Law Firm Finance w/ Jessica Gonifas 415

In today’s episode, Jim and Tyson chat with CPA, Jessica Gonifas! They dive into the journey behind the finances of your law firm. If you’re interested in learning more about normalizing the talk around money, feeling more confident in your financial situation, and strategically planning for the future, check out this week’s episode.

Jessica is a CPA and the owner of Silver Peaks Accounting Services. Before starting her own firm in 2018, her accounting career adventures included working in a public accounting firm, for a large publicly traded company and in both local and state governments.

Most recently, she spent over a decade working as a deputy city manager, finance director, and treasurer for the city of Evans, Colorado. During her time with the city, she tripled the cash reserves from $10M to $30M, acted as project manager for a $40M wastewater treatment plant, and managed the finances of a $12M flood recovery project.

Jessica is also a mom of three kiddos. Her home base is in Colorado, where she spends most of her free time watching her active teenage boys play sports and travel around the country showing their Quarter Horses – Banjo and Jake.

4:35 climbing the ladder

7:06 vision and planning

10:13 point A to point B

14:14 potential tax consequences

17:22 driven by the way you run your firm

21:18 mastermind approach

23:52 not sure how to get there

Jim’s Hack: The Obstacle Is The Way: The Timeless Art of Turning Trials into Triumph

 by Ryan Holiday is a good intro to the Stoics. 

Jessica’s Tip: The mindset work is the most critical piece when it comes to accomplishing any goals in your business.

Tyson’s Tip: If you have a Mac and iPad, you can use the iPad as a second screen. It’s very handy when you travel or if you’re working from home.  

Watch the podcast here.

Join the Guild: www.maxlawguild.com

MaxLawCon tickets are on sale now! Grab your ticket today at www.MaxLawCon2022.com

Jim:                  Welcome back to The Maximum Lawyer Podcast. I'm Jim Hacking.

Tyson:             And I'm Tyson Mutrux. What's up, Jimmy?

Jim:                  Oh, Tyson. We're about three days away from the mastermind in Atlanta. I'm excited about seeing everybody. Becca has arranged for us to take a tour of the new Braves’ Stadium, so that should be fun. And then we'll have a little shindig on Thursday night. And then, the mastermind, all day, on Friday. I saw the list of who's coming. It's going to be pretty fun.

Tyson:             Yeah. Like you just said that because I know we've been throwing different ideas. I didn't know that that's what the tour was so that is awesome. I didn't realize we're going to go do that. That's freaking phenomenal. I'm even more excited than I came in early so that is fantastic.

Jim:                  Oh, that’s funny that you didn’t know it, yeah.

Tyson:             That's awesome. I'm hearing it in real time just like everybody else is so I'm very excited. That's awesome.

So, are we ready to get started with our guest?

Jim:                  Let's do it.

Tyson:             All right. So, our guest today is Jessica Gonifas. She's a CPA and the owner of Silver Peaks Accounting Services. Before starting her own firm in 2018, her accounting career adventures included working in a public accounting firm for a largely publicly‑traded company, and in both local and state governments. And we will get into the rest later.

Jessica, welcome to the show.

Jessica:            Thank you for having me.

Jim:                  Jessica, you know, we definitely want to dive into the good advice that you're going to have for our listeners about their finances, and their balance sheet, and all of those things, but we often like to start by asking our guests to give us a little bit of that story, especially the story about hanging out your own shingle - deciding to open up your own firm. Can you talk a little bit about your journey?

Jessica:            Yeah. So, I really spent the early parts of my career climbing the ladder, you know, doing all the traditional things that we would do. My goal was to be in a CFO position by the time I was 30. And I think I got there at about 31, so that was pretty close. That was exciting.

And after working in that atmosphere for, you know, 20 years, I just decided that I needed more flexibility and more time with my family. And so, I decided to start my own firm. And I had really seen there was a need, within small business, for folks with my level of expertise, especially on the CFO side.

And, you know, it's not something that a small business can hire a $250,000‑a‑year CFO. And so, we really were able to start from the beginning, in the firm, offering those fractional CFO services along with the foundational accounting. But we've really been able to make a significant difference in our clients’ businesses as focusing on lawyers. You know, lawyers don't go to law school to become business owners. They don't learn how to be accountants and all of those things. So, we've really been able to step into that space with our clients and help them grow their firms and become more successful.

Tyson:             So, Jessica, I know that y'all specialize in accounting and fractional CFO stuff. So, for the people that are just hearing that term, fractional CFO, will you tell people what that means?

Jessica:            Yeah. So, it's really the more high‑level strategic planning piece of the business. And as a CPA, with the finance background, everything we do has the foundation in the finances. So, we help our clients develop five‑year plans and, you know, really just the goals where they want to be - the vision for their firm.

And one of the things I think we see a lot, as small business owners, is we kind of start this maybe to be more flexible and have more freedom, but it can quickly turn into less flexibility and less freedom. You're maybe doing everything in the firm or in the business. And we really help our clients sort of sort that out of what do you want your personal life to look like and how is that going to fit into your business life? And as far as the vision and planning goes, the foundation of all of that is what do our business owners want their firm to provide for them? So, how much income do you want to get out of your firm? And how is that going to allow you to live the lifestyle that you want to live?

Jim:                  Jessica, one of the things that we are often asked, in our group, is, you know, if you've one piece of advice, as you start your firm, what would it be? And the thing that I always tell people now is to make sure that they get their chart of accounts properly squared away. And that, you know, what happened with me, because I'm not really good with money, is that I’d get distracted. I go off and do one other thing and like there'dl be one little check that was off by a little bit of an amount or I didn't know how to categorize it. And then, the next month, there might be two of those. And then, the next one, a month. And then, by the end of the year, everything's all jacked up. Can you talk a little bit about why it's important to be correct and accurate from the beginning?

Jessica:            Yeah. I think-- and, you know, as a small business, we're not a publicly traded company so we don't have the SEC breathing down our backs if our financial statements aren't accurate. But, at the end of the day, it all comes down to the tax return, right? So, if we're not doing our counting properly, it's going to affect our tax position at some point at some time.

And, you know, maybe we overpay, maybe we underpay. And, you know, if you can keep up with it, keep it accurate, actually reconcile your bank. I think a lot of small business owners use QuickBooks Online. It's great. It's easy, right? You go to your bank feeds, you add it - the transaction, and everything's great. Well, if you're not actually reconciling the bank, sometimes not everything goes into the bank feeds.

And I could probably talk for an hour about trust accounting and how important that is. And, really, with that piece, you just have to start it correctly accurately. And I think it pays dividends if you have a professional help you get that setup. Even if you don't have a professional doing your books every month, have somebody help you get that set up, show you the processes. And if you do get audited or you have clients asking questions, you're going to know exactly what's going on. And I know that is an issue and attorneys lose sleep, frankly, at night over their trust accounts. So, let's just deal with it from the beginning. Invest a little bit of money in having a professional help you set everything up.

Tyson:             All right. Let's talk about-- let's say that you-- because there's a lot of people that have been running their solo practice, and they’re probably been doing their books for years, and they want to start using a bookkeeper. Let's say they didn't. Let's say that they've screwed their books up. What's the process for fixing that once you get a bookkeeper?

Jessica:            Yeah. Well, we, of course, take a look at everything and we talk with the owner about, you know, how far back they want us to go to correct things. And there's really sort of a risk analysis that happens there between us and the firm owner. And, you know, at some point, unless, you know, it doesn't really make sense to go back 10 years and start from the beginning. So where do you want us to start from? And then, we may have some assumptions we need to make, you know, to really get the books point A to point B. But that is work that we do frequently. And I think part of it is just, as a firm owner, is saying, “Okay. I'm drawing the line in the sand. I understand this is an issue and I'm going to get it taken care of.”

Jim:                  What are some other big mistakes that you see, Jessica?

Jessica:            I think the trust account is one of the bigger areas. And it's sort of a situation of maybe it's being done okay but it's not fully being done. The firm owner might know there's a few issues but they're not really on top of it.

And we also see, probably more frequently than not, that firm owners hire a professional of some level to do this work for them, and it's not being done accurately, and the firm owner doesn't really even know the questions to ask. And, when they come to me and I say, “Okay. Here's the list of things that are wrong.” Almost always, I hear them say, “You know, I thought something wasn't right, but I didn't really know what it was.” So, one of my biggest pieces of advice to attorneys, because you are not accountant, you're not CPAs, you don't know how the debits and credits should work, and you don't need to know that. But if your gut is telling you something may not be right or, you know, you're getting an answer that doesn't sound right, or you don't understand it, in my experience, it's almost always accurate and it's pointing to something that isn't being done correctly. So, definitely follow your gut when it comes to your accounting.

Tyson:             It's good advice.

I want to get into financial reports and financial statements. So, what are some of the key-- if we were going to break this down, as like the most simple reports that people need to have, like the most important statements, what do you think they should be? Because I want people that are that are not using these that start small. So, if you're going to start small, what are the basics for people?

Jessica:            The very basic is the balance sheet and the profit and loss. And the balance sheet is probably the most mystical of the two to business owners because your profit and loss that makes sense, right? Your revenue minus your expenses. Okay.

But there are a few important things on the balance sheet you need to be looking at. So, even if you have a professional doing your accounting, we make mistakes. So, we need you to be reviewing those, you know, on a monthly basis or whatever sort of situation you have with your professional to make sure, from your perspective, high‑level 50,000‑foot‑view, it looks correct. So, you're looking at your bank account balance and you, you know, pulled it up online, and it had one number and then the financial statements have a different number. It's really good to ask those questions.

So, really, on the balance sheet, it’s going to be your cash balances, right? So, make sure those look okay. If you're tracking your trust accounting within your regular firm books, you should have a cash balance for your account, your IOLTA account. And then, under the liability section, you should have an offsetting liability for those client trust balances. And those should equal because, at the end of the day, it's not your money. The purpose of that, within the accounting records, is to remove that asset from your books because it isn't your money. So, if those two numbers don't match, which is an issue we find probably 98% of the time in the clients we've taken, there's some sort of issue within there. Now, it's an accounting record keeping issue that sometimes we can ferret out fairly quickly. You know, sometimes it takes more research.

So, on your balance sheet, it's going to be your cash balances. Make sure they look okay and are within the realm of what you think they should be. Your trust account and the trust liability. And then, within your equity section, there are situations where you can drive your equity negative. And that could have potential tax consequences. And so, we always ask clients or advise clients to “take a look at your equity. And if you do drive that negative, it needs to be a strategic decision with your accounting professional.” So that would be on the balance sheet side.

On the profit and loss, I think sometimes we see clients get too focused on the revenue number or the expense number, one or the other. Like, you know, I'm just going to cut expenses, cut, cut, cut, cut expenses or, you know, I don't care about my expenses because I'm just going to keep making more and more money. At the end of the day, the health of your firm is driven by the profit number and your profit margin. And so, we are heavily focused on our profit margin when we do all of our planning - our financial planning. We have a profit margin goal and everything drives that profit margin goal.

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Jim:                  You're listening to The Maximum Lawyer Podcast. Our guest today is Jessica Gonifas. She's a CPA and a fractional CFO for lawyers. Let's talk about that issue that you just raised about the profit margin. What should law firm owners be thinking about as the right range for profit on a firm where they're paying themselves a salary?

Jessica:            In that situation, we like to see at least 20% - 25% is healthier. That would be our goal. You know, depending on the situation, we have firms that are 35% and they're still paying themselves salaries, some have hit 40%. So, I guess, what I would say is, if you're below 20%, you have an issue, probably. There's something out of alignment there within your firm. But really, that 20%, 25% or above that is really going to be driven by the way you want to run your firm.

So, maybe a firm owner doesn't want to work 40 hours a week. They're okay with a lower profit margin because they're not there. Maybe they don't want a large staff because they don't want to manage a bunch of people. So, we really take into account the big picture of what the firm wants.

There may also be times where you strategically know you're going to have a lower profit margin for a year. So, if you're doing some foundational building, maybe you're doing new software implementation, maybe you moved into a new office building and you have some expenses there. But that, in our world, is very strategic. So, if we're going to drop lower than our goal for a year, we know exactly why and we have a long‑term plan that that is going to serve us in, you know, the next five or 10 years because we've made a strategic decision of why we're doing that.

Tyson:             So, we see a lot of firms that are growing. They're eating a lot of cash because that's part of growth. What are some tools to help manage that cash crunch, I guess, or just the fact that you're eating so much cash so quickly because you're growing so rapidly?

Jessica:            Yeah. I think-- I mean, I really like budgeting. I like KPIs. All of those things help tell us the story behind just we're bleeding cash, right? So, we may be-- it's kind of just back to what I said is, we are in a growth mode and we have planned for it. We plan for the cash. We've possibly, you know, in the past, made sure we were saving the cash because we knew we were going to have, you know, a big hit or whatever that looks like.

But, for me, it's always just planning ahead and knowing exactly why you're doing what you're doing. And when we get into the key performance indicator, the KPI side, that's where we're looking at “What's the return on investment? Do we know what the result is of what we're doing with the finances? And is it getting us from point A to point B?”

Jim:                  Jessica, we do hear that phrase “fractional CFO” a lot and I'm wondering if you can talk about what that means? How is that different than sort of traditional accounting service? And what does that look like for people that are working with you or your firm?

Jessica:            Yeah.

So, the fractional CFO is really that high level. So, when you have an accounting - a traditional accounting firm and we're just doing accounting, which we do that too, we are focused on the past, and we are focused on reporting on what happened, and we are focused on making sure that's accurate. And that's really past focused. And, you know, we want to get your financial statements timely but it's very transactional and historically based.

When we step into the CFO role, that's very future faced and strategic. So, we are planning strategically for the future of the firm, and where you want to go, and how you're going to get there. And what that looks like, for us, is we have a couple of different options. One is more of the mastermind‑type group. So, it's a group setting where we use our program to help guide people through the pieces of how we deliver the CFO services.

Then, the higher level package is the full fractional CFO where we have quarterly strategy calls. We develop a five‑year-- we call it a profit and growth plan. And we help the firm owner set the goals. And it is further than just, “Okay. My goal is $10 million this year.” That's great but what are the steps you're going to take each quarter to help you get there? So, what are the actions we're going to take to help reach those financial goals?

Tyson:             Tell me more about his mastermind approach. This is interesting.

Jessica:            Yeah.

So, that's new. And we're actually just launching that in April. And we're really just focused on-- in this set, in this, you know, service or this product we’re offering, it's the group approach. So, I think one of the things we find a lot, as entrepreneurs and business owners, because we are entrepreneurs, that's why we're doing this, is it gets very lonely and we could definitely benefit from sort of that hive mind approach.

And within law firms, it's extremely specialized, so I think there's a benefit of being in maybe some small business groups. But within the law firm group, the law firm owners have very specific issues and there's a lot we can learn from each other. And as the leader of that group, I help with the financial piece, some of the strategy, and the accountability piece.

And, you know, all my clients are go‑getters. So, we have-- I have-- awesome about their business of folks that are ready to just accomplish their goals and make magical things happen. And so, within this group, I think there's going to be a lot of energy surrounding that positivity.

Within my CFO services, we do work on mindset. So, one of the things I discovered, in starting my own business personally, was that process in itself really makes you face all of your issues, right? So, your issues with money, with management, with people - all of those things, just it's right in your face. And one of the ways I have found to deal with that most effectively is work on mindset. And I have been able to help pass that on to the clients as well.

Jim:                  I think that's so important. And at our summertime mastermind this year, the first person that went, shared about how he insisted on signing every check, and like he was doing all the bookkeeping, and he was a law firm owner with like 20 employees. And so, I think, just giving people that space to have those conversations around money because money is so weird. People get so emotional to money. I mean, I know it's how we assess value, but I think that's tremendous. I think you'll have a lot of success with that. And I think that if people see other people being vulnerable about how they talk about money, that'll just help a lot of people.

Jessica:            Absolutely.

And, you know, I think a lot of law firm owners, maybe they have the goals and they have the vision, but they're not sure how to get there. So, in school, you guys didn't learn strategic planning. You know, you didn't learn all of that stuff. And so, within the mastermind, we can all help each other. Of course, there's going to be people that are further along with the journey than others. And with my experience, you know, helping overlay all of it, I think it's going to be a super, super powerful group.

Jim:                  This is an excellent discussion, Jessica. I wish we could continue it on, but we do need to wrap things up, because I would actually absolutely love to just talk numbers all day with you.

But I want to remind everyone to go to the Facebook group. Get involved there. Join us there. If you want a more high‑level conversation, join us in The Guild. Go to maxlawguild.com. Remember to get your tickets to the conference. Go to maxlawcon2022.com.

And while you're listening the rest of this episode, while you're hearing the tips and the hacks, please give us a five‑star review.

Jimmy, what's your hack of the week?

Jim:                  I just finished reading a book called The Obstacle is the Way by Ryan Holiday. It's a good book. It's a good intro to the stoics. I hear all these people talking about Marcus Aurelius and Seneca and all this stuff and I'm like, “Oh, man. Those old geezers. What do they know about anything?” But it's made it really accessible and it was a great intro so I'm actually going to go do a little bit more research on the stoics. And the book is very practical, even if you don't want to do any more research on the stoics but just sort of some of the things that come up. Certainly, for us as business owners, it was a really good book.

Tyson:             Yeah, I've got that book. I think I recommended. I actually read it daily where it's, you know, little thing from a stoic and then you read it. It's a cool thing. Sometimes, I'll post it in The Guild. But it's actually pretty cool. So, I'm into some of that stuff. It's really interesting.

But, Jessica, you're up next, do you have a tip or a hack for us?

Jessica:            Yeah. I think the little conversation we just had about mindset is probably the most critical piece to business owners accomplishing their goals is that mindset work. And mindset, Jim, you hit the nail on the head.

Mindset surrounding money is all over the place, right? I think when you start digging into it, there's a lot of stuff that we learned growing up that has to do with money and it's impacting the way we see money, the way we see money in our firm. And I think that work is going to help propel people, you know, really far towards reaching their goals with their law firms.

Tyson:             Love it. Very good stuff.

So, my tip is-- and I sometimes-- like, to me, things can be kind of basic when it comes to technology on my computer because I love it so much. But like for some people, I'm hoping this will help people. So, if you've got a Mac and then you've got an iPad, you can actually use that iPad as a second screen. And I don't think a lot of people know that.

So, the way you do that is you go to the top of your screen, there's a rectangle with a solid triangle at the bottom of it. And then you choose that device. And you can actually add that as a second screen. It is really, really handy whenever you're traveling or you're working from home. And so, I don't think I've ever used it as a tip before but it's really really handy. I use it all the time. So, I highly recommend doing that. It gives you that additional screen which increases your productivity. That is my tip of the week.

Jessica, thank you so much for coming on. We really appreciate it. I think that we need to be talking about numbers more often. I think that's something that's really helpful for law firms. So, thanks so much for coming on and sharing your knowledge.

Jessica:            Thank you for having me.

Jim:                  Thanks, Jessica. Have a great day.

Tyson:             Thanks, Jessica.