specific period—it’s your plan. A forecast predicts what will actually happen based on current trends—it’s your best guess at reality. Ideally, you maintain both: a budget that reflects your goals and a rolling forecast that reflects emerging conditions.
Q: How do I budget for partner compensation and distributions?
A: Partner compensation is typically one of your largest expenses. Budget for base guaranteed payments as fixed costs, then create contingency allocations for profit distributions based on projected profitability. Be conservative with distribution projections—it’s easier to distribute more than expected than to claw back shortfalls.
Q: Should new practice areas have separate budgets?
A: Yes, at least for the first year. New practice areas have unpredictable revenue patterns and often require upfront investment. Creating a separate budget allows you to track startup costs accurately, set realistic break-even targets, and avoid obscuring the new area’s performance within overall firm numbers.
Q: What technology budget percentage should a mid-sized law firm target?
A: Industry benchmarks suggest 4-7% of total revenue for technology, including hardware, software, training, and support. Firms undergoing digital transformation—implementing new practice management systems or upgrading infrastructure—may temporarily exceed this during implementation.
Sources
- American Bar Association – “2024 Legal Technology Survey Report”
- Axiom Law – “2025 In-House Legal Budgeting Report”
- Thomson Reuters – “2024 Law Firm Financial Performance Report”
- Intuit QuickBooks – “Create and Import Budgets in QuickBooks Online”
- American Academy of Estate Planning Attorneys – “Law Firm Financial Benchmarks”
- Clio – “2023 Legal Trends Report”
- LawRank – “Top Law Firm Statistics of 2024”
- ABA Journal – “How to Create a Legal Tech Budget”
