Achieve & Maintain Healthy Profits

Lisa was terrified. She hadn’t really kept up with her accounting since opening her firm. She knew there was money in the bank but didn’t really understand what to look for in common accounting reports. It turns out what she was really avoiding was learning the truth. Lisa hid behind the lawyer’s favorite “I don’t know about numbers” mantra because she was scared the numbers would tell her she wasn’t a successful businesswoman.

We’re ready to flip the “if I wanted to think about numbers, I wouldn’t have gone to law school” excuse on its head.  As a business owner, you should be excited about the numbers. To run a successful business, your business has to be profitable, which means knowing how you are doing and what to change if you’re not.

It turns out, with our help, Lisa realized her law firm was profitable and she was doing well with her business. Once she understood her numbers, she realized where she could invest to see bigger returns and how that would impact the value of her business.

The essential steps to healthy law firm profits are having:

Focusing on revenue alone doesn’t tell you how much you are investing to bring in the income into your firm. For example, say your goal is to generate an additional $200,000 in revenue next year. You are already at capacity with your work, so you hire an associate to help you with the caseload. Your associate bills at $200/hour and bills 1,000 hours/year. Congratulations! Hiring your new associate helped you reach your goal of generating $200,000 in additional revenue.

The problem? You had to pay the associate a base salary of $125,000, plus approximately $10,000 in employment taxes, plus $8,000 in benefits, plus $5,000 in additional expenses. Your $200,000 in additional revenue cost your business $148,000, so you only made an additional $52,000 from your hiring decision.

This analysis applies to all the major decisions in your business. You need to understand the complete financial picture to know what’s happening in your business. This is also where you can have fun by expanding how you think about your firm.

Our Lead Lab Coach, Stephanie, was on the phone with a woman who was at her wit’s end. She desperately needed to make more money, but she also had a special needs child at home who required extra attention and she didn’t have any more hours to give. What could she do?

Remember the discussion in Healthy Clients about new ways to think about pricing and delivering services? This is where things get fun! When we aren’t just focused on billable hours, we can be open to new ways of generating revenue that cost less and are more profitable. We start to see the value of investing in products that could offer passive income because we see the long-term impact it has on our business’s value (more on that in a moment). All of these components start coming together to create a healthier business. Yes, you could simply raise your hourly rate or bill more hours, but that seems incredibly boring. We’re here to accept the challenge and help you make more and work less!

Realizing you are creating an appreciable asset will start to fundamentally change how you think about your business. Here’s why. Do you own property (a house or condo)? Have you ever thought about improvements—big or small—and considered how your decision might impact the property’s resale value? Maybe you painted the porch purple anyway because that’s what you wanted, and you knew you could repaint before listing. That’s the mindset you need to have when building your business. Maybe it’s “fine” for you to be the one that drafts initial pleadings, or does this routine task now, but would a future owner see it as valuable? What would a future owner consider changing?

Here’s the fun secret: even if you have no current intention of selling your business, this line of thinking will absolutely help you build a better business. And, you’re more likely to build something that could be sold one day if you change your mind. We’ve worked with attorneys who are facing retirement within a few years who wish they had thought differently of their business sooner. While the best time to plant a tree may have been 20 years ago, the second-best time is today. The same holds true for your business!

With a little work, you can put the right systems and plans in place to ensure a clear path to law firm profit and growth. Whoo-hoo! Finances and numbers can and should be fun. We get that the hardest part is often just getting started. Lisa was scared of what she didn’t know.

Many attorneys we work with are unsure how to get started and where to ask for help. You don’t have to feel alone or without help. We work with lawyers in our Lawyerist Lab program to create a strategy, build a model, and map out relevant KPIs. Our financial coach helps lawyers make sense of—and love—their numbers.

Healthy profits give you options. Healthy law firm profitability helps you to be the healthy owner you set out to be when you first launched.