How Do You Pay Yourself?

Watch the YouTube version of this episode HERE

Are you a law firm owner who is finding it difficult to manage finances? In this episode of the Maximum Lawyer Podcast, Jim and Tyson delve into financial management within law firms.

Many law firm owners struggle with financial management, especially when it comes to paying themselves a salary. Jim and Tyson share the importance of paying yourself as a law firm owner. There is discipline involved when establishing how much money you receive as an owner. Many law firm owners feel they can take however much they want because they are in charge and bring in clients. But, this mentality is how lawyers end up with a struggling business, so it is important to determine and maintain a balance.

Jim and Tyson discuss the emotional and psychological challenges law firm owners face when it comes to handling finances. It is so easy to get lost in the amount of money that starts to come in when things get busy and more staff are hired. It is important to maintain good financial habits to ensure not only you as the owner are given a decent wage, but your employees and all necessary expenses are paid. Hiring a good accountant or bookkeeper for a firm is key to ensuring nothing is out of the ordinary.

Take a listen to learn more about responsible financial management!

Jim's Hack: Download the ChatGPT Apple iPhone app and just talk to it. You can ask it all types of questions and it gets better each day.

Tyson's Tip: Challenge people to not drink for 30 days and see how it makes you feel.

Episode Highlights:

• 1:38 The importance of paying yourself a salary 
• 15:20 The psychological barriers associated with financial management
• 18:13 The importance of reflecting on financial matters

Resources:

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Transcripts: How Do You Pay Yourself?

Jim (00:01.198)
Welcome back to the Maximum Lawyer Podcast. I'm Jim Hacking.

Tyson (00:04.677)
And I'm Tyson Mutrix. What's up Jimbo?

Jim (00:08.27)
Well, this is take two. We had a little bit of a fiasco earlier trying to use Riverside, which usually is very, very stable, but I'm glad that we were able to reconnect and get this thing going.

Tyson (00:19.557)
Yeah, for anyone using Riverside, you know it's a really good platform. For some reason, Jim's side would not record, which was weird. But we figured it out. We're good to go. And I liked your intro on that one too. You did the full name instead of just Jim Hacking. James Oliver Hacking the third. And I even did my full name, but that's OK. How you doing, man?

Jim (00:46.254)
We'll save it for next time.

Tyson (00:47.941)
We'll save it for next time. You doing all right?

Jim (00:50.894)
You sound very chill. What's going on?

Tyson (00:53.605)
I don't know. I am chill. I just, I got my workout in this morning, you know. I don't know. Anytime I get my workout in, you know how the feeling is. You're restless if you don't get the workout in. Got it in, felt good. So I'm flying to Vegas. Gonna see Jason tomorrow. This is gonna be fun.

Jim (01:09.422)
And we're both.

Yeah, I was just going to say we're both traveling today. So I'm off to Florida. You're off to Las Vegas. Is Becca going to be with you?

Tyson (01:18.629)
She'll be out there as well. She's already out there now. I think, well, I guess it's 8 .30 that time. I don't know what time she arrives, but she's scouting places for the Guild Mastermind when we go to Vegas. So she's multi -purposing. Yeah, absolutely. Pretty cool. So we're both going to go to Jason Selk's event, which is going be a lot of fun, I think. It'll be a lot of fun. You were going to go, but you're doing other things. So.

Jim (01:30.67)
Nice. Oh good, so she made the most of it.

Jim (01:44.302)
I already had this trip planned when he announced the dates. That was the big problem. And we'd already rented a house on the beach. So I'm not that, I'm not that disappointed.

Tyson (01:53.317)
No, not at night. I get it. I get it. But you had an idea for a topic today. And so go ahead and introduce it. I think it's an interesting question.

Jim (02:03.982)
I'm actually pretty excited about it and it struck me because like so many members of Maximum Lawyer, I'm reading Buy Back Your Time and it's really a terrific book and it's not going to be my hack of the week, but it is a terrific book. And in there, there's a concept, he says something that you say often and it's so funny. Sometimes you need to hear things several different times before it really sinks in, but…

Many times when you and I start a hot seat and people complain slash alleged slash claim that they can't hire anybody. Um, your, your go -to requests and focus is usually on, uh, how they are running their payments to themselves. In other words, are they, are they starving their law firms from the cash that they need in order to grow? And so.

hearing that from someone other than you for a different time, it just stuck with me and I thought it'd be a good topic for us to cover because you are very strong on this topic.

Tyson (03:11.493)
Yeah, so what's the first question I always ask or I usually ask? What's that first question I always ask? Yeah, so like, do you pay yourself a salary? Because, and I've been thinking about this since you told me the topic. And I was like, where does this come from? And I don't think it's as simple as, oh, we're not taught this in law school. I think it comes from early on when you start your law firm and…

Jim (03:16.526)
How do you pay yourself?

Tyson (03:38.693)
The mistake that I think a lot of people make is they just say, OK, case comes in, I'll pay myself a portion of that case. Case comes in, I'll pay myself a portion of that case. And as you start to scale, or you try to scale, you realize how unsustainable that absolutely is. Because early on, it's a couple of cases at a time, right? But then,

Ultimately, it becomes quite a few cases. And if you took a portion of every single case, yeah, personally, you're going to make a bunch of money, but you're going to strangle your firm. All those cases will come in. You'll never get those cases done because you don't have enough people to work on the cases. And then you're going to have unhappy clients. It's going to snowball. You're going to get into that gridlock that we talked about.

And it all stems from the way you were handling money from the beginning. And if you could tweak that and just a little bit by giving yourself a salary, that thing, I think that one thing alone could solve at least half the problems.

Jim (04:40.91)
Well, I'm going to go a little bit further than that. And I think that people do oftentimes view their law firms as a cash machine and that they can just sort of shake some money out of it when they feel like it or when they need it. I don't know that they, and this is something that I certainly have struggled with is the discipline to, you know, the, the, the reason I think you're saying that you should pay a salary is that sort of set, you sort of live within your means. And when you think that you've got all this money coming in, it just becomes really easy to spend.

And so I think that's, that's one piece of it. And I was thinking about it, you know, so much of what we talk about when it comes to owning a law firm is a blessing and a curse, a strength and a weakness is, you know, if you've been working for someone and being paid a salary for a long time, then you have to live within the money that you make. Right. So the blessing and the curse is that when you are then your own boss, you get to decide how much you get paid. You get to decide when you get paid.

And it's much more fluid and there's not anyone really telling you no, right? And so one question I've been asking a lot of people lately is who tells you no, but I think it feeds right into this because when we don't have a check or balance and we don't have scrutiny and we don't have boundaries that people can get in trouble, especially when it comes to quarterly taxes. So, and then, and then then it becomes this vicious cycle where you're just sort of.

robbing Peter to pay Paul and moving money around and you don't have the right amount of money in accounts. You're not setting aside money for taxes or things like that. So this can get really, really sticky.

Tyson (06:15.429)
Yeah, and we haven't even touched on profit first or anything like that. I do think if we start with the basics, like the money management stuff, I think it would be really helpful. You touched on something that is really, really important. It's that, especially when it comes to small firms and solos, it's the connection, such a tight connection between your personal income and the firm income.

and you've really got to take care of the home front and make sure that everything is solid there. Because if you don't, you are going to be robbing Peter Depey Paul because you're going to be robbing it from the firm. So you're going to be taking too much out of it, which is really going to be that stranglehold. So I think that that's a really important point that if things are not okay at home, it's going to have an effect on.

on your firm because you're going to, to support your livelihood, you're gonna have to suck more money out of the firm, which then means you're not gonna be able to pay people to help you scale the firm, which means you're gonna ultimately just, you're gonna plateau. You're not gonna have, you're not gonna keep growing because it's impossible for you to grow at that point because you don't have enough cash to support it.

Jim (07:35.118)
Yeah. And in my mind, I'm picturing the end of Star Wars, A New Hope, when Luke knew he had to drop that bomb down the hole. And I say that because I want people to hold steady on taking out that money early, because you might think to yourself, oh, I've arrived. I can now take out the money. I can now spend the money like I want. But if you can hold off and use that money to leverage yourself and to, as the author says, buy yourself more time or buy employees to do more work,

You're actually going to make more money the longer you wait to take the money out of your firm, if that makes sense.

Tyson (08:10.757)
Yeah, if you're going to be aggressive with the money, which I'm okay with if you want to be aggressive with the money.

Because the return, you can get massive return to be aggressive. Be aggressive by investing in the firm as opposed to investing in yourself personally. So consider lowering your salary, taking draws based upon performance. So quarterly draws based upon performance, based upon certain percentages that you have in place, stick to those percentages. And then if you do that and you can take that money that you're leaving in the firm, you can use it to…

hire or buy equipment if you need equipment because that is something that you're going to have to do is buy computers and all that and pay for software. But then also be aggressive with hiring. If you came to me and you say, hey, I'm sort of a cash crunch because I hire too aggressively. OK, it's a fairly easy fix. Is it a fun fix? No, but it's a fairly easy fix. But if you tell me, hey, I'm in a cash crunch because I've sucked all the money out of the business, well.

All right, now you're in a pickle. And that is a… It's harder to get out of that pickle than it is if you bought too much equipment or if you hired too many people. Those are things that you can solve fairly easily. Now, is it fun fixes? Again, no, but it's easier to fix than if you're sucking all the money out of it.

Jim (09:37.102)
I wasn't just blowing smoke earlier. I really do think you're good at sort of spotting this sort of faster than I do. Um, and I'm wondering what are the, what are the signs or symptoms that you see that make you ask that question? Cause you usually shift to that pretty darn quickly. And, and I'm just wondering maybe may why is that? Um, and B what are the things that you sort of set you off thinking about that when you're talking to someone?

Tyson (10:05.925)
That's an interesting question. The easiest one is anytime they start to talk about cash crunch in any way, or if they mention anything about a roller coaster when it comes to cash flow, I'd say probably the number one indicator would be they talk about cash flow being a roller coaster. And that's almost a telltale sign of, not everybody, but with injury firms, it can be a little bit different. But…

with many firms, if you're a family law firm and you're telling me you're having a cash crunch, that means you're sucking too much money out of it because if you have like a roller coaster, there's no reason for that. There's some sort of mishandling of how you're dealing with your money. Either you're not sending invoices out timely or…

Or it could be a compound of all these things where you're not sending invoices out timely. And then you get around to sending all of them at one time. And then you're so behind on all your personal bills that you suck all the money out of the business. And then you got to, it's just your keep, you keep repeating it. But it's anytime that they really get into cash crunch, I don't have enough money to hire. It's a roller coaster when it comes to cash flow.

Those are usually any variation of those is usually where I want to hone in on that part of it to see if maybe there's something else going on. And I'll be honest with you, I don't think everyone is honest with us whenever I ask them those questions because it's just not something that you want to advertise to the world. But they know. And asking the question alone is enough for them to realize, OK, I've got to figure some of this stuff out. I need to start. All right.

Jim (11:36.908)
Ha!

Tyson (11:52.165)
pay myself a salary, set aside money for certain things, put them into certain buckets. If you use the profit first method, you know what I'm talking about. Even if you're not like, I think Susie Orman, I think is that she's like that financial guru where she talks about putting money in jars. If you understand that concept, that's essentially what you're doing whenever Jim was talking about setting aside money for taxes is you put money in jars, quote unquote jars, but they're really bank accounts to set aside that money for certain things. Set aside money for…

quarterly bonuses or for bonuses, set aside money for draws. So you're putting all this money in buckets. So it comes into that main bucket, the big bucket, your operating account, and then you disperse it from there into other buckets. That way, you know exactly how much money you have to spend on those certain things. So you can kind of go crazy with that. But for starters, though, if you are having some of those problems where you're having that roller coaster of cash flow,

If you feel like you have a cash crunch, if you can't hire, those are pretty good signs that maybe you're paying yourself too high of a salary or you're taking too big of draws or you really have no system at all.

Jim (13:04.558)
I think another aspect of this too is I'm surprised by how often we talk to people and we ask them, what's your average case value? How many cases are you signing up a month? How many cases do you have the capacity to sign up every month? And it's sort of dough in the headlights where they haven't really spent much time planning the outcome that they wish to achieve. So I think that if you're, if you're just wandering around aimlessly hoping to get more cases, like that's pretty.

vague and nonspecific. If you can drill down and say, this is what we need for me to be able to pay all of our bills, to pay our team members and to pay me a proper salary, leaving enough money in the firm for a rainy day. I think that part of this too is that people just aren't focused on signing up enough cases.

Tyson (13:55.973)
Yeah, and there is so much wrapped up in that. I 100 % agree with you. So, and I'm going to just to start with the stuff about the average fee and all the kind of how long a case takes. If you think that that is a very stressful thing to do, just do a really simple one that's not going to be, you know, it's not going to be a perfect way of doing it. Just take your last 10 cases, determine how long it took each of those cases to take.

So figure out an average of those, just write it down in days. I'm just going to give you a super simple way of doing it. So 10 cases, right? How much did you make on each of those 10 cases? And I'm talking about resolved cases. Your last 10 resolved cases. So from start to finish, how long did those take in days? And then how much did you make on each of those cases? That's going to give you some basics, just starting point on how to get a rough estimate as to what a case is worth and how long it takes.

What that will allow you to do alone is predict how much you're going to make in the future. And with what Jim, what you're talking about is, OK, so I know that a case is worth $5 ,000. And I'm just making up numbers. So a case is worth $5 ,000. And I know it takes 100 days to complete. So I know that, and maybe you don't get paid all up front, right? So you're getting paid over time. I know that if I only sign up two cases this month,

that in a hundred days, I'm gonna have an issue, right? So you need to figure out, and maybe it's an issue where you're scaling, and so you're gonna have to figure out financing in a hundred days because you had a slow month, okay? Fine, whatever it is, but if you're focusing on those things and figuring out how many cases you're signing, how many calls are coming in, how long a case takes, what is it worth to the firm?

those basic things will allow you to plan and then it'll allow you to avoid a lot of those cash crunches that we're talking about because you can predict the future based on your past.

Jim (15:55.918)
One other thing that I think is really important is sort of the secretive nature of this. A lot of times, like you said, people don't want to admit it. They don't want to talk about it. They don't want to look at it. And so I think that some people sort of suffer this in real silence, especially if they're trying to put on a brave face for a team that they have, you know? So there's no shame in any of this. It's all about trying to get better. But I think that too often people…

do this all on their own and they keep thinking that right around the bend, something's going to get better instead of being more deliberate about it.

Tyson (16:31.749)
Yeah, and I think you have more of a insight as to like the human mind than I do because it just, you know, what you've gone through and you've done a lot of soul searching and digging on this, like, why? Is it ego? Is it something else? Is it shame? Is it fear? What do you think?

Jim (16:53.806)
I think it can be all those things. I think number one, it's probably oftentimes a habit. Um, just bad habits develop, you know, you start that, you know, when you, when you start that firm for the first year and a half, you sort of have to live like that. You sort of have to live in that era of, you know, Oh boy, we got a new case and now I can pay some bills. Right. So that that's just by definition, but you have to sort of mature your way out of there. You have to sort of grow out of there.

And as always, you got to be beginning with the end in mind. And so if you allow yourself to continue those habits, after you have more responsibility on the financial side, more obligations, more people relying on you, that can really, really be dangerous. And I think that's exactly what we're talking about. It's that they, they haven't grown past that stage of just shaking the cushions and seeing what change falls out.

Tyson (17:46.181)
Yeah, I can't remember how Alex Hormozi puts it. I saw him talking about this the other day. And he talks about it quite a bit, is where if you don't learn the lesson, and if you keep doing the same thing over and over again, and you don't learn the lesson, you are going to lose, ultimately, you're going to lose to the people that are able to learn those lessons and move on from them. So.

Hopefully you can take some of these things that you're learning today and you can say, okay, I'm gonna learn from my past. I'm gonna reach out to someone. I'm gonna figure this out, whether it's you get a bookkeeper, an accountant, whatever it may be, someone to help you sort out some of this stuff. I think that it's gonna allow you to grow in ways that you probably can't even see yet.

Jim (18:30.35)
Well, that was going to be my hack of the week to find one person to be honest about your finances with. It doesn't have to be your spouse. Probably should be your spouse, but it doesn't have to be your spouse. Might be your therapist, might be an accountant, might be a bookkeeper, but don't, don't rely on your own misguided or twisted thinking when it comes to money. Um, when it comes to, uh, balancing the books and, and, you know, structuring things properly.

Um, cause it can really, it can really mess up everything and it can really serve as a threat to you and to your firm.

Tyson (19:04.101)
Yeah, I mean, it's hard to hide it from your accountant. That's one person. But I mean, I guess you could. It'd be tough.

Jim (19:10.734)
Well, well, I mean, I talked to I talked to a lawyer this year who has a criminal defense practice. It's a largely cash practice. And I think that that person would tell you they're not honest at all with their CPA or their bookkeeper.

Tyson (19:24.965)
I don't know how you're able to do that, but I guess, yeah, that's a, well, I guess if it's cash business and you're not, okay, well, that makes sense. I guess that's an easy way of doing it, but yeah, don't do that, don't do that. All right, Jimbo, anything else? I'll give you final words on this. Anything else you wanna add?

Jim (19:31.31)
Right.

Jim (19:43.31)
Well, I think that we beat ourselves up a lot over different things and I think it's easy to be hard on ourselves. But this is something, you know, I've heard so many lawyers say, I went to law school so I didn't have to learn math. And that's something I used to say, or I don't like to look at my numbers. Well, your numbers are there whether you're looking at them or not. So why not shed a little sunlight on it, spend a little time reflecting on it, like during the day?

So it's not the thing that wakes you up at three in the morning sweating and worried. So if you're not dealing with it one way, you're going to deal with it another way. And that's, that's true financially. It's true psychologically. It's true emotionally, um, all those different ways. So I would say, don't let this be something that sort of haunts you instead. See if it's something that you can turn around.

Tyson (20:32.005)
I like it. Very good. All right, so I'm going to wrap things up before I do. Jim, you might have to come up with a new hack of the week, but it's OK. Or you can use the same one. But I want to remind everyone, join us in the big Facebook group, search Maximum Lawyer, and you should be able to find us there. Just a lot of great information always there being shared on a daily basis. If you want to join us in the guild and be able to join us in Vegas and Scottsdale and all the amazing places that we go to, go to MaxLawGild .com.

Jim (20:39.98)
Mm -hmm.

Tyson (21:01.957)
and join us in the guild and If you've gotten something from this episode or any of the past episode We'd love it if you give us a five -star review that would be we would really appreciate spread the love to other lawyers that need some help Jimmy hack of the week

Jim (21:16.878)
So you'll be very proud of me. A couple of weeks ago I put on Facebook, I, I, uh, when we, when we switched over to Salesforce, we were able to combine our reporting into one app. So now I have a Salesforce app that shows me intake stuff and operation. I can run all my reports on there. So I had extra space on my, on my home screen. I put a picture of my home screen and some people said I should organize my Kindle, Goodreads, Audible and Libby app into one. So that freed up even more space. So I had some space and I asked friends,

what apps I should add. And somebody suggested the chat GPT Apple iPhone app in that you can actually just talk to it. So now I have a new friend on chat GPT and you can pick which voice you want to respond. It doesn't do like current stuff right away, but if you want to ask it lots of different things, it's getting better and better all the time. So I'm sort of having fun with it.

Tyson (21:57.317)
That's pretty good.

Tyson (22:12.005)
Dude, it's a cool, it is really, it's weird. The kids love it whenever I talk to Chad GPT. It is a, because you, it does things like ums and, you know, mine's a female voice. It's like the, whatever the default is. And she'll go, or it will go, well, Tyson. And like, it's like, it is so bizarre, because I know I'm talking to a computer and it's wild, but yeah.

I think it's really good though. You're right though, because I've asked it to give me hours of restaurants and things like that. It wasn't able to access that. But yeah, I like it. Very good. All right. So my tip of the week is, all right, so I'm going to read a post that I saw on X. And it says, why do all the zero alcohol people constantly talk about not having a hangover anymore?

I have a drink or two every day, but I can't remember the last time I got blasted so bad I had a hangover. Alcohol isn't the issue, extremism is. And I saw much of the comments and it was very negative towards people that don't drink. And I was really kind of taken aback. And there's a few people that say, one, this was a very judgy post, by the way, for people that say they just don't want to drink. But then there was a lot of judgment towards people that don't drink in the…

comments, and I thought it was kind of odd. So here's my tip. If this is your perspective, I challenge you to just try it. Try not to drink for a little bit. Just give yourself a 30 -day break and see if you benefit from it. And if so, great. You can do it some more. And if not, keep doing what you're doing. I have no judgment. I post in that. I mean, I have an occasional drink, but I can tell you I usually regret it the day after because I just feel crappy. But I used to…

I talked about a lot in the past where I got a lot of bourbon, I still own a lot of bourbon, I would have a drink or two a day and didn't think anything of it. I can tell you, significant difference in between a lot of things when it comes to my health when it comes to drinking versus not drinking. This is talking towards a very specific audience today, Jim, but that's my tip of the week. If that's sort of your response, if you kind of sided with the person that posted that, just my challenge to you is to give it 30 days, see what you think.

Jim (24:36.846)
Most things on Twitter are pretty negative these days, so I'm not surprised that the comments sort of turned vitriolic right away. I'll be interested to see if we get any comments to your tip of the week.

Tyson (24:46.949)
Yeah, we shall see. But thanks everybody for listening and have a great day. Jimbo, safe travels. See you, dude.

Jim (24:55.31)
See you buddy.