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Episode Description
In this illuminating episode, Lauren sits down with financial expert Sarah Webb to demystify the often-intimidating world of law firm finances. Sarah shares invaluable insights on implementing the Profit First method, a game-changing approach to managing business finances that can transform how attorneys view their firm’s monetary health. From breaking down essential financial statements to discussing common pitfalls and smart strategies for growth, this conversation is packed with practical advice for lawyers at any stage of their career. Whether you’re a seasoned practitioner looking to optimize your firm’s financial performance or a new solo just trying to keep your head above water, this episode offers a roadmap to greater financial clarity and success. Tune in to learn how to take control of your firm’s finances, plan for the future, and even find ways to celebrate your hard-earned success.
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Episode Resources
Profit First by Mike Michalowicz
Episode Transcript
SARAH: [00:00:00] Last year I did a lot of celebrating and this year I created another account called the vault. And so I’m moving over 90 percent of all of my profit accounts. So I’m still celebrating with 10%. I’m still going to a fancy dinner or buying myself something that I wanted, but I’ve moved something over into me.
The vault is basically, I’m creating my own line of credit.
LAUREN: Welcome to a different practice. I’m your host, Lauren Lester, and I’m obsessed with all things, business wellbeing, and optimizing the practice of law for solo and small firm lawyers. I started my solo practice right out of law school, built it from the ground up, and now work part time while earning well over six figures.
I’m here to share tangible, concrete tools and resources for ditching the legal profession’s antiquated approach and building a law practice optimized for profit and efficiency. Think of this as grabbing coffee with your work bestie, mixed with everything they didn’t teach you in law school about running a business.
Pull up a seat, grab a cup, and get ready to be encouraged and challenged. This [00:01:00] is a different practice.
Hi friends, welcome to another episode of A Different Practice. Over the years, I’ve made a lot of mistakes in my business from not pricing correctly, which is where the pricing toolkit grew out of, actually learning how to do that profitably. But in the beginning, I didn’t know what I was doing. Doing I was throwing spaghetti against the wall to looking at opportunities and giving energy to opportunities that really didn’t pan out to trying some marketing strategies that didn’t really pay off, but they took a lot of investment.
I’ve tried different products. I’ve put together different lead generators, right? Like there’s just been a lot of trial and error. It’s part of owning a business. I think that all of those mistakes or failures or whatever you want to call them. I’m not sure if I should say so, but that’s what I’ve been doing.
So I’ve been trying to do the best I can to try and get you to figure out what doesn’t work. So there’s a lot of value in it and it gets you on a different path to figure out what does work. One of the areas that I made a good amount of mistakes in [00:02:00] initially, wouldn’t admit it though. Honestly, probably didn’t realize I was doing it.
but looking back, it’s very clear. It was around the finances of the business. In the first couple of years, Wasn’t a lot of revenue coming in. It was pretty easy to kind of know what was coming in and what was going out. But after the train really left the station and things were clicking on all cylinders, you know, there’s a good amount of revenue coming in and there was a fair amount of expenses going out.
And in the day to day. We even week to week. I didn’t feel it, right? It was just like, yeah, of course I paid that bill. I love that software. Or, oh great, those funds were earned. Put it in the bank, right? I didn’t really see it on a macro level. It was very micro. And so in those individual vacuums, things seemed great.
I was paying myself. expenses were being paid, but I really didn’t have a sense of how the business was doing overall, what the financial health of the business was. I couldn’t give you numbers. I couldn’t tell [00:03:00] you what my pre tax profit margin was. I couldn’t tell you how much I was actually paying in taxes, what that percentage was.
Honestly, it was a blessing that I could even pay taxes. And there were definitely a couple of years there where that tax bill would come due. And I would think, Oh shit, like I don’t, I don’t have that. Like that’s going to be a big hit. I don’t, I don’t know if I’m going to be able to pay the tax bill, but then also pay myself this month.
Right. I definitely had those moments. And so I’m not entirely sure how I came across this book, but thank you universe for sending this my way and putting this in my path. I probably heard a podcast somewhere where somebody talked about it, which is how I get most of my book recommendations and my TBR list continues to grow and grow.
But I learned about this book called profit first. And it was about how to manage the finances of a business. And I don’t know what spurred me to read it because like I said, I very much took the head in the sand [00:04:00] approach. I thought everything’s fine. There’s some money in the bank. I’m not in the negative.
And so the business must be healthy, right? I took that approach. So I don’t know what spurred me to read it, but my future self thanks my past self for making that decision. So this is probably mid 2019. Sometime in the summer, I remember I had about a half a year’s worth of data when I went through the book.
So sometime in the summer. I read Profitverse. Very easy read. Very simple, straightforward concept. Not easy, but certainly simple, especially when it comes to finances. Some books I have read about business finances are kind of convoluted and just hard to understand. Again, we didn’t go to law school to do math, so I didn’t want to get into something that was super complicated.
I liked this very straightforward, simple approach. And I decided, all right, I’m Mike Michalowicz, who’s the author of Profit First. I’m going to put these numbers down on paper. I’m going to follow your method and just see at least where I’m at as a business under [00:05:00] your model and how maybe I could improve.
And if I got information that wasn’t helpful for me, then I would have walked away and done something else. But when I actually put pen to paper, pulled up a spreadsheet, looked at the numbers, not only for that year to date, but also prior years, It was a pretty good wake up call. I felt like kind of a splash of cold water that the number at the bottom of the column when it all was said and done was frankly in the negative.
My business wasn’t healthy. I was essentially losing money every year. It wasn’t a ton, so it didn’t feel that way. And you know, the way that Often our cash flows run, right? We have, we, at least for me, I received the deposit, which sits in trust, and then it’s earned eventually. And so that rolling sort of system really covered up the unhealthiness of the business.
It was a good band aid. You couldn’t really see the symptoms. Well, when I looked down and saw that that pre tax profit number was negative [00:06:00] that when I actually accounted for the expenses and the taxes and the salary to myself that I needed to pay every month or every quarter, whatever the case may be, that I was going to lose money that I was losing money.
So that was really hard to swallow. It was really embarrassing. It’s It’s still embarrassing to say today, but I share it because I think a lot of us, especially solo and small firm owners may have those numbers. Maybe you do know what they actually are, but we’re always afraid to talk about it and share about it because it feels like a failure.
We don’t have a business that’s profitable. If we have a business that we have months that we don’t know if we’re going to hit payroll, or maybe we weren’t able to pay that quarterly tax estimate, or maybe we had a big fat tax bill in April that we weren’t sure we could pay. Maybe we didn’t pay. Like, that’s really embarrassing.
We work really hard and we’ve taken so much risk being entrepreneurs and small business owners that it’s hard to admit, you [00:07:00] know, Hey, I’m not I’m not doing so great. The business isn’t doing so great. We all want thriving, healthy, profitable businesses that allow us to have the life that we want. And sometimes that doesn’t always happen.
That’s not always how things are aligned. The good news though, is there are systems out there. Profitverse isn’t the only one, but I do think it’s a very helpful one that can help get us back on track. And at the end of the day, it’s just numbers. If you use a system, that’s pretty simple. That’s easy to understand.
It’s easy to wrap your head around the numbers. And easy to get a game plan in place. Again, that game plan might not be easy to implement, but you can get a game plan in place to say, these are the changes that I need to make. So that hopefully in 3, 6, 9, 12 months from now, things look a lot different. And that’s what I did that night sitting on my bed.
At 11 o’clock at night. I remember it was very late. I usually not a late owl, but I got so into this system and how I could really change things. And I felt a lot more empowered about the numbers [00:08:00] of my business. They weren’t just sort of happening to me. I could control them a lot more that I put this system in place.
I will do another episode after this one that actually goes through the numbers that I use from Profit First. I don’t quite use Mike Michalowicz’s system to the T. I have tweaked it a bit for myself, so I’ll share that on the next episode. But what I wanted to do for this episode was just introduce to you, through my guest today, What the profit versus system is all about, what we really should know about the finances of our business.
So we can have that basic level foundation, and then you could always build on there from that. If profit first works for you. Awesome. Well, there certainly go into that in detail, but if it doesn’t quite, or you want to use a different method, today’s episode is going to give you the foundation that you can use to build on top.
And today I’m talking with Sarah Webb. Sarah founded Webb CFO to provide accounting assistance and long term financial planning guidance to attorneys and their private practice small [00:09:00] businesses. Though Sarah and her team are happy to address the fundamental aspects of day to day accounting such as cash flow management and budgeting, they really do take client financials a step further by adopting a strategic approach.
They leverage numerical data for forecasting and planning and offer a broader management oriented perspective. Because Sarah and her team work with attorneys, they understand the specific nuances that we have when it comes to the finances of our business. Yes, we are absolutely small businesses and we have those considerations to make when we’re talking about the financial health of the business.
But as y’all know, we also have wonderful things like trust accounting and some other considerations that we have to make as attorneys given the ethics rules in our state. And so working with someone like Sarah. Who offers those fractional CFO services, but also understands how that works within the space of the attorney ecosystem is really helpful.
Do you hear in my conversation with Sarah today, she’s going to touch on the profit versus system. She [00:10:00] does use that with a lot of her clients, but I hope the main takeaway that you’ll have is this is something you can do. This is something all of us can do. It is super freaking scary when you haven’t looked at it, when you’re not sure what you’re looking at, when you’re not sure how you can make it better.
It all just feels very foreign. It is very scary and I’ve certainly been there and come out the other side with a business that is much healthier, has much better numbers. I feel so much more confident about. And I feel so much more empowered about the finances of the business and how I can make changes if I do need to make them down the road.
It doesn’t feel so foreign anymore. I hope that after this conversation with Sarah, you start to feel that way as well and start to get a better handle over the finances of your business. Cause really at the end of the day, that’s the health and we go to the doctors and we have certain numbers that we look at.
When we’re talking about our physical health, our business is no different. And there are certain numbers that we want to look at. and monitor to make sure that the business is profitable. [00:11:00] It’s going to grow with us. It’s going to meet your goals. If you want to expand into the future, or you want to retire early, or you want to invest and maybe acquire a new practice, you have to be able to plan for that and kind of know where you’re going.
And so the conversation today is square one, step one, and being able to do that. I hope that you find it helpful. And here’s my conversation with Sarah Webb. So I have a confession to make. I probably went three or four years into my business and never looked at a financial statement. I don’t even think I had one, to be honest, I buried my head in the sand.
I thought as long as the phone generally kept ringing, the business was. You know, quote unquote healthy. I was doing okay. And I one day actually came across profit first as a books. It had been recommended. I’d heard it. And I said, sure, I’ll check it out. And it inspired me to actually. Put together a [00:12:00] financial statement.
Cause I didn’t have one. And when I did, I got a cold dose of reality that the business wasn’t doing as well as I thought it was, or it felt like it was it was actually running in the negative in terms of a profit margin, so. I know the hard way, the importance of financial statements. So I’m so excited to chat with you today, Sarah, about why we should all have these statements.
Why, how we can get over the fear of what might be on them if we don’t regularly. Check what they say, and then how we can use them as a way to improve. Cause I think if we don’t know, we don’t know where we’re starting. We can’t make that improvement. So thank you so much, Sarah, for being with us today.
I’m so excited to learn from you about how we can improve the health of our businesses.
SARAH: Yeah, absolutely.
And, you know, I have that similar story. So my husband is an attorney. When we started Profit First, he was a solopreneur, and I did his accounting and he, you know, kind of drug along. And I said, [00:13:00] I really think if we implemented Profit First, like, you would be happier.
You would, You would be able to sleep better at night. You would be able to know where your money’s going. And maybe possibly because we’re married, right? It’s when your one spouse is telling the other spouse what to do. But once he read the prophet first book, he was really able to implement that in his practice as well.
And I’m his accountant, right? And so. All of that stuff. It’s hard running a practice. It’s hard charging the hours and managing the clients. And then you got all the other stuff to do too. And so profit first, it’s a great easy formula that it just gives you kind of some guardrails of how things can be allocated just to make your life easier.
LAUREN: Absolutely. So we’ll definitely get into the elements of it. And I would encourage every reader to go read Mike Michalowicz book. It’s phenomenal. Changed my business. Certainly sounds like change Sarah’s husband’s business, but can you start out for us? Very basically, like if we were explaining this to a Seventh grader, because sometimes I feel like we all kind of need that on.
What [00:14:00] are we talking about? When we talk about a financial statement why do we need those for our business? And what should it look like in general, even if you don’t use the profit first method, any sort of method, what do we need to have on our financial statements?
SARAH: Yeah, so you’re fine. The basic financial statements include a balance sheet, and that is just a snapshot of a point in time of what you owe, what you own minus what you owe, and potentially any equity you have in your business.
And your P& L is the second. Fundamental profit and loss statement, and that is a measure over time. So in most common terms, we look at it on a month to month basis or an annual basis. Another common financial statement that people will sometimes look at is their cash flow statement. So maybe you have your balance sheet and your profit and loss statement, and you say something like, well, it’s.
That says that I’m making money, but I don’t know where all of it’s going. And then your cash flow statement will help you figure that out. And fundamentally, [00:15:00] I always start with compliance. I know that’s like a boo, but you do have to have some of these. You do have to have a profit and loss statement at a bare minimum if you’re a Schedule C filer for your Form 1040 or you’re a Single member LLC, you have, you don’t have to have a balance sheet, although it’s highly recommended and it’s easy to create but you must have a profit and loss statement and that’s how your income is calculated on your schedule C.
That’s part of your 1040. So those are the 3 basic ones. I think we all like, focus on the profit and loss statement because I don’t know if you’re a competitive person. It’s like a little scoreboard for me. Like, okay, did I meet my goal this month? Did I? Underachieve, overachieve all that can be found there on the profit and loss statement.
But the balance sheet is just as critical. So if you’re putting a lot of things on credit card or if you took out a line of credit, that’s where those are going to show up on your balance sheet. And that’s really giving you kind of the over time picture of how you’re doing. So you take your [00:16:00] assets minus your liabilities.
And that’s, in most cases, like that’s your net worth or your equity of your practice of what’s kind of sitting in the bank at that moment.
LAUREN: I know the answer to this, but for anyone curious, these are not statements we need to come up with. Like, we don’t have to start from scratch, we don’t have to open up a blank Excel spreadsheet and figure out the numbers to put in there.
Do you have resources for either? Platforms that will do this automatically in terms of like pulling the information, maybe from your bank accounts, or at least a template that folks can start from to plug in their own numbers so that they don’t feel like they’re starting with a blank page.
SARAH: Yeah. I would never recommend the Excel version.
It’s just, things can get over. And then they can get lost. And let’s be honest, y’all are not accountants. Y’all are great at what you do. So I always, I’m a big fan of QuickBooks online and there’s some other accounting systems, FreshBooks and Wave. I don’t have a lot of experience with those. I’m sure they work similarly.
And what I see, [00:17:00] if you’re able to create a read only connection with your bank, Half the work is done for you. So those transactions come in you. There’s rules and there’s some categorization that you can do. And if you do all that correctly, you reconcile your bank statement, then you can literally push a button and it will create these balance sheets, profit and loss statement and the statement of cash flows for you.
LAUREN: And so tell us a little bit about the profit first method in particular and how that can be layered on with these statements or sort of help structure these statements so that we can see the health of our businesses.
SARAH: So profit first. Basically think of it as an envelope system. So a lot of people in personal finance refer to an envelope system and you’re going to put money in each, each category in an envelope.
And that’s like, you’re going to put 500 in your, your grocery envelope. And then that’s the money that you have for groceries. You’re going to put [00:18:00] 300 in a car payment envelope. That’s the money you have for your car payment. So profit first is basically an envelope system for businesses. So you start with every dollar that comes in and you have a percentage.
I like to have individual bank accounts. So you want to have an individual bank account for your income. You want to have an bank account for operations. You want to have a bank account for taxes. You want to have a bank account for owner’s compensation. And then we love the profit. A lot of people like the profit.
Bank account. That’s kind of like the fun money, if you will. And through the Profit First method, you can work with a professional like myself, and we can help you come up with what the allocations should be for each category, or you can look in the book. And so there’s a chart in the book. And it’s like, okay, if you’re less than a million dollars, then, you know, 30 percent of your, of every dollar that comes in, so let’s say you take 1, 000, not a retainer, you’ve actually earned this [00:19:00] fee, 300 would go into your operations, 150 would go into your tax account, 200 would go into your profit account, and five I guess 50 would go into your profit.
I think all that adds up, but you’re allocating into all of those accounts. So every twice a month is the general recommendation. You can do it weekly. I have some clients that do it monthly. You’re taking what’s in that income account and you’re using that allocation method. And then you’re putting it into each account.
Then When you get a telephone bill or whatever, you’re paying that from your operations account. When you’re ready to pay yourself, you’re looking over at the owner’s compensation account. Like that’s all there is. So if there’s only 5, 000 in the operations account and you normally pay yourself 10, 000, when you need to go back, In most cases for attorneys back to collections and you need to, you know, shake the tree a little bit, but that it’s basically giving you the guide rails of saying, this is all the money you have to spend.
This is your envelope. So just like at the grocery store, [00:20:00] if you’ve spent all your grocery budget, you need to look around what’s in your pantry and figure out how to make it work.
LAUREN: It’s such a helpful method because it does give you almost those limits. I think for a lot of us, we open up the bank account and it says, you know, there’s 100, 000 in there and we think, Oh, we’re fine.
We can pay ourselves. We can go on the trip. We can buy the new office furniture and we forget, Oh, uncle Sam would like it’s money too. Right. And then tax season comes around or we have to make those estimated payments. And then we go, Oh shit, I don’t have that. I have to make a 30, 000 pet tax payment. And now that.
Fun gets so depleted. So having it broken out, I found helped me make such better financial decisions because I knew where that ceiling was. Like you said, if I look in the operations account and there’s not enough for me to hire someone or get the new computer or add on that software. I can’t do it right now, or I shouldn’t do it.
I should say right as a business owner, that’s not a smart business decision. And it makes it so much [00:21:00] easier to be able to zoom in to exactly the account you’re looking for, for the expense or the outlay that you’re trying to do.
SARAH: And taxes is the number one thing if you’re a small business owner taxes, that is the number one thing that will keep you up at night is if you owe the IRS money and they always get their money.
So having a plan for that early on, it’s just such peace of mind. So, you know, estimated tax payments are due in 2 weeks. I look over at what’s in that account and I’m like, oh, that’s what I have. Perfect. It’s right there. Yeah.
LAUREN: Already taken care of. Don’t have to stress about it. It still hurts to cut the check.
I’ll say that. That never goes away, but at least I know I got the money. Yes.
SARAH: Agreed.
LAUREN: So when you said that we should be reviewing this twice a month and you said you have some folks who do it once a month, you can do it weekly. What exactly are we looking for when we do those reviews?
SARAH: Yeah. So when all your money comes into your income account, That is the money that you have earned.
Those are the allocations that you’re looking at the chart from the book, the [00:22:00] profit first allocations. And then you’re pushing the money out into these other accounts that you’ve created. So every single dollar that comes in should be going into an income account. And then twice a month, generally you look in that account and you do an allocation.
You’re actually doing the bank transfers. You’re like manually, you know, you’re doing it on your app or on the, on your web browser, you’re moving the money over to that operations or tax account.
LAUREN: And correct me if I’m wrong. I think I got this from the book, but maybe I just started doing this automatically.
But I, part of my, I do mine twice, twice a month too. Then part of my process, not only is the allocation, but I also go through and make payments towards, so I put everything on a credit card just so I can get points. And then twice a month I pay off the card. So I don’t wait until the statement comes.
I just say there’s a 500 balance. I pay it. Next two weeks, it’s a 300 balance. I pay it. So that really helped me avoid debt in the business because it’s paid every month. And again, I’m not putting expenses on there that I can’t [00:23:00] ultimately pay. Is that part of the process too, is the payment of any outstanding liabilities and the payment to the owner?
for compensation. I don’t think that’s specifically in the book about paying down your credit card, but it’s not,
SARAH: it’s not a bad idea, but yeah, you’re using that money. I prefer not to pay any bills early. I like to pay them when they’re due. And some business owners only pay themselves once a month.
Like maybe they want a bigger paycheck. I only pay myself once a month, even though I do my allocations twice a month, because I like to look at, I like to see the account grow. I don’t, it’s, I think that’s like my self satisfaction, but, you know, it’s, it’s about what’s works for you and, you know, the allocations, I would recommend starting out with the allocations that are specified in the book, but then you kind of, you tweak them as you go, you know, maybe you did hire that other staff person, and so somebody, some more needs to go into your operations, or, you know, that profit account, With the very beginning, if you have any type of debt, they’re recommending, you know, you’re putting the most of that towards your debt.
Well, after you have all your debt paid [00:24:00] off, you know, you may tweak that profit account a little bit and say, you know, now I can take a little bit more home and those types of things. So it’s a great starter of the allocations, but you’re not, you’re the business owner. The reason you became a business owner is not for someone else to boss you around.
So, you know, feel free to tweak those as you grow and expand.
LAUREN: And talk to us about that profit bucket. This is my favorite part of the whole system because it’s so exciting. Every quarter gets to make that distribution. So what should we be when we were putting the money in there for whatever percentage we come out with?
When do we get to take it out? How do we know sort of how does that fun bucket work? Yeah.
SARAH: And this is a big piece for Mike in the, in the book. And when you, when you meet him and when he speaks is if you’re in a debt situation, 99 percent of what’s in that profit bucket should, should be going to pay for that.
And then at least 1 percent should be used for celebration. And that can be depending on how big the accountant, I mean, you may just get a Starbucks that week, right? I mean, really aggressive on paying down [00:25:00] that debt, but always celebrating something. And the recommendation is to look at that on a. So, you know, last year at the end of the year, I was like, Oh, perfect.
I have, I want a new couch for my living room. So I’m going to use that from the profit. It doesn’t have to necessarily be reinvested into your business. It’s something that you’re, you know, celebrating as a business owner. So that profit piece is supposed to be celebratory. It is, it is like the, it’s like the reward for all the sweat equity that you’re putting into your business and all the late nights and tears and Everything else that you have to deal with as a business owner.
LAUREN: Yes. All the risk. I think he explained it in the book that if we were an employee somewhere, we would get a salary, which is essentially that bucket of owner’s compensation. Like that’s what we pay ourselves for the work that we do. And so his point was. If you went out on your own and you took the risk and you are an entrepreneur and everything ultimately lands with you, you should get it a little bit [00:26:00] extra.
And that’s kind of what that profit bucket is for is that reward. And I have used it. I bought an acoustic guitar. I paid for teeth aligners. You’re right. It’s like stuff that I would probably never spend. They’re a little bit splurged, like, Oh, I’ll buy that one day. Being able to buy those little things even once a quarter really just kind of keeps the motivation going and really get you jazzed about like, okay, how can I go from 5 percent to 6%?
Like what expenses can I cut so I can get profits a little higher? So it’s a really kind of, like you said, gamification almost of finances and it. It makes it a lot of, dare I say, more fun. And you’re, you feel a lot less fearful about putting your head in the sand, not wanting to know the numbers because it gives you back so much more control over the business.
SARAH: When you first do it, it may be ugly. You may like, kind of like you said, you weren’t performing as well as you thought you were going to. And it really makes you go back to look at those expenses. I can guarantee that if you were to do a subscription or a [00:27:00] software review of every single person listening to their podcast, there’s something that someone can cut.
And we all, we all kind of have that creep. I mean, I have to do it to myself, you know, about once a quarter, every six months, I’m like, okay, what, what tool am I using that maybe I’m not. Needing anymore, or, you know, we’ve finished a project and we just don’t need that. So I think there’s always areas to look back at that.
I’m currently my profit account. I did last year, I did a lot of celebrating and this year I created another account called the vault and so I’m moving over. 90% of all of my profit accounts. So I’m still celebrating with 10%. I’m still, you know, going to a fancy dinner or buying myself something that I wanted, but I’ve moved something over into me.
The vault is basically, I’m creating my own line of credit so that if, you know, maybe I don’t have a great month and I have, you know, six employees, I’m still pay able to pay everyone or I’m able to pay myself. And so that’s been, it’s been fun to see that grow too, but I’m still taking a portion of it and celebrating. ’cause that’s, that’s really important as a business [00:28:00] owner.
LAUREN: Oh, that’s such a great idea. I’m gonna have to, I’m gonna have to think about implementing that. Yeah. What a great way to sort of grow your business and always feel like you’ve got that safety net that you don’t, you can sleep a lot better at night because you don’t fear like the next big bill or the next emergency is going to cripple you.
You’ve got kind of that cash reserve like you said, your own line of credit and you don’t have to pay money for it. You don’t have to go into debt, which is really nice.
Outside of reviewing expenses, baby. Quarterly or every six months being able to be really diligent about cutting things, keeping everything under those caps in those buckets. What are some of the other tips that you would have for folks, or maybe even just pitfalls that you see people aren’t paying attention to that you would recommend be on our radar pretty consistently so that they don’t accidentally get out of hand?
SARAH: Yeah. I mean, for attorneys, I think staying on top of your AR, either having an evergreen [00:29:00] engagement letter, you know, someone at the office on collections every single day, because if, if you don’t collect, you’re, you’re not able to pay yourself.
Looking at that, creating some very firm boundaries with your clients on, you know, getting paid for that work. However, and I know that’s different and depending on what type of law you’re in, there’s a lot of circumstances, but, you know, maintaining your trust accounting, that’s critical for your license as well as just good business practice.
For attorneys, I see, you know, I think some like, yes, looking at expenses, but also don’t get into like such a Scarcity mindset that you’re not willing to invest in marketing or enhance, you know, your website and Plan for those, you know, don’t just go out and spend and have a plan for that But I think that’s important.
But also I see attorneys look at your benefits Like are you able starting a 401k plan is not that expensive and as a business owner That’s a great tax savings vehicle for yourself and your family as part of building your retirement we started one about [00:30:00] two years ago and I was like, Oh, I’m going to have a three by 3.
5 percent match and it’s going to cost me so much money. And it isn’t, it’s not that painful. So just get started. I think that’s an easy benefit that you can offer to attract employees. And we’re kind of in the employee attraction era right now, like needing good people. And so I would just say, check that out.
That’s not as high a barrier as I used to think that it was.
LAUREN: And using the system makes it a lot easier to know that you can afford it as a business. And you’re absolutely right. What a great benefit to be able to give employees. Retention is such a big deal right now, especially in legal folks jumping around and not being able to retain people and the cost of that and training and all of that.
And so what a quote unquote, small thing from a business standpoint, you can do that has such a huge benefit for your employees. Yes, absolutely. If someone was getting started with their financial statements, wanting to jump in, wanting to be a more, a better business owner, to have a more [00:31:00] healthy business and kind of know what’s going on, what is one thing you would say is the place to get started?
SARAH: Yeah, I would go back to your tax return. You’ve either filed your tax return in April or you’re filed an extension. Check the status of that. Use an accounting system. So if you have a bookkeeper, you know, ask them to send you those statements each month, ask them to schedule a zoom or a one on one meeting with you just like to explain what, what they’re seeing.
I think a lot of Bookkeepers are intimidated by attorneys, right? Like y’all are supposed to be the experts and you’ve got these degrees and that is great. But I, I would flip it around as whoever’s doing your accounting and ask them, what do you see in this business? Where do you see that? I could cut back or what gaps are you seeing?
Because the person who’s doing your day to day bookkeeping, they may not feel that you’re approachable or that they have the right to bring this up to you. But I guarantee they’re looking at your stuff at a much smaller detail that they probably have some ideas of what they could, what you could do better to.
LAUREN: Yeah, we we didn’t go to law school to do [00:32:00] math. Most of us, I think we’ll say that. So we should embrace that and have folks who are very good at math and very good at this help us. Like you said, ultimately, the end of the day, the buck stops with us where the law firm owners will make the final decision.
But it would be really foolish, I think, to make those decisions without it. Input from folks who have the expertise in this area. I mean, we’re really only shooting our businesses in the foot by doing that. So I think that’s really helpful and a nice way to sort of make sure that the accountant or bookkeeper feels safe and able to say, Hey, this is, this is kind of what I’m seeing, you know, maybe we can work on this.
What a great relationship to have to really help the business.
SARAH: And I would loop in, I see, you know, just as your overall wealth planning, you know, with your financial advisor, what are, what are areas that they see for improvement? You know, how does your retirement look like? I mean, I don’t think anyone wants to die at their desk, right?
And so it’s really hard when you’re first getting started those first three to five years, [00:33:00] you’re like scrappy and you’re tired and you feel like you don’t have any money. So I get it. But after that Like after you’re like, Oh, I’m consistently paying myself, you know, my target dollars every month. Like I’m feeling like this is a good thing.
I can, I can do things with this. Sit down with your financial advisor and see how, how your law firm fits into your overall plan. Some law firms are able to be sold or merged and there’s some value there. Other types of law are more difficult. And so you need to have some different type of planning. My husband’s a family attorney.
And so he’s like, you know, most of the time, it’s a one time. My clients are here one time. Most of the time, you know, I only see him once. So that’s got a different value than, you know, say an IP firm or some type of business litigation.
LAUREN: Absolutely. And that’s so smart to expand it to wealth planning and retirement planning.
And this is the vehicle a lot of us have. We’re not employees somewhere else. You’re absolutely right. I did not want a boss. I wanted to be able to do what I wanted to do. But that comes with the downside of I don’t have [00:34:00] a retirement plan necessarily built in. I have to take action to plan for that and work that into the business.
So it’s not just The income and expenses of the business. It’s also as if, as myself and for my family and kind of legacy planning as well, that should all be in the mix.
SARAH: And if you’re, you know, a 1st, 2nd, 3rd year attorney, just don’t beat yourself up about it because you’re just trying to survive and make it.
So it’s, it’s really kind of when you’re like, okay, I can take a deep breath. This is this is going to work. I’m going to make this work. This is my career. This is my passion. I love owning my own firm. Now let’s get, let’s go to the next level with tax planning and retirement planning.
LAUREN: Yeah. Give yourself some grace in those early years.
Just, just make it through and survive. You’re right. They’re very scrappy. That’s the perfect adjective for them. This has been so helpful. Sarah, can you share a little bit with our listeners just about what you do? And if anyone is interested in connecting with you or learning more, how they can reach you.
SARAH: Yeah, [00:35:00] we’re a fractional CFO practice. webbcfo.Com is our website. We help small businesses, licensed professionals. So a lot of attorneys with their day to day accounting, quick books, we’re helping them with budget. We implement profit first. And really, that’s to let. The, the attorneys do what they do best, which is not accounting.
And so we do what we do best and, you know, produced reports and have relationships with business owners on, okay, here’s how you’re doing. This is what we see. Oh, you think you want to buy a building as part of your longterm planning? Well, let’s, let’s work on that. So our team can handle the day to day.
And then sometimes we just pop in for some strategy sessions of, okay, this is what we’re seeing with your results. And. You’ve told us this is where you’d want to go. Okay. Here’s the plan for the next 12 months.
LAUREN: Yeah, it’s a great partnership. And again, I encourage anyone, if you’re maybe not at a place to have that partnership quite just yet, the book profit first by Mike Michalowicz is phenomenal and a great place to start, but getting more heads in [00:36:00] the.
In the meeting room and being able to have some different perspectives, especially from folks who do this as their job, they have the expertise. And I particularly, and I know a lot of listeners will also appreciate that you work with licensed professionals that you work with attorneys. Cause sometimes, you know, we’ve got some weird rules, right?
Like, you know, about trust accounting. Like I can’t tell you the number of bookkeepers and even accountants. So I talked to, and they’re like what’s, what’s a trust, right? Like their tax professionals were like, Oh, everything in the trust is income. You’re like, no, no, no, to the work. Well, that’s
SARAH: I call it I changed the name of it.
I just call it unearned income. So it’s very clear that that’s not, it’s not yours yet. So yeah, it is, it is a different nuance and you know, there’s lots of great systems out there that, that mirror and work with QuickBooks. We work a lot in Clio and it has a connection with QuickBooks. So there’s, you know, smart case, there’s a lot of softwares out there that can match up with your accounting system.
So you don’t have to manually enter one thing from the other.
LAUREN: Yeah. And working with someone, like I said, like you, Sarah, and folks who [00:37:00] get the attorney space, I think it’s just an added bonus that we don’t feel like we have to explain that bit of like, no, actually the trust account isn’t earned. Like you said, it’s unearned income.
So being able to just sort of jump right in and y’all get it already is so wonderful. So thank you so much for sharing your expertise and your time today. Hopefully the listeners got some good insight and are ready to dive into those financial statements. Thanks. Have a great day. I’m over here giving you a virtual high five because you just finished another episode of A Different Practice.
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