Law Firm Owners and Accounting with Jessica Gonifas

Watch the YouTube version of this episode HERE

Are you a law firm owner who needs help with managing finances? In this podcast episode, Jim and Tyson converse with Jessica, a CPA from Silver Peaks Accounting Service, who specializes in accounting for law firms. They discuss common accounting mistakes that law firms make.

As a CPA who works with attorneys, Jessica shares things that lawyers should not be doing when it comes to keeping their books straight and finances in order. One thing is not having accurate trust accounts. It is so important to ensure accounting firms specialize in law firms because if not, the numbers will not be accurate. Getting monthly reports will allow for law firms to stay on top of what is happening and ensure their numbers match. Another thing that many people fall behind on is creating a system to keep and log receipts for expenses. It can be as simple as taking a photo of a receipt and sending it to an assistant or adding it to a folder on your phone. Find a system that works for you!

Jim, Tyson and Jessica discuss what law firm owners need to do when it comes to profit. Jessica emphasizes the importance of ensuring expenses are not higher than the profit a firm is bringing in. To find this out, law firm owners can look at their profit margin percentage over time. Understanding this will also help decide if a firm can afford to bring in more employees to help the profit margin increase. The profit margin will also show if it is time to cut expenses. With that said, it is important to have a good balance when it comes to focusing on the profit margin. Jessica shares an example of a client who was so focused on cutting expenses for their firm, that the firm made less profit that year because the focus was not on making money.

Finding a tax professional that shares the same goals and morals as you is key to having great finances. Think about the kind of business owner you are. Are you conservative, aggressive or frugal? It is best to find a tax professional that shares those same ideals. The worst thing a law firm owner can do is find an aggressive tax professional when the firm is looking to save money. The business relationship will not last long if both sides don't agree.

Take a listen to learn more financial tips from Jessica!

Jim's Hack: Write down on a notepad what he wants to change about the direction of his firm. Spending 15 minutes everyday has brought more insight to bring change.

Jessica’s Tip: Keep things simple. Do what works for you and what will bring you happiness and success.

Tyson's Tip: Watch this Youtube video where Chris Williamson interviews Alex Hermosa. There are some great and valuable insights given.

Episode Highlights:

• 2:57 The common trust account issues that law firm owners have
• 7:57 Practical tips for managing expenses and receipts
• 10:15 The importance of profit margin and tracking financial metrics
• 11:40 Exploration of being overly focused on cutting expenses
• 13:07 The concern of adding employees and the need to develop a plan

Connect with Jessica:

• Website 
• Instagram 
• Facebook Page 
• Facebook Personal  
• Linkedin 
• TikTok

Resources:

• Join the Guild Membership
• Subscribe to the Maximum Lawyer YouTube Channel
• Follow us on Instagram
• Join the Facebook Group
• Follow the Facebook Page
• Follow us on LinkedIn

Transcripts: Law Firm Owners and Accounting with Jessica Gonifas

Speaker 1 (00:00:01) - Run your law firm the right way. The right way. This is the maximum Lawyer podcast. Lawyer podcast. Your hosts, Jim Hacking and Tyson Matrix. Let's partner up and maximize your firm. Welcome to the show.

Jim Hacking (00:00:24) - Welcome back to the Maximum Lawyer podcast. I'm Jim Hacking.

Tyson Mutrux (00:00:28) - And I'm Tyson Matrix. What's up Jimmy.

Jim Hacking (00:00:30) - Well your microphone sure sounds good Tyson.

Tyson Mutrux (00:00:32) - Thanks, man. So does yours. I, I feel like my my cold is clearing up too, which is, which is nice. I don't even know if I'd call it a cold. I just like something wrong with my, uh, my voice today. But I feel good, so it's good. But yeah, I think the audio quality is fantastic. So how are you doing? How are you feeling?

Jim Hacking (00:00:48) - I'm great. I'm excited about our guest today. It's our old friend Jessica. Jessica is with Silver Peaks accounting service, the Empress, helping law firm owners build their kingdoms into empires. And she was a sponsor of our recent Miami mastermind.

Jim Hacking (00:01:02) - And I just saw that you left a note for each person who attended the mastermind. How kind of you, Jessica.

Jessica Gonifas (00:01:08) - Thank you. Yeah, it was great getting to meet folks and participate in a tiny part of your guys's amazing world that you built, so I'm thankful for the opportunity.

Tyson Mutrux (00:01:17) - I can't wait for you to talk today. And I know that you're we were talking before the show, but you like to be prepared and have everything ready. But, uh, we'll ask you some nice, insightful questions. Hopefully that will allow you to shed all of your wonderful knowledge that you have, uh, about accounting. So before we kind of wait.

Jim Hacking (00:01:36) - Hold on, hold on. Jessica was on the show once before, so we've already heard.

Tyson Mutrux (00:01:40) - I do know.

Jim Hacking (00:01:40) - That that's okay, because I remember the episode. I remember the episode. I was on a softball field in Iowa. I think when we recorded, I remember I was standing out in right field talking to Jessica. Right?

Tyson Mutrux (00:01:51) - So we.

Jim Hacking (00:01:52) - So sorry. Sorry. I didn't want to.

Tyson Mutrux (00:01:53) - Interrupt your fight. No, it's fine, but I do not. Everybody's probably heard that episode, so just give a very condensed version as to who you are and what you do. And and then we'll kind of dive into a little bit more of that. But I just want to make sure that people have an idea as to who you are.

Jessica Gonifas (00:02:09) - Great. So yeah, I'm a CPA and our firm specializes in law firms, and we really work on the monthly accounting and bookkeeping side and also fractional CFO. So we want to help you understand your numbers, learn your numbers, and really be able to use that information to leverage your growth in the way that you want. So you can have the firm and the life that you dream of.

Jim Hacking (00:02:40) - Jessica, you do work with a lot of law firms. What are some of the things that you see law firm owners not doing correctly when it comes to their accounting?

Jessica Gonifas (00:02:49) - I think it's the trust account. I know you guys have probably heard that a million times, but it's a pain.

Jessica Gonifas (00:02:57) - You have to be very detailed. And I think the hardest thing is we get a lot of new clients that thought their accountant was handling it or thought it was being taken care of. And I can tell you in about 30s by looking at your financials, whether it's accurate or not. Um, so a lot of accounting firms will tell you, yeah, we're doing your trust accounting, but they just don't specialize in law firms. And we, uh, we recommend that you get a summary report from your account every month just to show that it balances. And that's going to give you a lot of peace of mind. But I would say nine out of ten, if not more of our new clients have trust account issues.

Tyson Mutrux (00:03:45) - All right. So I've got a I've got to ask you this. So what are you whenever you you're looking that first 30s. What like what do you see on those financial statements that you're like okay, that's that's an issue. Like how like because like maybe by you talking about it, people can see it on theirs and see if there's an issue.

Jessica Gonifas (00:04:00) - So there's three things. One is your checking account balance for the trust needs to equal your client trust liability. So those two things are on your balance sheet. There are there is the option to track that separately off balance sheet. But most of our clients are already doing that on the balance sheet. That's the way I prefer to do it. But look at those two numbers. Does your checking account match that? It's usually called something like client trust liability or something along those lines. And then both of those numbers also need to match a report that comes out of your practice management system that shows you what your trust balance is in there. And that's the listing of every client and how much their trust is and the total for that. So those three things have to match. And most of the time we just got a new client. I was working on our stuff yesterday. Her checking account match the trust liability, which was great because usually that isn't matching. But then we pulled the report out of Clio and it's off by like 50 grand.

Jessica Gonifas (00:05:03) - So she's still got a trust issue because Clio says the clients have. I'm making this up 150,000 in trust. But her financial statements are showing only 100. So those three pieces have got to match. And that's got to be checked every month because we all make mistakes. Even my most meticulous clients, a mistake happens. And that's why we do that reconciliation every month.

Jim Hacking (00:05:30) - All right. So that was pretty exciting way to start the show. So let's continue. Let's continue the fun with what about corporate structures Jessica, do you do you have advice for our listeners, either for people getting ready to start their firm or who have who have started an LLC or what's your what's your thoughts on structure from a tax perspective?

Jessica Gonifas (00:05:50) - Yeah, I think the LLC is a given. Right. Everybody does that or a PLC just depending on your state, which is great. Um, but as far as the tax election, I think one thing that is confusing for non finance people is an LLC is not a tax collection.

Jessica Gonifas (00:06:06) - That's simply your business structure. And outside of that, you have to make a separate election for how you're going to be taxed. So the default years when folks are starting out is you're just a sole proprietor. You file a schedule C, and that works fine for a while, usually for a couple of years, depending on how aggressively you're growing. But at some point you really need to look at a higher level tax structure, which usually comes in as an S corporation. And we usually suggest that. And you have to look at your profit, because at that point you have to put yourself on payroll and you have to take reasonable salary. And there's some other pieces in that make things a bit more complex. When you do, that's corp election. But there's also some partnerships. But it's usually best, especially as the partnerships are growing, to go ahead and do S Corp election and change that partnership into an S Corp. So definitely talk to your tax person. And if you're kind of in the middle where maybe an escort makes sense, but you're not really sure yet, we recommend you talk to your tax preparer every year to see when they recommend that happens.

Jessica Gonifas (00:07:20) - So it's really about that open line of communication with your tax preparer.

Tyson Mutrux (00:07:24) - All right. So I'm going to ask you I promise some more high level conversation or questions later on. But this one I'm asking more of a granular one. Do you have any practical tips on on managing expenses? And what I mean by that is like managing like the receipts of those expenses, for example, you go and you fuel up the vehicle because you're going on a trip or whatever, something like that. Like, like do you have some practical tips on dealing with things like that? Like we, we use a service called divvy, which actually makes it kind of easy. So we usually we'll snap a picture of it and it uploads it and it kind of links together and all that. Are there any other tips that you might have?

Jessica Gonifas (00:07:57) - I think you have to find something that works for you. So I always recommend when it comes to the accounting, at the end of the day, you need to have that receipt somewhere, right? And it needs to be somewhere that you can easily access it if you do get audit or need that information.

Jessica Gonifas (00:08:12) - And so for everybody that's going to look a little bit different. And I'm an advocate of creating the simplest system that's going to work for you. And depending on how many purchasers you have, you know you can get more complex. And I'm not even going to talk about risk assessment and risk of fraud and that sort of thing in this discussion, because that's a whole nother piece with receipts. But we have clients and I do it myself. I just snap a picture of it and email it to my assistant, and she keeps them in a folder by month. So it can be as simple as that is complex is your businesses. You can make these systems and processes as complex as you want, so find what works for you. If you are a paper person, then put a stack of them and give them to your assistant to scan and file. If you're not great about taking the pictures for me, the pictures work because I just do it instantly. It's done and I don't have to think about it again.

Jessica Gonifas (00:09:09) - But that's I guess that's my recommendation. Look at yourself as a person and what are you actually going to do? Right? Are you going to follow through and what's going to help you get that done as efficiently as possible and make sure you do have the receipts?

Jim Hacking (00:09:26) - Let's talk about profit and the difference between gross profits and net profits. And how business owners, law firm owners sometimes confuse the two. Get screwed up about the two, or don't look at the right things. What should what should we as law firm owners be looking at when it comes to profits?

Jessica Gonifas (00:09:44) - I'm always going to talk about net income. So the bottom line right. The overall profit I think I was just talking about this this morning. We can get so wrapped up in the revenue side. And how big is your firm. Oh my firm is $2 million a year and the revenue is great. Of course you don't have a business without the revenue, but at the end of the day, it's the profit that's really the leverage that you are going to have to reach your financial goals.

Jessica Gonifas (00:10:15) - It's on the profit side. So you can have a $3 million firm and have a very small profit margin, and you are not any further ahead than the guy in the. Office next to you that has a law firm and has $1 million firm, but they have a higher profit margin, right. So I've also run into the case where folks have grown their firm and their revenue numbers increasing, but their expenses are increasing at a rate higher than their profit. So they're working harder and they're making less money, which is not any anywhere any of us want to be. So it's that constant evaluation, what's working, what isn't working, and making changes in adjustments. You need to to make sure you're maintaining the profit that you want out of your firm.

Tyson Mutrux (00:11:12) - So what are what are some of those things that people can look at. So if an attorney is, you know, looking at their firm like what are some of the the financial metrics that they can look at to identify really if they're, if they're in this danger zone or if they're on the right track, is there anything like simple that they can look at, they can track to monitor things?

Jessica Gonifas (00:11:32) - Well, I think looking at that profit margin percentage over time is going to be very helpful for you.

Jessica Gonifas (00:11:40) - So I had I had a client that came in, and part of the reason he needed CFO was his firm had been growing, but he was getting less and less profit every year. So he wasn't really looking at the profit. He was just looking at what was happening in his bank account and. If you're tracking that over time, you know how it feels. So you know how it feels to run the firm today as compared to a year ago. And looking at that profit number over time is going to give you more of that data and that insight into exactly what's happening financially for you. So I think the profit is a big one. We talk about revenue all the time. And, um, you know, we can also get hyper focused on expenses. I've had a client that was just obsessed about cutting expenses. And what ended up happening was he was so focused on the expense side, his revenue dropped because he was spending all of his time figuring out how to save money. And his profit margin didn't get any better because he was cutting costs that he really needed to bring in more revenue.

Jessica Gonifas (00:12:47) - So it can really go both ways.

Tyson Mutrux (00:12:50) - I wonder how much of that has to do with people cutting overhead when it comes to employees, as opposed to like, cutting other expenses? Or are you, you know, generally able to connect the dots to cutting employees usually decreases revenues versus increasing revenues. Do you have any connection with that at all?

Jessica Gonifas (00:13:07) - I don't really on the cutting side, but on the growth side, that's probably the number one concern that folks come with is I want to add an employee, but I don't know if I can afford it, and I'm not comfortable and confident in how much more money they can help me bring in in my business. So that's a lot of the confidence and counseling and understanding your numbers process that we go through, and also the planning. So we develop a plan and help them feel comfortable monitoring that as they're going through the year as well. So I don't have a lot of correlation on the cutting side. But it's huge, huge, huge. On the growth and adding side.

Jim Hacking (00:13:54) - Jessica, what as a business owner, have you had to learn about yourself or about growing your accounting firm that might not be in that sort of traditional CPA mindset that we were talking about earlier?

Jessica Gonifas (00:14:07) - Oh, that's a good one. Um, a lot of things. Um, I just had a coaching call this morning with my coach where I downloaded on all of my new level, new devil issues. Right. So this is we continue to grow and we're growing rapidly. And we've, you know, we have more clients, which is part of growing. And there's a lot of new things that are surfacing with my team. And, you know, we're finding it takes a different skill set to manage 40 or 50 clients than it took us to manage 20. And there's also some clients that we currently have that don't really fit in with our model of where we're at now with 40 or 50 compared to, you know, 20 or whatever that number was. So I think it's probably, oh my gosh, so many things.

Jessica Gonifas (00:15:00) - Mindset. I could talk about mindset for ages and I think accountants and lawyers or have similar personalities and that, you know, we just want to get the work done and make the money. And there's not a lot of awareness of mindset. So that's probably been the number one thing that I have been a student of that has made my life successful. It is today. And I'm not just talking about money success, I'm talking about work life balance and all of the things that I have today that I never thought were possible five years ago. So I would say a couple of things mindset. And then the second one is you're kind of in this if you want to grow, you're in this sort of constant improvement cycle, and it can get exhausting because it's like, okay, I hit the goal, I hit the revenue goal, I hit the profit goal. But oh my gosh, we're, you know, losing this type of client now because we're not doing as good of a job at X, Y, and Z as we used to do.

Jessica Gonifas (00:15:58) - And so we need to readjust that. Or maybe this kind of potential client that I thought was going to be a good one doesn't fit in our model anymore now as we're growing. So it's that constant evaluation of where you're at in your firm. And it can get exhausting, especially if you're a type A personality. You have to figure out how to balance all of that, and you're not going to solve all of the issues today.

Tyson Mutrux (00:16:22) - So there are there are three things that I hear a lot, probably more than that. I hear you see your TikToks, you hear people talking about it on Facebook and Instagram, like Twitter, whatever X now I guess. But you hear like, okay, I hear you should you should put your kids on the payroll. You should hire your spouse to be on the payroll. You should buy a truck. You should wrap your vehicle like there's like, I hear all these different things. How much of that is because of what I just said and how how much of that is.

Tyson Mutrux (00:16:50) - Oh, yeah. If if it's I guess if it's ethical and legal, you should do it, I guess so. So give me your give me your thoughts on that because I hear it all the time and I'm like, I don't know, it sounds really.

Jessica Gonifas (00:17:01) - Actually, I think it comes down to two things. The first one, and this comes to mind when it's putting your spouse or your kids on payroll, is are they actually doing something? I mean, if you get audited by the IRS, they're going to ask you what your kid was actually doing for your business because you were paying them. And if you can stand in front of an IRS examiner and say, you know, my kid was stuffing envelopes, my kid was shredding documents, my kid was cleaning the office. Um, my kid was actually posting things on social media. Absolutely. Do it. Just it's it's a no brainer. Same with your spouse. But if you're putting your two year old on payroll because they show up at a open house that you have once a year and they're cute, I can't.

Jessica Gonifas (00:17:49) - Personally, I couldn't sleep at night knowing that that's what I was coming forward with.

Tyson Mutrux (00:17:54) - The one I hear all the time is take photographs of your kids and put them in your marketing materials, is what I hear. That's I hear that all the time.

Jessica Gonifas (00:18:01) - So sure. But you're going to pay them as a model for one time. At what would you pay a model to be in your brochure? You're not going to pay them $500 a month just because they're pictures in your brochure. And you took their picture once and it took 30 minutes, you hear?

Tyson Mutrux (00:18:18) - You heard it here first. Guys.

Jim Hacking (00:18:20) - I've never heard of this as a as an idea.

Jessica Gonifas (00:18:24) - Um, so that's my piece on the kids. And, you know, what can you sleep with at night? And that's always my check with myself. If I'm doing something that I should or shouldn't be. So that's kind of on the kid thing, the vehicles and stuff. My big thing, and I've done videos on this before is if it's needed, if it's necessary, you're going to spend money on it anyway.

Jessica Gonifas (00:18:51) - Do it. But if you don't. So we're getting towards your end and I hear this spend your money, spend your money. My accountant told me to spend my money. But do you need to spend your money? Right? Because let's say you're spending ten grand and you're in a 20% tax bracket. You're saving $2,000 to spend ten grand. Is that something you actually need to spend ten grand on? Because at the end of the day, you're out $8,000. Did you need it? Does your business need it? And furthermore, the IRS says it has to be reasonable and necessary to be a business expense. So I always try to run it by that to reasonable and necessary. Those are the two things an auditor is going to look at when they're auditing your business expenses.

Jim Hacking (00:19:39) - One of our members the other day floated the idea of sort of on a regular basis, sending his, like last two years of taxes to other CPAs to see what they think and whether they could save them money and all that stuff.

Jim Hacking (00:19:54) - What are your thoughts on that, Miss Jessica?

Jessica Gonifas (00:19:57) - There's a lot of areas in tax law that are kind of gray, which is a little scary. And different tax professionals are more aggressive and some are more conservative. So I think it's important that you find somebody that fits in with where you're at now. I'm on the very conservative side, and I would that's the kind of tax person I would hire. And I have talked to other law firm owners that are like, I want someone that's aggressive. I'm fine. I'll justify it if I have to, if I get audited. But I want somebody on the aggressive side and that is completely okay. If that fits in with your personality and where you want to go. So I think it's important to find somebody that fits in with where you're at. He could do that, but he's definitely going to get a different opinion every single time he does it.

Tyson Mutrux (00:20:48) - Probably I love it. That's great advice. All right Jessica, we are getting close to time.

Tyson Mutrux (00:20:52) - So I am going to start to wrap things up. If if people want to work with you, what's the best way of reaching out to you and trying to get something set up?

Jessica Gonifas (00:21:00) - Probably just go to the website. So Silver Peaks, CPA comm, and we have tons of places for you to submit a request or schedule a time to chat with us. So that's probably the easiest way. If you're on Facebook, you can message me. I'm on Facebook a lot, not on LinkedIn as much, but definitely Facebook is kind of my go to. So you can always message me on Facebook or email me and the email is on the website as well. So there's tons and tons of ways, I think, to get in touch with us because we're on all the social media places.

Tyson Mutrux (00:21:36) - Love it. Thank you so much, Jessica. Hopefully people will reach out to you. I mean, you just demonstrated, uh, your a ton of knowledge already, so hopefully, um, people reach out to you.

Tyson Mutrux (00:21:46) - Uh. Excellent stuff. Uh, all right, let's get to our tips and hacks. The week before I do that, though, I want to remind everyone to join us in the big Facebook group. Just search Maximum Lawyer and you'll find us there. If you want a higher level conversation and the ability to meet with us at quarterly. Your minds. Go to Max Law Guild. Com as Jim said Jessica, they they sponsored the last quarterly mastermind in Miami and it was a wonderful success. So thank you so much for that Jessica. And so yeah join us at Max law gil.com. Jimmy, what's your hack of the week?

Jim Hacking (00:22:19) - So I have been a little frustrated with the direction of the firm lately, and I'm trying to get to the root of it. So I pulled out a legal pad, and every day I'm writing with an ink pen for 15 minutes, just taking notes on what a what it is that I want. And I'm about 12 days in. I'm getting insights every day. I still haven't gotten to the whole thing, but I've figured out a whole lot of stuff.

Jim Hacking (00:22:42) - And I think there's just that, that whole brain hand pen connection that just there's no substitute. You can't do it on your phone in the same way.

Tyson Mutrux (00:22:50) - Why not a pencil? I'm so curious.

Jim Hacking (00:22:52) - I don't know, I hate pencils.

Tyson Mutrux (00:22:54) - Well, you emphasized ink pen, so I was just wondering if there was a reason behind it, so I was. That's why. Okay. Very cool. I like it writing stuff down. Like, whenever I use my remarkable I do I just I do enjoy writing like it's instead of typing something down. I definitely enjoy writing something down. There's there's something more of a connection to it. I really do like, so good stuff. Uh, all right, Jessica, you know the routine because you've done this before. We always ask our guest to give a tip or a hack for us. So what you got for us?

Jessica Gonifas (00:23:22) - I think it would be keep it simple. Like we can have so many systems and processes. And I was just talking to a client the other day.

Jessica Gonifas (00:23:32) - He's like, I don't think I have enough key performance indicators I'm tracking. And I said, yeah, but are they giving you the information you need? Absolutely. Okay. Then you have enough, right? Like I think we get bombarded with iOS and I think iOS is great and all those systems are great, but do what works for you and makes you happy and gives you the firm that you want.

Tyson Mutrux (00:23:53) - I think that is fantastic advice. I 100% agree with you. Uh, excellent. So my my tip of the week is a YouTube video. It is a fairly long one. It's almost three hours, but it's it's Chris Williamson interviewing Alex Hermosa. And it is it is really, really interesting. I just in the first ten minutes I got some really, really good insights and valuable insights. And it's a really deep conversation and hopefully people will check it out. It gives me a different perspective. And I've always liked Alex Hermosa, but it makes me respect me even more. Just here to talk about some of the things that he that he does.

Tyson Mutrux (00:24:30) - And, um, there's definitely some Burn the Boats feels in there as well, so I recommend that you check it out. I was really I was just fascinated by the entire conversation. So hopefully you check it out. But Jessica, thank you so much for coming on again and sharing all of your awesome knowledge and for being a wonderful sponsor to the Guild, and we can't wait to continue working with you because you all just just wonderful to work with.

Speaker 1 (00:24:54) - Thanks for listening to the Maximum Lawyer Podcast 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.