Are you a law firm owner who is overworked and needs more support? In this episode of the Maximum Lawyer Podcast, Tyson Mutrux discusses the crucial role of delegation in law firm management.
Are you struggling with knowing how to build a business from the ground up? In this episode, Jessica Gonifas shares her insights on building a successful law firm. She provides some tips on how to gain the confidence needed to run a business.
In order to run a business, you need to have a good understanding of your firm’s numbers and where your firm sits financially. Jessica shares some questions to ask when you get your books in order. Ask yourself: Where is the revenue coming from? So what are the types of cases you take and how much profit are making from these cases. Another question is where is your money going? How much is going towards salaries, softwares, training, etc. The last question is what is the firm’s profit margin? With this, it is important to partner with an accountant that understands law firms who can help determine this margin.
When starting out as a new firm owner, it is important to understand what your personal and work goals are as well as the time you are willing to commit. For personal goals, consider how much money you want to take out of the firm and how much your family needs on an annual basis to keep afloat. In relation to work goals, understand what your purpose is at work. Are you reviewing technical work, doing technical work or going out and getting clients? The time you dedicate to your firm is so important because it will determine how much you make. Decide how many hours a week you want to work.
Jessica emphasizes the importance of having a big picture goal. What do you want your firm to look like in 5 years? What steps will you take to get there? In doing this, think about what you need to do as an owner and what your staff need to do as they help you run the business. Think about all the things you want to accomplish (ie. a certain number of cases, a new intake system, a new tech tool for the firm, etc.) and outline exactly how to get there. It might be good to break them down into quarterly objectives, that way it is spread out over 4 periods and you can take time throughout the year to plan.
Listen in to learn more!
🎥 Watch the full video on YouTube here.
Speaker 1 (00:00:00) - In today's episode, we're sharing a presentation from Max Lakhan 2022. Keep listening to hear Jessica Gonzalez as we share her talk. Unlocking the Key Strategies to Building Your Law Firm Empire. You can also head to the Maximum Lawyer YouTube channel to watch the full video. Let's get to it.
Speaker 2 (00:00:16) - Run your law firm the right way. The right way. This is the Maximum Lawyer podcast. Podcast. Your hosts, Jim Hacking and Tyson metrics. Let's partner up and maximize your firm. Welcome to the show.
Speaker 3 (00:00:40) - I have a few questions for you all. Raise your hand if you have a bachelor's degree or your undergrad in accounting. Raise your hand if you've taken any courses in accounting. So there's maybe 40 people in here, maybe about ten of you have any sort of background in accounting. And here you are expected to know how to use your numbers to grow your law firms or your businesses. And you also, not only that, you also went to law school and probably didn't learn how to run a business.
Speaker 3 (00:01:12) - So you're all definitely experts in the law, but you've had to learn how to be experts at running a business, which is very, very challenging. So having confidence in your firm's numbers really is the key to building your kingdom into an empire. And today I'm going to show you how to get that confidence. So there's three steps to gaining the confidence that you need to grow your firm. And over the next 16 or so minutes, we are going to unpack each of those. We're going to begin with getting clarity. So in this area we have three pieces we want to explore. We're going to start with financial structure. So what we're looking at here is what is your financial foundation and what sort of shape is in. So I get lots and lots of potential client calls and pretty much all of them that tell me they think there's something wrong with their books, there is something wrong with their books. So I would advise you all you're not accountants. Most of you don't know the debits and credits, but you do know your gut.
Speaker 3 (00:02:11) - So trust your gut in this area. And if you don't have the books right, the foundation isn't right. You can't really move forward with good information to make good decisions to grow your firm. So there's three questions that you need to ask. Once you get your books in good order. The first one is where is your revenue coming from? So what types of cases, how much revenue is coming from them. And then the advanced piece would be actually calculating what sort of profit you're making off of those types of cases. We have done this analysis with several clients, and it's really about eye opening for them, and not something that they necessarily inherently knew how to do in their firm. The second area to look at is where's your money going? So Brooke talked a little bit about this, but we recommend you look at all of it, the good bad and the ugly. So you really need to get to some sort of transactional level as the owner of the firm to understand what you're spending money on.
Speaker 3 (00:03:07) - Brooke, use the example of the gym membership on your credit card. You'd be surprised how many times we see those things and we have really found, especially on the expenditure side, there's a lot of emotions that go into the expenses and what the owner thinks is actually happening. Without looking at the data. We had a client that thought they were spending way too much money on food for the kitchen, for the employees. He thought it was out of control and he didn't know what they were actually buying. So once we got the books cleaned up, we looked at the number and it was $200 a month, and it's a $1.5 million firm. So he was irritated. It probably caused some irritation with the staff. But the reality was is it really just wasn't very much. So the third area is the profit. And is your firm profitable and what is the profit margin. So at the end of the day, a 150% agree with Brooke. You all are getting compensated primarily through the profit. So if your firm is not profitable, that is money out of your pocket that your family is not able to use for the goals that you have for your family.
Speaker 3 (00:04:16) - So this is super important to partner with an accountant that understands law firms. I can't say that enough. It's just critical law firms have different accounting needs. They have different the trust account, all of those things. And so you have to have an account that knows law firms. So the next area we're going to look at is desired outcomes. So there's four pieces to this. And this is really starting the piece of vision and setting the vision you have for your firm. So what are your personal goals for your firm. And here we're mostly talking about the profit. And how much money do you want to take out of your firm. So how much money does your family need on an annual basis to reach the goals that you have for your personal financial goals? The second piece is what are you doing at work? So are you reviewing technical work? Are you doing some technical work? Maybe you're just reviewing the high level work, or maybe you're not reviewing any work, and you're the rainmaker and you are just out there getting clients.
Speaker 3 (00:05:21) - So how do you want that to look when you are working on your vision for your firm? And then the third piece is how much time do you want to spend at work? So we have a client that only wants to work 32 hours a week. Jordan's presentation, he works about two hours a week on his law firm. So what do you want that to look? Like. And then the last piece is what is the legacy you want to leave with your law firm? So when you're done being a lawyer, what do you want to have happen to your law firm? We have one client that would like to build his firm in such a way that his kids can take it over if they want to be lawyers, so that's something to think about when you're designing your firm and building your firm. So now we've covered two of the three pieces in gaining clarity. And we're going to talk. The last piece now is about determining your current baseline. So this is really the 50,000 foot view of your firm where you're at today.
Speaker 3 (00:06:14) - And basically what your problems and opportunities are. We use the Swot analysis to go through this with our clients. There's a lot of different tools you can use. We like that one, but it makes you really forces you to step into the strategy level of your firm and where you're at today and face the reality of what your problems really are. We like this also because you can look back on it from year to year and see how far you've come, maybe the areas that you still need to work on and the stuff that you've really nailed. We had one client we were going through this process with, and there was a one of his competitors in town was retiring, and as we walk through the opportunities and threats, he realized this was both of them for him. He had an opportunity to purchase her law firm, and if he didn't, then that could potentially turn into a threat because somebody else could purchase it and he would have another competitor in town. So out of the three areas we've talked about getting clarity, now we're going to talk about designing your strategy.
Speaker 3 (00:07:16) - And this is really where the rubber meets the road. This is where the numbers come in. This is where you're designing that entire the vision. And you're saying, how are we going to make this happen. It's really heavy on accounting. So just bear with me. At the end of the day, you really need a partner with a strong accounting person with an accounting background. They can help walk you through this. I want to go through this with you because I want you to have a baseline. So you know what sort of discussions to have with your accounting professional. And you feel confident in asking the right questions. And you also have a vision of what this piece needs to look like when they're done helping it with that. And at the end of the day, it is your firm. It's not your accountants firm. So within designing the strategy we have, the first piece is our success targets. And we use a five year planning horizon with most of our clients. So this is a statement of what you want your firm to look like look like in five years.
Speaker 3 (00:08:16) - And you've already done some of this work. When you were getting clarity and figuring out where you wanted to go. So an example of a statement would be within the next five years, we're going to grow our firm to X revenue. We're going to provide these services in these states. So this is a really, really big picture statement of where you are going. Then we drill that down into 12 month milestones. So this is going to be your blueprint for the next year of how you're going to accomplish the stuff that you want to see happen in after five years. So we would want to include things that the owner is going to be doing and the business is going to be doing. So an example for the firm may be finalizing or developing a new performance based bonus system. So that might be something you want to do in the next 12 months. It's going to help your firm grow and get to where you want it to be in five years. We have one client that has a statement in here saying that he wants to focus on the firm profit and the goals that they had set associated with that profit in relation to every decision that they make in the firm.
Speaker 3 (00:09:21) - So if they make any decision to spend any money, he wants to run that through the process of, okay, how is this going to affect our profit and the initial goals we had set for that profit? So once we have the 12 month goal set, we are going to break those down into quarterly objectives. So we're going to look at each quarter of the year and what pieces we're going to accomplish to make sure we're reaching those 12 month goals. So I'll just use the performance based bonus system as an example. Maybe in Q one, you want to meet with your staff and get input. You want to do some research to see what other folks are doing. Q two you may want to actually go ahead and draft a sample, or maybe just the first draft of that performance plan, run it by the staff again and get feedback. And then the third quarter, you're ready to go ahead and roll that out. So we have made a big picture. And we've been able to bring that down into small accomplishable goals that are going to help us get to where we want to get to.
Speaker 3 (00:10:23) - So now we're going to look at the last piece in designing your strategy. And that is the five year forecast. So this is where your accountant is going to be crunching the numbers, doing the Excel spreadsheets, helping you with all of this piece. And you're going to be guiding them and taking a look at their work to make sure it's where you want it to be. So when we do our five year forecasts, we start with owners wealth. So this is how much money you want to take out of the firm every year for the next five years. Again, profit. That is how you are primarily getting compensated for being a law firm owner. Then we work on the staffing plan. So we start with a current staff, and you need to make sure you have all their costs, their salary, benefits, taxes, everything, and what staff you want to add as you're going through the five years. So that creates our five year staffing plan. And then we can start with the profit and loss projections and fill in the rest of the pieces.
Speaker 3 (00:11:23) - Start with your fixed costs. So these are things like your software, your rent and your salary. You already have that ready. So you can plug that in the expense side. Then you add your variable costs advertising things that you can control a little more. Then add in your revenue what you think you want your revenue to be. So then that's going to give you your profit. And you can compare that to your profit goal that you had when you started with your owner's wealth plan, and adjust where is needed to get you to the profit that you want. So at the end of the day, we're always talking about profit. So we had a client that came on and we're a fairly successful P.I. firm and two partners. They had wanted to invest in some real estate. They had a very profitable firm, but they just weren't confident in the numbers and confident of what the scenarios might be five years down the road to pull that much profit out of the firm. So we went through this process with them and they felt really good about it.
Speaker 3 (00:12:23) - We did some scenario planning and if this happens, what's this going to do to the profit of the firm? And they went ahead and invested in that real estate. And they're really happy that they were able to take the profit out and have basically another business venture for themselves. So now we've covered the the first two pieces of designing your strategy. And now we're going to look at the last. And this is your goals and objectives. And this is where we start talking about key performance indicators. And there was just a separate session on this. But this can be a whole thing on its own. So I'm not going to go into this too much. We do use this book Small Law Firm KPIs with our clients. We like it. She talks in terms that everybody can understand. She gives examples how to calculate it, and she actually has examples of law firms that she puts in there. This is how we would use it. So we really liked this book. Would recommend that. What we like to start with, if you've never done any KPI work, start small.
Speaker 3 (00:13:21) - Pick maybe 3 to 5. That makes sense to you. You understand and you can get the data. So that really the biggest challenge with KPIs is you can have this massive list of them. But do I have the data and are we tracking it in a way that I can use it? So start with the few that you know. You have the data, you're confident, and then once you're more comfortable with that, then you can start building and adding more KPIs. So start small and then you can always build on that as you go through. So we have now talked about getting clarity how to design your strategy. And now we're going to move into monitoring your performance. So we want to make sure we're monitoring our progress. We've done all of this work in the front end. So now we're going to monitor it to make sure we're accomplishing the goals that we had in mind. So the first piece is real time reporting. This is all on your accountant. Your accountant should be giving you consistent, accurate reporting at a time and a place and in a format that you know and that you're comfortable with.
Speaker 3 (00:14:23) - So when I say a format you're comfortable with, you need to sit down and think about what you want to see and make sure you're communicating that with your accountant. Because we don't know, we have one client just wants to see kind of red, yellow, green lights, really high level dashboard type reporting. We have other clients that want to see the general ledger detail for maybe one of their accounts every month. So we have that discussion with the clients and make sure we're providing the reports that they want. So you need to work with your account to make sure they're designing that. And then last but not least, you need to be comfortable that you can trust your accountant and you can trust the numbers. So if you feel like you don't know if the numbers are right or you're telling them every month how to do something and you're not really the accountant, you really need to think about that and see, is that is this relationship helping really move my firm forward or where I want it to be? So the second area is measuring and monitoring.
Speaker 3 (00:15:22) - We're going back to our KPIs, and we've set the targets for the KPIs through that strategy piece. And now we're going to compare our target with our actual. So this is going to tell us how well we are doing and as we're moving forward. And then. Last piece is check in in scale. So I know this sounds like a lot, but trust me, when you have a strong relationship with your accountant, you really can set this and forget it. You will get your monthly reports. You will go out, sit on your patio, have iced tea, review them for 30 minutes, maybe shoot them a few questions. But at the end of the day, having that relationship is really the key for you to moving your firm forward. So for us with the check in with our CFO clients, we have, they get monthly reports from us and we call that our monthly performance report. And then quarterly we meet with them for a strategy session. And we go through the quarterly results, the goals for the quarter.
Speaker 3 (00:16:22) - And we talk about what the goals were for the next quarter, whether we need to tweak those, we need to look at the budget, all of those pieces to see if we need to make any changes going forward. So I know I've covered a lot of ground in the last 17 or 18 minutes. First, we talked about getting clarity and really making sure that financial foundation is set for your firm. Then we talked about ways you can design a strategy to have the firm of your vision in the next five years. And finally, we talked about how to monitor that performance to make sure you are accomplishing the goals that you had. So I hope by now you will agree that gaining confidence in your firm's numbers is key to building your kingdom into an empire. And I have a couple of action items for you. So before you leave the conference tonight, because I know what happens when you get home, you forget about all this stuff, look at those three areas and really just score yourself super simple red, yellow, green.
Speaker 3 (00:17:17) - And if you're red or yellow yourself, a couple of goals over the next quarter, turn that area into yellow or green. Super simple. But it gives it's going to force you to have a chance to really look at how well you're doing in these areas. And then I give webinars every two weeks. I'll be giving one next week. You can check that out and register for that at the website there. And and you'll get more information about this entire process.
Speaker 2 (00:17:45) - Thanks for listening to the Maximum Lawyer podcast. Stay in contact with your hosts, and to access more content, go to Maximum lawyer.com. Have a great week and catch you next time.
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