Apple | Spotify
Episode Description
Peek behind the curtain as Lauren gives you a behind-the-scenes look at her law firm’s financial transformation. Learn how she went from struggling with negative profit margins to consistently achieving healthy profits using a simple yet powerful system. Lauren breaks down her monthly financial routine, sharing practical tips on implementing the Profit First method for law firms. This episode offers invaluable insights on taking control of your finances, enjoying the fruits of your labor, and building a sustainable practice. Discover how a few fundamental changes could revolutionize your firm’s financial health and give you peace of mind. Don’t miss this game-changing discussion on mastering your law firm’s finances!
Listen now!
Episode Resources
Profit First by Mike Michalowicz
Schedule a Discovery Call and learn how Lauren can help you fix your business finances.
Episode Transcript
LAUREN: [00:00:00] I also have to practice and be an attorney and I also need to be a marketer and I also need to be an admin. I wear all of these hats, but of all of them, I would say this one takes the least amount of time. Welcome to a different practice. I’m your host, Lauren Lester, and I’m obsessed with all things business well being 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 is a different practice. Welcome back everyone to a different [00:01:00] practice. In the last episode, I spoke with Sarah Webb about basic financial statements that every law firm should have in place.
We went over those basic statements, the information that each statement could provide and how it could be used to understand where the business was at. Sarah also touched on the profit first method for managing the finances of the business and ensuring that every dollar earned was allocated in a way that was going to put the business in a really strong position and not ultimately have that oh shit moment when you needed to pay something and the funds just weren’t there.
So you probably heard me mention when I was talking to Sarah that I read the Prophet First book several years ago. I read it back in 2019 in the summer of 2019 and at the time I did not have a good good sense of the actual numbers of my business. I had like a feeling and the feeling [00:02:00] always seemed to be really positive because I didn’t want to have any different of a feeling about the finances of the business.
But reading Profit First really made me see that that sort of gut instinct approach was probably not a great recipe. for success. So I went through the profit first method, put my numbers down on paper, and ultimately found out that in the middle ish of 2019, that my business was essentially losing money every year.
Uh, and so for that year, I ended up with a pre tax profit margin of negative 5 percent for 2019. The prior year, the pre tax profit margin was negative 9%. So I guess I was going in the right direction. Uh, so there was some positive there, but not great, right? Anything in the negative is not good. That essentially means the business is losing money.
And if I ever wanted to grow or be able to invest, or [00:03:00] even as Sarah talked about, invest in my own future and in my retirement, at the time I didn’t have the funds to do that. I was treading water. So it was a real cold dose of reality. It was really hard to see that down on paper. Particularly when from the outside, folks would see that I wasn’t there.
Was working certainly far less than the average attorney working part time, having time with my family, being able to enjoy my weekends, go on vacation. So from an outward perspective, it looked great and all of that stuff was great, but in the long run. Knowing what those numbers were and actually seeing that data down on paper.
That to me was a huge red flag to say, Hey, blinking caution lights here. If you want to keep this lifestyle up, if you want this business to support the life that you want, which is what I always preach to everyone. I think that we as law firm owners and [00:04:00] entrepreneurs can do that. That’s one of the many benefits we have in this position.
I had to do something with these numbers because they just weren’t sustainable. So I implemented the Profit First system in mid 2019. By the end of 2020, uh, so about 18 ish months later, my pre tax profit margin for that year was 39%. So I’d gone up from negative 5 to 39%, and it has stayed healthy and in that range ever since.
And that’s even when In 2022, for about three months, I just stopped taking all leads, just period. I was getting to a burnt out place, uh, and kind of needed to take a break. So I had reduced my revenue flow. Still, profit margin is up because of this method. And that’s even been in the last year as I’ve Further removed [00:05:00] contested family cases, which have been a predominant bulk of my practice.
Up until this point, a lot of my revenue, a good majority of my revenue has come from those types of cases, even moving away from that and building up a new practice error, incorporating a new practice area and tax debt resolution, which. is slow, right? It doesn’t just turn on overnight, although that would be nice.
Even doing that, even making those pivots, which has slowed the train down a little bit, still have healthy profit margins. And I attribute that a lot to the profit first method because it allows me to make decisions about the business, about pivoting, about what I want to be focused on. Because I have that data and I’m not just coming at it from this like gut instinct.
Well, I hope this works out. Let’s just try this. So it’s given me a lot of confidence and empowerment to make the business [00:06:00] decisions that I have needed to make and has made a world of difference. I feel so much better about the practice now, kind of having made this pivot and expanding into these different areas, but I have had that solid foundation to work from until What I love most about Profit First is the simplicity of the system.
I’ve read a few other business accounting books. They were really convoluted, had a lot of numbers, like really complex spreadsheets. And even if I would plug my numbers into that book, There were some numbers at the bottom. I didn’t know what that meant. I didn’t know what these were saying. So it’s one thing to have numbers, but what’s most important is to understand what do those numbers mean for the business?
How can they make me make better decisions about the business? And I like that. I at least feel that way with profit first, it really allows me to do that. You probably heard that since implementing profit first over the last several years have, um, Have [00:07:00] gone astray a little bit from the exact method. Uh, didn’t realize I did that, uh, until Sarah sort of pointed out that when I pay my credit card twice a month, that that’s not actually included in the system, I’ve just started doing that.
But the point is that that made sense to me. And I still think you can get a tremendous amount of benefit, even if you don’t follow it to a tee. If you start out using it and then be able to make tweaks for whatever works best for you, as long as the core is there, that’s the important bit. And that’s where you’re going to get the most bang for your buck.
So I like too that it’s simplistic, but also if you change it slightly, it doesn’t blow the whole thing up. I don’t like systems like that. That’s a little bit too rigid. I want to be able to work into it and then make it work for me and my business. So in this episode today, I wanted to get a little bit more into the weeds with you and actually walk through my monthly finance routine so that you can see how the profit first method [00:08:00] looks in action and see if it might be something that could help your business.
Again, this is not exactly how you absolutely have to do it, but I hope it gives you a sense that it is a simple system to implement. As long as you keep up with it, it really gives you a lot of power in the business and it doesn’t take a lot of time. I do not have a bookkeeper. I have a accountant who handles my taxes every year.
And he is wonderful. But on the day to day, month to month, it’s me. I wear that hat in the business. I personally love wearing that hat. I want to know what the numbers are at this point, where every dollar is going and how the business is looking. But that’s to say, I also, like many of y’all have to practice and be an attorney.
And I also need to be a marketer. And I also need to be an admin. I wear all of these hats. But of all of them, I would say this one takes the least amount of time. Because the system has been set up, it probably takes me 30 minutes, twice a month, so an hour a month, [00:09:00] to be able to go through the steps that I have put in place.
You probably could trim that down. I tend to open up my spreadsheet and get real like, Oh, well, what about this? And let me look over this. So I get a little bit distracted, but I think that you can make it a really fun experience. streamlined system. So even if you don’t have the resources or want to necessarily outsource the system, uh, you can implement it yourself without adding too much additional overhead in terms of your time.
So let’s go through my monthly. finance routine. So I do use the twice a month method that is recommended in Profit First. So on the 10th and the 25th of every month, I go through these steps, depending on whether it’s the 10th or the 25th. So, Some of the initial steps are slightly different. So for example, only once a month, do I download the bank statements for my operating account and my trust account so that I just have them in another place, just a level of [00:10:00] redundancy, especially because the banks only keep them for a certain period of time.
So I have them forever for my practice. Should I ever need them? So I don’t do that on the 10th and the 25th. For me, I typically just do that on the 10th for the prior month, because that’s when the statement is available. Similarly, I will confirm that the trust account balance that it is showing in my actual trust account at my bank matches what it shows in my trust account ledger in my case management software.
So I do that once a month too. I probably could do that both on the 10th and the 25th, but sometimes I find that the bank account has not been updated. So if I make a transfer a couple of days before, for whatever reason, it takes. So I just do it once a month now, I find it much easier, but it’s my check to make sure that my trust account ledger and my reporting and my case management software, which tracks how much each client has in their trust account, [00:11:00] that the total amount of that Then matches what the total amount is in trust.
And if there’s anything that’s ever off, I immediately go through, start going line by line through each of those records and find where that discrepancy is. So I do that once a month, but all the other steps that I’m about to go through, I do on both the 10th and the 25th each month.
So the first thing that I do is I will reconcile the operating account balance that is actually in my bank account. So open up. Chase operating account has X amount of money in it. I go into my case management software because it too has kind of a ledger of my operating account, but only for the transactions related to client funds.
So when funds get earned and has moved from trust to the operating account, I can see the ledgers for both of that. I can see that transfer, but in my case management software, it doesn’t have all of the other transactions that my [00:12:00] operating account has. at my bank. For example, when I pay filing fees or I have to pay this vendor, that’s not in my case management software.
So the numbers are often off. So I go in twice a month and I will reconcile and basically just make a single entry in my case management software to take out whatever the difference is between the two, because the case management software always has more in it because I don’t take out those expenses than it does for the actual bank account.
So I make that record. To now have the ledger in my case management system at least match the amount in the actual bank account. So I do that first. Then I go through and I open up my accounting software. So I use Wave. I know that Sarah mentioned that she really likes QuickBooks. I think anything that is in that general ballpark that works for you is great.
I like Wave. It’s pretty inexpensive. They can also run my payroll pretty cheaply. So I like that bit. From them, but I opened up [00:13:00] wave and then we’ve connects directly with my bank. And so it has all of these transactions in there that haven’t been reviewed yet since the last time I did this. So I go through each of those unreviewed transactions and I will make sure that for expenses, the category is correct.
So when there’s a transaction from my bank account or my credit card, which is tied to the same bank account, it’ll say, you know, 5, 000. For Zoom, an uncertain amount, and then I’ll make sure that that’s categorized properly as an expense so that ultimately when I go look at all of the expenses for the business in the different categories, I can see where the money is going, but I make sure that all the expenses are categorized correctly.
I also like doing this twice a month because it gives me a really good pulse on. What those expenses are. So if anything were to ever be off, Oh, all of a sudden I got charged on 500 from X, Y, and Z that’s weird. I can immediately address it. It’s not something that I see [00:14:00] six months later or at the end of the year.
At which point, maybe it’s too late to address or it’s just piled up and kind of snowballed. Then it’s had a much bigger impact than maybe you were expecting. So I like going through once a month. Again, this is not like hundreds of transactions, at least for me, right? It’s maybe. a couple dozen at the most.
So just going through and making sure I categorize all the expenses properly. And then I do the same thing for any of the revenue that’s come in. The way that I reconcile this is in WAVE, it will say, um, transfer from Coltaf for let’s say a thousand dollars. So it’ll be a deposit in my operating account for a thousand dollars on a certain date.
I will go into my case management software. That same exact date, there was a transfer from trust to my operating account because for Joe Smith’s matter, I had earned that thousand dollars because some milestone had been met. So what I do is I copy the description of the transaction from my case management software.
So it’ll say transfer for. [00:15:00] Invoice one, two, three, four. And I paste that into wave for that deposit. So the deposit is categorized as earned income, and then I will cross reference. So in the description, it will say for invoice one, two, three, four. I like this because I ultimately give the records from wave from my accounting software to my accountant to do my taxes.
And I don’t want him, although I Maybe it’s fine, but I prefer not to have a list of all my clients, right? Like I don’t want to put for that record, Joe Smith’s case. I just want to put invoice one, two, three, four. Now I know if anybody ever asked, well, what was invoice one, two, three, four about, I can go into my case management system and pull up the invoice.
That invoice and say, Oh, that was for Joe Smith’s case. Here’s the time records. Here’s the milestone that was reached. Right? So I have that cross reference, but it’s not going out to my tax accountant, but it allows me just as a double check to make sure that everything transferred [00:16:00] properly, all of the numbers line up.
So go through every single record in WAVE, both for expenses and then also revenue. I too, when I’m categorizing my revenue, like to have different categories for revenue. If you have multiple streams of revenue, I think this is really nice so that on an aggregate level, you can see where is most of the revenue coming in from.
So for me, and probably for most of us, it’s going to be from the law firm, from Being an attorney and having cases, but I also have added mediation to my practice. I also do some contract work and then I also have a product that I sell. And so all of those are individual income categories. So I classify them as they come in so that when I do my reporting, I can see, Oh, I’ve made X number of dollars this year from the law firm.
I’ve made X number of dollars from the product, X number of dollars from my contract work and so on. It just allows me to kind of. See, you know, where I’m spending my time, where am I getting that revenue coming in? Is there maybe one of those [00:17:00] streams that I need to invest in more because there’s a lot of opportunity there.
So if you have something like that in your practice, it’s also nice to categorize your income, not just as one big bucket of income or revenue, but maybe to break it up if that makes sense for you. But I go through and do that for every single new transaction that’s in there so that everything has been reviewed and checked off.
And then once that’s all done, I pull my P& L report, my profit and loss report. And what I’m only looking for is the time period since Since the last time I did this process. So if it is, um, let’s say June 25th, just when I just did this, I’m going to look at June 11th through the 25th. I’m just going to look at that period.
And that’s because when I did this on June 10th, I looked at May 26th through June 10th. So I just look at that kind of roughly two ish weeks, uh, but the time period in between that 10th and the 25th. So I pull that report to see what has all the revenue that has [00:18:00] come in, all of the dollars earned during that time period.
Here, again, is where I deviate a little bit from profit first, and I know that if you read the book, Mike Michalowicz really harps on this. Sarah also too says that she does this, um, is to have separate bank accounts for all of those different buckets so that all of the revenue would come into kind of your income account and then twice a month you would take it from the income account and basically put that down to zero because you’ve allocated the money into the other four accounts for the different buckets.
I do not do this. This might be sacrilegious. And I hope Mike Michalowicz doesn’t come along and smite me or Sarah sends me an email and it’s like, why are you doing it this way? I think that the bank account approach is great. In the book, I do remember that Mike Michalowicz really harped on if you are somebody who is going to open your bank account and just see what’s in your operating account, let’s say, because you only use [00:19:00] one account for this system.
And there’s, you know, 50, 000 in it, whatever it is. And then you’re going to make decisions based on that. That’s why he really recommends the four different bank accounts for all of the different buckets. I am not somebody who does that. I don’t, that’s not how I make decisions. I’ve never made decisions that way.
And so I felt comfortable in knowing myself that I could do this using a spreadsheet, which again, he. Really hates and I’m so sorry again sacrilegious, but it’s worked for me for the last several years and I’ve never had a problem with it so what I do is once I know all of the revenue for that time period I go into my spreadsheet and I put that amount in what would be the income account as if you had this for different bank accounts and Then I allocate it between the four Buckets.
And so right now for me, my bucket percentages are 5 percent goes into profit, 50 percent goes into [00:20:00] owner’s pay, 20 percent goes into taxes, and 25 percent goes into operating expenses. And those have shifted over the years. Profit wasn’t as high initially. Expenses was higher initially, and I’ve brought that down.
Taxes has been lower. Wiggled a little bit as I’ve kind of gone through the last few years and made sure that that’s really homed in. So all I’m really using there is what I actually need. And I’m not giving uncle Sam a interest free loan, but I’m also not having a big tax bill. So it’s taken some tweaking, but that’s where my percentages are now.
I go through and I allocate in my spreadsheet automatically into those four buckets. So I know at the very top, now I have a summation of everything that is in each of those buckets. So I know what’s in my profit bucket and my owner’s pay bucket and my tax bucket and my operating expense bucket. After that, I go through and I pay Uh, expenses.
And for me, that’s just paying my credit card. So as much as I can’t, I put all of my [00:21:00] operating expenses on my credit card because I get points again. This is a deviation. I didn’t realize I did. I feel better just going ahead and paying whatever the balance is on the credit card twice a month. I know I have the money because I can see what’s in the operating expense bucket.
And I also am consistently looking at my expenses to make sure that those aren’t getting out of hand. And so I just go ahead and pay it. No, it’s not due, but I just feel better getting it paid. When I was in the negative. Several years ago, I had a balance on the business credit card. Uh, and so I don’t want to ever get to that place again.
I don’t want to have to pay interest again. So I just pay it twice a month. I also do that because I think my business credit card is due not on the 10th or 25th. So it doesn’t work with my little system. I don’t want to have to go into third time to make sure it gets paid on time. So I just pay it the two times a month.
You can certainly. Tweak that if you want to pay it just when it’s due, but I just go ahead and pay whatever [00:22:00] expenses, whatever balance is on the credit card and then record that payment on my spreadsheet. So then lastly, I pay myself as part of this process for my salary that gets paid once a month, just If it’s the 10th of the month I will go through and approve and run payroll through Wave.
And so they will do a direct deposit into my personal bank account for my salary for the business. Then on the 25th of the month I do owners distributions to, again, my purposes. personal bank account. Part of it goes to pay my student loans, to be quite honest. So I pay myself consistently. I know what I’m going to earn every month, what’s actually going to hit my personal bank account for my family.
And then after that, I’m done. I close everything up and I’m all good. And I come back on the 25th or the 10th, whichever one is next. And I do the same thing again. Every quarter, which is also built into the Profitverse system, is I will make [00:23:00] the estimated tax payments. So I’ll go through and look at the revenue minus expenses for the quarter that just finished.
And I will make that the estimated tax payments. tax payment to both the federal and state governments that I have to do here in Colorado. I don’t love making this payment, I’ll say that first and foremost, but I’m never worried about it because the money has been sitting in that tax bucket. So it’s very easy for me to just pay that and I don’t have to worry about it.
The fun thing that I get to do every quarter after I make that tax payment and go, Ugh, I hate making this tax payment, is make my profit distribution payment. So the way that I do that is I take half of whatever is in the profit bucket and I pay that to myself and I really try to use it for something fun or to save money.
Celebrate I do understand and remembered when Sarah was talking about if there is any debt for the business It is recommended that that those [00:24:00] funds are used to pay down that debt so that you can become debt free But once you get past that point being able to use those funds to celebrate buy something that you’ve been looking at buy something that is You know, you would love to gab, but is really maybe just not super prudent right now.
Hey, don’t go crazy, but it is part of the benefit and the reward for being an entrepreneur. So I’ll take that money out and then, um, stash it away. Or then the next week sort of buy that thing that I’ve been. Thinking about buying. And then the third thing that I do every quarter is I will also make distributions for my retirement funding.
So this is something that Sarah talked about to be able to bake that amount in because I’m a solopreneur. I don’t have a company who helps me, um, contribute to my 401k. So I have to make sure that I am intentional about this, keeping this top of mind. So once a quarter, I have a goal of what I will contribute towards my retirement.
And then I make that quarterly payment again. That’s [00:25:00] all has been built into the numbers and the percentages for each bucket. So the cash is typically just sitting there and then I just go ahead and fund my retirement accounts. But I do that every quarter. So that’s what the profit first system looks like for me and my business.
Again, I think a lot of the, Scaffolding and structure that is there can be used for all different solo and small firms, even large firms, to be honest, but solo and small firm is my community and where I’m at. So I’m hopeful that that is helpful to sort of hear how it actually looks like in practice. I also just quickly wanted to share some practical tips that I think help with this implementation in the day to day.
Once you’ve got the system in place, there are a couple additional things that I know I’ve done that have really helped support the system to make sure that it really sets me up for success. In terms of finance, I think knowing your numbers, even if it’s scary, is my number one tip. If there’s nothing else that you take away from [00:26:00] the episode today, I’ll is know what your numbers are, go through and actually look at what your expenses have been, what you have paid yourself, what taxes have been, um, where you’re actually at, the amount of revenue that has come in.
Is that supporting all of those expenditures? Are you actually having any profit built in? Are you saving for retirement in the way that you want to? I actually know that. Again, it wasn’t fun for me to look down and see a negative number and to see that that negative number had been trending, uh, at least for the, the prior couple of years.
But that moment in time allowed me to change. If I wouldn’t have known that, if I wouldn’t have taken the wool over my eyes, I wouldn’t be where I was today. So, as scary as it may be, you don’t have to tell anybody. It can just be, um, something that you know, but it really does allow you to take the first step to turn things around.
My next tip would be to be consistent with going through this process. So again, it’s [00:27:00] Mike Michalowicz recommends twice a month. You can do it once a month if you want. I know Sarah, I think she mentioned she has clients who do it once a week, which seems a little much for me, but you know. whatever rocks your hair back.
Whatever you choose in terms of frequency, stick with it. So these are tasks that come up on my task list. They’re recurring tasks. Every day that they come up, I do not let them go to the next day. They are number one priority. I get them done. I make sure that on those two days, it’s always done. I don’t let it go to the next day or the next day.
Oh, now it’s the following week, right? I don’t let myself get behind. I will note that if the 10th or 25th happens to fall on a weekend or a holiday, I tend to do it the last business day before. So like if the 10th was a Saturday, I would do it on Friday the 9th. So that way I just always make sure that it gets done, but really be consistent.
Once you do it for a few months, I think it becomes routine. You get really easy. You can kind of fly through the steps pretty quickly, but you are [00:28:00] staying on top of it. And that really is key to making the system successful. My third tip when it comes to just the finances of the business is to be really cutthroat with expenses.
Like I mentioned, I like looking at the expenses and going line by line and seeing what’s being paid for each type of expense twice a month. But I also look monthly at all of the expenses for the month. And probably twice a year, look over those and say, okay, what, what can I cut here? What am I not using as much as I maybe was six months ago?
Is there another solution out there that could be cheaper? Is the way, is there a way I can combine some services, but constantly being on top of those expenses because they can get out of hand real fast. Especially with technology, right? We add all this stuff. It works super cool. It’s shiny and flashy and it’s so fun And then we turn around, you know, we’ve got five hundred eight hundred a thousand dollars worth of expenses every month just for that So if the revenue is not [00:29:00] there, we would definitely want to be really slim with our expenses But even if the revenue is there, you know, you want to be Have more profit, quite frankly.
And so it’s really having that conversation with yourself constantly just to make sure that, you know, where your money is going out of your business is really where you need it and want it to go. And then my last tip when it comes to finances is enjoy the profits. I think Mike Michalowicz’s recommendation of not using it to pay your student loan or pay just, you know, some bill that doesn’t really bring you much joy.
Uh, I really thought in the beginning, cause that’s kind of just the type of person I am, that’s what I would use it for. Um, But I took his advice and said, well, I’ll just try and use this for something fun or something that I’ve been eyeing or always wanted to get. And it really has made, uh, such a boost in morale with the business.
It’s one of the best things. Uh, I love that it balances out with paying that quarterly tax estimate, but it really is nice. One of the things. [00:30:00] that I used the funds for was to purchase a vintage ring that I wear nearly every day. When I look at it every time, it reminds me of this journey and how far I’ve come and just the absolute privilege and joy that I have being an entrepreneur.
So I really do encourage you to use those profits for Something fun, something you’ve wanted to do, go to the fancy restaurant that you would never go to in a million years because their prices are so crazy. Use that money in a quarter and go do that and just enjoy yourself and just know that that is part of the reward for This risk that we take being entrepreneurs, right?
We don’t have that safety net of a company around us. We have to build our own safety net. So really making sure that you use those profits for something fun. That just brings you joy. I think really makes this whole. This whole journey just more enjoyable. So turning now to just a couple of billing [00:31:00] tips, because I think that billing flows into finance, right?
That’s how the revenue comes in and is generated. A couple quick things here. One is to really consider if you haven’t already implementing value based pricing and collecting funds upfront. Again, you can see exactly how to do that. We have the four part framework that Laysa steps out from start to finish for you in the pricing toolkit, which is for free at thepricingtoolkit.
com. But the importance here is that you’re collecting the revenue upfront. Certainly, if you need to, it’s being held in trust. But you know that it’s there. So one of the comments I think Sarah made in the last episode was if the revenue, um, wasn’t there or you needed some money or taxes were about to be due and that bucket wasn’t as high as you needed it to be, she immediately said, you know, for most attorneys, you’ve got to go look at AR or accounts receivable.
For me, I don’t want to chase clients for money. I don’t want to have to have a part of my practice or even a staff [00:32:00] person spend any time calling clients up and say, Hey, you owe us that money. Can you please pay it? I don’t want to be playing the defense in that situation. I like being on the offense. And so part of my Business and my policy with value based pricing is the funds are collected up front.
I am never overextending myself. I always have the funds and trust before I actually do the work and it has just made things so much easier. I’m not spending time chasing clients. down for money. And so it also leads right into that revenue is there. So once it’s earned, it can be moved. And I don’t have to worry about any of my buckets, not having the money that they should have because I did the work because I collected upfront.
So really in terms of billing, right, trying to move away from having recount accounts receivable and practicing in a way that you are collecting those funds upfront so that you have them and you’re not chasing clients for money anymore. And along those same lines, my second tip [00:33:00] is if you can bill as the money is earned.
So I know that there are some folks who may be billed like once a month. They do all their invoicing once a month. If that works for you, fantastic. For me, that would be a lot. To do once a month. Like I don’t want to sit down and do that for several hours. And I like to have the funds come in throughout the month because it also gives me a sense of where the revenue is at.
Again, I’m looking at it as soon as the 10th rolls around. So we don’t get too far into the month without me knowing, but if I get to the 10th and I have that revenue sitting there because I have gone through the process of moving it from trust to operating account. I can say, um, you know, it’s a little bit low.
Um, I got a couple of cases that I can really focus on. I’m going to really dig in these next couple of weeks, turn through that work so that those funds can be earned so I can hit those milestones. And then hopefully when I come back on the 25th, right, the revenue has bumped up. So waiting until the end of the month [00:34:00] to actually bill out.
For clients and generate invoices and transfer funds from trust to operating. If that’s what’s required in your state, I personally find it really helpful to do it as it’s earned. So in my task list for every single case, once there’s a milestone hit, the next task is going to be to transfer the appropriate amount of trust funds for that milestone.
Let’s say I deliver a draft of a document, which is one of the milestones. Like for my marital agreements, I deliver it on a Monday. By Tuesday or Wednesday, I am in my case management software and in my bank account running an invoice. It has all the time tracking that went into that milestone just so that there’s a record of it.
There’s a milestone, there’s the amount for that milestone, and then I’m in my bank making that transfer from trust to operating. So I like doing it not quite in real time, but very quickly thereafter. And I think that that additional step kind of in the whole context and environment of [00:35:00] Profit First has really helped make the Profit First system work really well for me.
It’s kind of a well oiled machine. But those would be my two billing tips is collect the money out front, ditch the billable hour, go to value based pricing so that it makes it so much easier to be able to do that. You don’t have to chase clients for money anymore. And then as you earn those funds, if you do need to.
Use trust fund in your state, move the money as it’s earned, not just sort of waiting until the end of the month or end of quarter. I think doing it a little bit more in real time can be really helpful.
There are very few books that I have read that have transformed my practice as much as Profit First has. I am forever indebted to Profit First. To Mike Michalowicz. If I ever have the privilege and honor of meeting him one day, can’t wait to tell him that in person. Uh, his system is so easy to implement and simplistic that it really makes my finances so much easier.[00:36:00]
I feel so much more. in control of my business, which is a great place to be in. I love that it doesn’t take a lot to implement. Again, I did it in a night. I think I stayed up late one night, got it implemented. And then it really took me just kind of one or two rounds in terms of doing the actual tasks twice a month to get it.
And now it’s. Second nature. I don’t really think about it, but it has made such a huge difference. What I love is I swear you can do it too. Like financing accounting is not totally my jam. I like it because this system has made it simple and I understand it. Again, I’ve seen other systems that are flying over my head, like nobody’s business, and I don’t even think they’re speaking English, but this system I can get, and I know that you can do it too.
Certainly, you can buy the book, Prophet First. I think Sarah mentioned that there are some other authors who have taken the system and applied it specifically for law firms. I think there’s Prophet First for lawyers or law firms out there as well. I have [00:37:00] not read that one, so I’m not entirely sure what it says.
But if it’s anything like Prophet First, which I definitely have read, it is great. is an easy to follow system, so you can do it yourself. If you do want help, I do invite you to sign up for my three month private coaching service, and I will get in there and implement this foolproof system for managing your firm’s finances for you and with you.
It will be set up so that you just have to take the reins and go from there, and in just three months, you can go from stress to success when it comes to business finances. You could learn more about that three month private coaching service at adifferentpractice. com slash coaching. I hope these last two episodes have shown you that business finances don’t have to be scary.
And most importantly, there is a plan that you can follow to help you reach your goals. Thank you so much for listening. I always appreciate your time. Now get out there and go kick some more ass. Until next time, keep building. I’m [00:38:00] over here giving you a virtual high five because you just finished another episode of a different practice.
For more from this episode, head over to a different practice.com/podcast for the show notes. If you found this episode helpful, I’d love it if you’d share it with someone who might like it too. Be sure to rate the show wherever you listen to podcast. And don’t forget to subscribe so you never miss an episode.
If you’re ready to unleash your firm’s potential, grab your free guide to the six pillars of optimization today. I have tried everything and made all the mistakes in building my business over the last near decade. I figured out what works and what’s essential. Now I’m sharing the six essential pillars every law firm needs, key factors for implementation, and practical tips for optimizing each.
Grab your
LAUREN: [00:00:00] I also have to practice and be an attorney and I also need to be a marketer and I also need to be an admin. I wear all of these hats, but of all of them, I would say this one takes the least amount of time. Welcome to a different practice. I’m your host, Lauren Lester, and I’m obsessed with all things business well being 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 is a different practice. Welcome back everyone to a different [00:01:00] practice. In the last episode, I spoke with Sarah Webb about basic financial statements that every law firm should have in place.
We went over those basic statements, the information that each statement could provide and how it could be used to understand where the business was at. Sarah also touched on the profit first method for managing the finances of the business and ensuring that every dollar earned was allocated in a way that was going to put the business in a really strong position and not ultimately have that oh shit moment when you needed to pay something and the funds just weren’t there.
So you probably heard me mention when I was talking to Sarah that I read the Prophet First book several years ago. I read it back in 2019 in the summer of 2019 and at the time I did not have a good good sense of the actual numbers of my business. I had like a feeling and the feeling [00:02:00] always seemed to be really positive because I didn’t want to have any different of a feeling about the finances of the business.
But reading Profit First really made me see that that sort of gut instinct approach was probably not a great recipe. for success. So I went through the profit first method, put my numbers down on paper, and ultimately found out that in the middle ish of 2019, that my business was essentially losing money every year.
Uh, and so for that year, I ended up with a pre tax profit margin of negative 5 percent for 2019. The prior year, the pre tax profit margin was negative 9%. So I guess I was going in the right direction. Uh, so there was some positive there, but not great, right? Anything in the negative is not good. That essentially means the business is losing money.
And if I ever wanted to grow or be able to invest, or [00:03:00] even as Sarah talked about, invest in my own future and in my retirement, at the time I didn’t have the funds to do that. I was treading water. So it was a real cold dose of reality. It was really hard to see that down on paper. Particularly when from the outside, folks would see that I wasn’t there.
Was working certainly far less than the average attorney working part time, having time with my family, being able to enjoy my weekends, go on vacation. So from an outward perspective, it looked great and all of that stuff was great, but in the long run. Knowing what those numbers were and actually seeing that data down on paper.
That to me was a huge red flag to say, Hey, blinking caution lights here. If you want to keep this lifestyle up, if you want this business to support the life that you want, which is what I always preach to everyone. I think that we as law firm owners and [00:04:00] entrepreneurs can do that. That’s one of the many benefits we have in this position.
I had to do something with these numbers because they just weren’t sustainable. So I implemented the Profit First system in mid 2019. By the end of 2020, uh, so about 18 ish months later, my pre tax profit margin for that year was 39%. So I’d gone up from negative 5 to 39%, and it has stayed healthy and in that range ever since.
And that’s even when In 2022, for about three months, I just stopped taking all leads, just period. I was getting to a burnt out place, uh, and kind of needed to take a break. So I had reduced my revenue flow. Still, profit margin is up because of this method. And that’s even been in the last year as I’ve Further removed [00:05:00] contested family cases, which have been a predominant bulk of my practice.
Up until this point, a lot of my revenue, a good majority of my revenue has come from those types of cases, even moving away from that and building up a new practice error, incorporating a new practice area and tax debt resolution, which. is slow, right? It doesn’t just turn on overnight, although that would be nice.
Even doing that, even making those pivots, which has slowed the train down a little bit, still have healthy profit margins. And I attribute that a lot to the profit first method because it allows me to make decisions about the business, about pivoting, about what I want to be focused on. Because I have that data and I’m not just coming at it from this like gut instinct.
Well, I hope this works out. Let’s just try this. So it’s given me a lot of confidence and empowerment to make the business [00:06:00] decisions that I have needed to make and has made a world of difference. I feel so much better about the practice now, kind of having made this pivot and expanding into these different areas, but I have had that solid foundation to work from until What I love most about Profit First is the simplicity of the system.
I’ve read a few other business accounting books. They were really convoluted, had a lot of numbers, like really complex spreadsheets. And even if I would plug my numbers into that book, There were some numbers at the bottom. I didn’t know what that meant. I didn’t know what these were saying. So it’s one thing to have numbers, but what’s most important is to understand what do those numbers mean for the business?
How can they make me make better decisions about the business? And I like that. I at least feel that way with profit first, it really allows me to do that. You probably heard that since implementing profit first over the last several years have, um, Have [00:07:00] gone astray a little bit from the exact method. Uh, didn’t realize I did that, uh, until Sarah sort of pointed out that when I pay my credit card twice a month, that that’s not actually included in the system, I’ve just started doing that.
But the point is that that made sense to me. And I still think you can get a tremendous amount of benefit, even if you don’t follow it to a tee. If you start out using it and then be able to make tweaks for whatever works best for you, as long as the core is there, that’s the important bit. And that’s where you’re going to get the most bang for your buck.
So I like too that it’s simplistic, but also if you change it slightly, it doesn’t blow the whole thing up. I don’t like systems like that. That’s a little bit too rigid. I want to be able to work into it and then make it work for me and my business. So in this episode today, I wanted to get a little bit more into the weeds with you and actually walk through my monthly finance routine so that you can see how the profit first method [00:08:00] looks in action and see if it might be something that could help your business.
Again, this is not exactly how you absolutely have to do it, but I hope it gives you a sense that it is a simple system to implement. As long as you keep up with it, it really gives you a lot of power in the business and it doesn’t take a lot of time. I do not have a bookkeeper. I have a accountant who handles my taxes every year.
And he is wonderful. But on the day to day, month to month, it’s me. I wear that hat in the business. I personally love wearing that hat. I want to know what the numbers are at this point, where every dollar is going and how the business is looking. But that’s to say, I also, like many of y’all have to practice and be an attorney.
And I also need to be a marketer. And I also need to be an admin. I wear all of these hats. But of all of them, I would say this one takes the least amount of time. Because the system has been set up, it probably takes me 30 minutes, twice a month, so an hour a month, [00:09:00] to be able to go through the steps that I have put in place.
You probably could trim that down. I tend to open up my spreadsheet and get real like, Oh, well, what about this? And let me look over this. So I get a little bit distracted, but I think that you can make it a really fun experience. streamlined system. So even if you don’t have the resources or want to necessarily outsource the system, uh, you can implement it yourself without adding too much additional overhead in terms of your time.
So let’s go through my monthly. finance routine. So I do use the twice a month method that is recommended in Profit First. So on the 10th and the 25th of every month, I go through these steps, depending on whether it’s the 10th or the 25th. So, Some of the initial steps are slightly different. So for example, only once a month, do I download the bank statements for my operating account and my trust account so that I just have them in another place, just a level of [00:10:00] redundancy, especially because the banks only keep them for a certain period of time.
So I have them forever for my practice. Should I ever need them? So I don’t do that on the 10th and the 25th. For me, I typically just do that on the 10th for the prior month, because that’s when the statement is available. Similarly, I will confirm that the trust account balance that it is showing in my actual trust account at my bank matches what it shows in my trust account ledger in my case management software.
So I do that once a month too. I probably could do that both on the 10th and the 25th, but sometimes I find that the bank account has not been updated. So if I make a transfer a couple of days before, for whatever reason, it takes. So I just do it once a month now, I find it much easier, but it’s my check to make sure that my trust account ledger and my reporting and my case management software, which tracks how much each client has in their trust account, [00:11:00] that the total amount of that Then matches what the total amount is in trust.
And if there’s anything that’s ever off, I immediately go through, start going line by line through each of those records and find where that discrepancy is. So I do that once a month, but all the other steps that I’m about to go through, I do on both the 10th and the 25th each month.
So the first thing that I do is I will reconcile the operating account balance that is actually in my bank account. So open up. Chase operating account has X amount of money in it. I go into my case management software because it too has kind of a ledger of my operating account, but only for the transactions related to client funds.
So when funds get earned and has moved from trust to the operating account, I can see the ledgers for both of that. I can see that transfer, but in my case management software, it doesn’t have all of the other transactions that my [00:12:00] operating account has. at my bank. For example, when I pay filing fees or I have to pay this vendor, that’s not in my case management software.
So the numbers are often off. So I go in twice a month and I will reconcile and basically just make a single entry in my case management software to take out whatever the difference is between the two, because the case management software always has more in it because I don’t take out those expenses than it does for the actual bank account.
So I make that record. To now have the ledger in my case management system at least match the amount in the actual bank account. So I do that first. Then I go through and I open up my accounting software. So I use Wave. I know that Sarah mentioned that she really likes QuickBooks. I think anything that is in that general ballpark that works for you is great.
I like Wave. It’s pretty inexpensive. They can also run my payroll pretty cheaply. So I like that bit. From them, but I opened up [00:13:00] wave and then we’ve connects directly with my bank. And so it has all of these transactions in there that haven’t been reviewed yet since the last time I did this. So I go through each of those unreviewed transactions and I will make sure that for expenses, the category is correct.
So when there’s a transaction from my bank account or my credit card, which is tied to the same bank account, it’ll say, you know, 5, 000. For Zoom, an uncertain amount, and then I’ll make sure that that’s categorized properly as an expense so that ultimately when I go look at all of the expenses for the business in the different categories, I can see where the money is going, but I make sure that all the expenses are categorized correctly.
I also like doing this twice a month because it gives me a really good pulse on. What those expenses are. So if anything were to ever be off, Oh, all of a sudden I got charged on 500 from X, Y, and Z that’s weird. I can immediately address it. It’s not something that I see [00:14:00] six months later or at the end of the year.
At which point, maybe it’s too late to address or it’s just piled up and kind of snowballed. Then it’s had a much bigger impact than maybe you were expecting. So I like going through once a month. Again, this is not like hundreds of transactions, at least for me, right? It’s maybe. a couple dozen at the most.
So just going through and making sure I categorize all the expenses properly. And then I do the same thing for any of the revenue that’s come in. The way that I reconcile this is in WAVE, it will say, um, transfer from Coltaf for let’s say a thousand dollars. So it’ll be a deposit in my operating account for a thousand dollars on a certain date.
I will go into my case management software. That same exact date, there was a transfer from trust to my operating account because for Joe Smith’s matter, I had earned that thousand dollars because some milestone had been met. So what I do is I copy the description of the transaction from my case management software.
So it’ll say transfer for. [00:15:00] Invoice one, two, three, four. And I paste that into wave for that deposit. So the deposit is categorized as earned income, and then I will cross reference. So in the description, it will say for invoice one, two, three, four. I like this because I ultimately give the records from wave from my accounting software to my accountant to do my taxes.
And I don’t want him, although I Maybe it’s fine, but I prefer not to have a list of all my clients, right? Like I don’t want to put for that record, Joe Smith’s case. I just want to put invoice one, two, three, four. Now I know if anybody ever asked, well, what was invoice one, two, three, four about, I can go into my case management system and pull up the invoice.
That invoice and say, Oh, that was for Joe Smith’s case. Here’s the time records. Here’s the milestone that was reached. Right? So I have that cross reference, but it’s not going out to my tax accountant, but it allows me just as a double check to make sure that everything transferred [00:16:00] properly, all of the numbers line up.
So go through every single record in WAVE, both for expenses and then also revenue. I too, when I’m categorizing my revenue, like to have different categories for revenue. If you have multiple streams of revenue, I think this is really nice so that on an aggregate level, you can see where is most of the revenue coming in from.
So for me, and probably for most of us, it’s going to be from the law firm, from Being an attorney and having cases, but I also have added mediation to my practice. I also do some contract work and then I also have a product that I sell. And so all of those are individual income categories. So I classify them as they come in so that when I do my reporting, I can see, Oh, I’ve made X number of dollars this year from the law firm.
I’ve made X number of dollars from the product, X number of dollars from my contract work and so on. It just allows me to kind of. See, you know, where I’m spending my time, where am I getting that revenue coming in? Is there maybe one of those [00:17:00] streams that I need to invest in more because there’s a lot of opportunity there.
So if you have something like that in your practice, it’s also nice to categorize your income, not just as one big bucket of income or revenue, but maybe to break it up if that makes sense for you. But I go through and do that for every single new transaction that’s in there so that everything has been reviewed and checked off.
And then once that’s all done, I pull my P& L report, my profit and loss report. And what I’m only looking for is the time period since Since the last time I did this process. So if it is, um, let’s say June 25th, just when I just did this, I’m going to look at June 11th through the 25th. I’m just going to look at that period.
And that’s because when I did this on June 10th, I looked at May 26th through June 10th. So I just look at that kind of roughly two ish weeks, uh, but the time period in between that 10th and the 25th. So I pull that report to see what has all the revenue that has [00:18:00] come in, all of the dollars earned during that time period.
Here, again, is where I deviate a little bit from profit first, and I know that if you read the book, Mike Michalowicz really harps on this. Sarah also too says that she does this, um, is to have separate bank accounts for all of those different buckets so that all of the revenue would come into kind of your income account and then twice a month you would take it from the income account and basically put that down to zero because you’ve allocated the money into the other four accounts for the different buckets.
I do not do this. This might be sacrilegious. And I hope Mike Michalowicz doesn’t come along and smite me or Sarah sends me an email and it’s like, why are you doing it this way? I think that the bank account approach is great. In the book, I do remember that Mike Michalowicz really harped on if you are somebody who is going to open your bank account and just see what’s in your operating account, let’s say, because you only use [00:19:00] one account for this system.
And there’s, you know, 50, 000 in it, whatever it is. And then you’re going to make decisions based on that. That’s why he really recommends the four different bank accounts for all of the different buckets. I am not somebody who does that. I don’t, that’s not how I make decisions. I’ve never made decisions that way.
And so I felt comfortable in knowing myself that I could do this using a spreadsheet, which again, he. Really hates and I’m so sorry again sacrilegious, but it’s worked for me for the last several years and I’ve never had a problem with it so what I do is once I know all of the revenue for that time period I go into my spreadsheet and I put that amount in what would be the income account as if you had this for different bank accounts and Then I allocate it between the four Buckets.
And so right now for me, my bucket percentages are 5 percent goes into profit, 50 percent goes into [00:20:00] owner’s pay, 20 percent goes into taxes, and 25 percent goes into operating expenses. And those have shifted over the years. Profit wasn’t as high initially. Expenses was higher initially, and I’ve brought that down.
Taxes has been lower. Wiggled a little bit as I’ve kind of gone through the last few years and made sure that that’s really homed in. So all I’m really using there is what I actually need. And I’m not giving uncle Sam a interest free loan, but I’m also not having a big tax bill. So it’s taken some tweaking, but that’s where my percentages are now.
I go through and I allocate in my spreadsheet automatically into those four buckets. So I know at the very top, now I have a summation of everything that is in each of those buckets. So I know what’s in my profit bucket and my owner’s pay bucket and my tax bucket and my operating expense bucket. After that, I go through and I pay Uh, expenses.
And for me, that’s just paying my credit card. So as much as I can’t, I put all of my [00:21:00] operating expenses on my credit card because I get points again. This is a deviation. I didn’t realize I did. I feel better just going ahead and paying whatever the balance is on the credit card twice a month. I know I have the money because I can see what’s in the operating expense bucket.
And I also am consistently looking at my expenses to make sure that those aren’t getting out of hand. And so I just go ahead and pay it. No, it’s not due, but I just feel better getting it paid. When I was in the negative. Several years ago, I had a balance on the business credit card. Uh, and so I don’t want to ever get to that place again.
I don’t want to have to pay interest again. So I just pay it twice a month. I also do that because I think my business credit card is due not on the 10th or 25th. So it doesn’t work with my little system. I don’t want to have to go into third time to make sure it gets paid on time. So I just pay it the two times a month.
You can certainly. Tweak that if you want to pay it just when it’s due, but I just go ahead and pay whatever [00:22:00] expenses, whatever balance is on the credit card and then record that payment on my spreadsheet. So then lastly, I pay myself as part of this process for my salary that gets paid once a month, just If it’s the 10th of the month I will go through and approve and run payroll through Wave.
And so they will do a direct deposit into my personal bank account for my salary for the business. Then on the 25th of the month I do owners distributions to, again, my purposes. personal bank account. Part of it goes to pay my student loans, to be quite honest. So I pay myself consistently. I know what I’m going to earn every month, what’s actually going to hit my personal bank account for my family.
And then after that, I’m done. I close everything up and I’m all good. And I come back on the 25th or the 10th, whichever one is next. And I do the same thing again. Every quarter, which is also built into the Profitverse system, is I will make [00:23:00] the estimated tax payments. So I’ll go through and look at the revenue minus expenses for the quarter that just finished.
And I will make that the estimated tax payments. tax payment to both the federal and state governments that I have to do here in Colorado. I don’t love making this payment, I’ll say that first and foremost, but I’m never worried about it because the money has been sitting in that tax bucket. So it’s very easy for me to just pay that and I don’t have to worry about it.
The fun thing that I get to do every quarter after I make that tax payment and go, Ugh, I hate making this tax payment, is make my profit distribution payment. So the way that I do that is I take half of whatever is in the profit bucket and I pay that to myself and I really try to use it for something fun or to save money.
Celebrate I do understand and remembered when Sarah was talking about if there is any debt for the business It is recommended that that those [00:24:00] funds are used to pay down that debt so that you can become debt free But once you get past that point being able to use those funds to celebrate buy something that you’ve been looking at buy something that is You know, you would love to gab, but is really maybe just not super prudent right now.
Hey, don’t go crazy, but it is part of the benefit and the reward for being an entrepreneur. So I’ll take that money out and then, um, stash it away. Or then the next week sort of buy that thing that I’ve been. Thinking about buying. And then the third thing that I do every quarter is I will also make distributions for my retirement funding.
So this is something that Sarah talked about to be able to bake that amount in because I’m a solopreneur. I don’t have a company who helps me, um, contribute to my 401k. So I have to make sure that I am intentional about this, keeping this top of mind. So once a quarter, I have a goal of what I will contribute towards my retirement.
And then I make that quarterly payment again. That’s [00:25:00] all has been built into the numbers and the percentages for each bucket. So the cash is typically just sitting there and then I just go ahead and fund my retirement accounts. But I do that every quarter. So that’s what the profit first system looks like for me and my business.
Again, I think a lot of the, Scaffolding and structure that is there can be used for all different solo and small firms, even large firms, to be honest, but solo and small firm is my community and where I’m at. So I’m hopeful that that is helpful to sort of hear how it actually looks like in practice. I also just quickly wanted to share some practical tips that I think help with this implementation in the day to day.
Once you’ve got the system in place, there are a couple additional things that I know I’ve done that have really helped support the system to make sure that it really sets me up for success. In terms of finance, I think knowing your numbers, even if it’s scary, is my number one tip. If there’s nothing else that you take away from [00:26:00] the episode today, I’ll is know what your numbers are, go through and actually look at what your expenses have been, what you have paid yourself, what taxes have been, um, where you’re actually at, the amount of revenue that has come in.
Is that supporting all of those expenditures? Are you actually having any profit built in? Are you saving for retirement in the way that you want to? I actually know that. Again, it wasn’t fun for me to look down and see a negative number and to see that that negative number had been trending, uh, at least for the, the prior couple of years.
But that moment in time allowed me to change. If I wouldn’t have known that, if I wouldn’t have taken the wool over my eyes, I wouldn’t be where I was today. So, as scary as it may be, you don’t have to tell anybody. It can just be, um, something that you know, but it really does allow you to take the first step to turn things around.
My next tip would be to be consistent with going through this process. So again, it’s [00:27:00] Mike Michalowicz recommends twice a month. You can do it once a month if you want. I know Sarah, I think she mentioned she has clients who do it once a week, which seems a little much for me, but you know. whatever rocks your hair back.
Whatever you choose in terms of frequency, stick with it. So these are tasks that come up on my task list. They’re recurring tasks. Every day that they come up, I do not let them go to the next day. They are number one priority. I get them done. I make sure that on those two days, it’s always done. I don’t let it go to the next day or the next day.
Oh, now it’s the following week, right? I don’t let myself get behind. I will note that if the 10th or 25th happens to fall on a weekend or a holiday, I tend to do it the last business day before. So like if the 10th was a Saturday, I would do it on Friday the 9th. So that way I just always make sure that it gets done, but really be consistent.
Once you do it for a few months, I think it becomes routine. You get really easy. You can kind of fly through the steps pretty quickly, but you are [00:28:00] staying on top of it. And that really is key to making the system successful. My third tip when it comes to just the finances of the business is to be really cutthroat with expenses.
Like I mentioned, I like looking at the expenses and going line by line and seeing what’s being paid for each type of expense twice a month. But I also look monthly at all of the expenses for the month. And probably twice a year, look over those and say, okay, what, what can I cut here? What am I not using as much as I maybe was six months ago?
Is there another solution out there that could be cheaper? Is the way, is there a way I can combine some services, but constantly being on top of those expenses because they can get out of hand real fast. Especially with technology, right? We add all this stuff. It works super cool. It’s shiny and flashy and it’s so fun And then we turn around, you know, we’ve got five hundred eight hundred a thousand dollars worth of expenses every month just for that So if the revenue is not [00:29:00] there, we would definitely want to be really slim with our expenses But even if the revenue is there, you know, you want to be Have more profit, quite frankly.
And so it’s really having that conversation with yourself constantly just to make sure that, you know, where your money is going out of your business is really where you need it and want it to go. And then my last tip when it comes to finances is enjoy the profits. I think Mike Michalowicz’s recommendation of not using it to pay your student loan or pay just, you know, some bill that doesn’t really bring you much joy.
Uh, I really thought in the beginning, cause that’s kind of just the type of person I am, that’s what I would use it for. Um, But I took his advice and said, well, I’ll just try and use this for something fun or something that I’ve been eyeing or always wanted to get. And it really has made, uh, such a boost in morale with the business.
It’s one of the best things. Uh, I love that it balances out with paying that quarterly tax estimate, but it really is nice. One of the things. [00:30:00] that I used the funds for was to purchase a vintage ring that I wear nearly every day. When I look at it every time, it reminds me of this journey and how far I’ve come and just the absolute privilege and joy that I have being an entrepreneur.
So I really do encourage you to use those profits for Something fun, something you’ve wanted to do, go to the fancy restaurant that you would never go to in a million years because their prices are so crazy. Use that money in a quarter and go do that and just enjoy yourself and just know that that is part of the reward for This risk that we take being entrepreneurs, right?
We don’t have that safety net of a company around us. We have to build our own safety net. So really making sure that you use those profits for something fun. That just brings you joy. I think really makes this whole. This whole journey just more enjoyable. So turning now to just a couple of billing [00:31:00] tips, because I think that billing flows into finance, right?
That’s how the revenue comes in and is generated. A couple quick things here. One is to really consider if you haven’t already implementing value based pricing and collecting funds upfront. Again, you can see exactly how to do that. We have the four part framework that Laysa steps out from start to finish for you in the pricing toolkit, which is for free at thepricingtoolkit.
com. But the importance here is that you’re collecting the revenue upfront. Certainly, if you need to, it’s being held in trust. But you know that it’s there. So one of the comments I think Sarah made in the last episode was if the revenue, um, wasn’t there or you needed some money or taxes were about to be due and that bucket wasn’t as high as you needed it to be, she immediately said, you know, for most attorneys, you’ve got to go look at AR or accounts receivable.
For me, I don’t want to chase clients for money. I don’t want to have to have a part of my practice or even a staff [00:32:00] person spend any time calling clients up and say, Hey, you owe us that money. Can you please pay it? I don’t want to be playing the defense in that situation. I like being on the offense. And so part of my Business and my policy with value based pricing is the funds are collected up front.
I am never overextending myself. I always have the funds and trust before I actually do the work and it has just made things so much easier. I’m not spending time chasing clients. down for money. And so it also leads right into that revenue is there. So once it’s earned, it can be moved. And I don’t have to worry about any of my buckets, not having the money that they should have because I did the work because I collected upfront.
So really in terms of billing, right, trying to move away from having recount accounts receivable and practicing in a way that you are collecting those funds upfront so that you have them and you’re not chasing clients for money anymore. And along those same lines, my second tip [00:33:00] is if you can bill as the money is earned.
So I know that there are some folks who may be billed like once a month. They do all their invoicing once a month. If that works for you, fantastic. For me, that would be a lot. To do once a month. Like I don’t want to sit down and do that for several hours. And I like to have the funds come in throughout the month because it also gives me a sense of where the revenue is at.
Again, I’m looking at it as soon as the 10th rolls around. So we don’t get too far into the month without me knowing, but if I get to the 10th and I have that revenue sitting there because I have gone through the process of moving it from trust to operating account. I can say, um, you know, it’s a little bit low.
Um, I got a couple of cases that I can really focus on. I’m going to really dig in these next couple of weeks, turn through that work so that those funds can be earned so I can hit those milestones. And then hopefully when I come back on the 25th, right, the revenue has bumped up. So waiting until the end of the month [00:34:00] to actually bill out.
For clients and generate invoices and transfer funds from trust to operating. If that’s what’s required in your state, I personally find it really helpful to do it as it’s earned. So in my task list for every single case, once there’s a milestone hit, the next task is going to be to transfer the appropriate amount of trust funds for that milestone.
Let’s say I deliver a draft of a document, which is one of the milestones. Like for my marital agreements, I deliver it on a Monday. By Tuesday or Wednesday, I am in my case management software and in my bank account running an invoice. It has all the time tracking that went into that milestone just so that there’s a record of it.
There’s a milestone, there’s the amount for that milestone, and then I’m in my bank making that transfer from trust to operating. So I like doing it not quite in real time, but very quickly thereafter. And I think that that additional step kind of in the whole context and environment of [00:35:00] Profit First has really helped make the Profit First system work really well for me.
It’s kind of a well oiled machine. But those would be my two billing tips is collect the money out front, ditch the billable hour, go to value based pricing so that it makes it so much easier to be able to do that. You don’t have to chase clients for money anymore. And then as you earn those funds, if you do need to.
Use trust fund in your state, move the money as it’s earned, not just sort of waiting until the end of the month or end of quarter. I think doing it a little bit more in real time can be really helpful.
There are very few books that I have read that have transformed my practice as much as Profit First has. I am forever indebted to Profit First. To Mike Michalowicz. If I ever have the privilege and honor of meeting him one day, can’t wait to tell him that in person. Uh, his system is so easy to implement and simplistic that it really makes my finances so much easier.[00:36:00]
I feel so much more. in control of my business, which is a great place to be in. I love that it doesn’t take a lot to implement. Again, I did it in a night. I think I stayed up late one night, got it implemented. And then it really took me just kind of one or two rounds in terms of doing the actual tasks twice a month to get it.
And now it’s. Second nature. I don’t really think about it, but it has made such a huge difference. What I love is I swear you can do it too. Like financing accounting is not totally my jam. I like it because this system has made it simple and I understand it. Again, I’ve seen other systems that are flying over my head, like nobody’s business, and I don’t even think they’re speaking English, but this system I can get, and I know that you can do it too.
Certainly, you can buy the book, Prophet First. I think Sarah mentioned that there are some other authors who have taken the system and applied it specifically for law firms. I think there’s Prophet First for lawyers or law firms out there as well. I have [00:37:00] not read that one, so I’m not entirely sure what it says.
But if it’s anything like Prophet First, which I definitely have read, it is great. is an easy to follow system, so you can do it yourself. If you do want help, I do invite you to sign up for my three month private coaching service, and I will get in there and implement this foolproof system for managing your firm’s finances for you and with you.
It will be set up so that you just have to take the reins and go from there, and in just three months, you can go from stress to success when it comes to business finances. You could learn more about that three month private coaching service at adifferentpractice. com slash coaching. I hope these last two episodes have shown you that business finances don’t have to be scary.
And most importantly, there is a plan that you can follow to help you reach your goals. Thank you so much for listening. I always appreciate your time. Now get out there and go kick some more ass. Until next time, keep building. I’m [00:38:00] over here giving you a virtual high five because you just finished another episode of a different practice.
For more from this episode, head over to a different practice.com/podcast for the show notes. If you found this episode helpful, I’d love it if you’d share it with someone who might like it too. Be sure to rate the show wherever you listen to podcast. And don’t forget to subscribe so you never miss an episode.
If you’re ready to unleash your firm’s potential, grab your free guide to the six pillars of optimization today. I have tried everything and made all the mistakes in building my business over the last near decade. I figured out what works and what’s essential. Now I’m sharing the six essential pillars every law firm needs, key factors for implementation, and practical tips for optimizing each.
Grab your free download today at adifferentpractice. com slash optimize. I can’t wait to connect with you next time. Until then, keep building a different practice.
free download today at adifferentpractice. com slash optimize. I can’t wait to connect with you next time. Until then, keep building a different practice.
