Decoding Financial Statements
In this interview, host Catherine Sanders Reach talks with CPA and ABA Law Firm Finance Committee chair Terrell Turner about why financial statements often intimidate lawyers and how to make them useful tools for practice management. Turner explains that lawyers lack accounting training and that many accountants fail to translate jargon into plain language, creating a communication gap. He walks through the two core statements—profit & loss (P&L) and balance sheet—highlighting the revenue line and net profit on the P&L and the three‑part view of assets, liabilities, and equity on the balance sheet. The conversation then shifts to budgeting, emphasizing that a budget should be a living document that is revisited whenever major assumptions change. They discuss quarterly estimated tax planning for solo practitioners, recommending a percentage‑of‑profit approach and regular check‑ins with a tax preparer. Turner stresses that financial statements tell a story; when the story shows cash leaks or mismatched revenue, firms should adjust operations—review software spend, improve invoicing timeliness, and refine client pipelines. The role of CRM and other tech tools is explored, with concrete examples of how data on lead volume, no‑show rates, and case profitability can surface hidden inefficiencies. They also cover cash‑flow management for firms with large, infrequent settlements, advising firms to set aside a portion of lump‑sum payments and to balance peaks with steady flat‑fee work to avoid emotional stress. Finally, Turner advises lawyers to choose accountants who can speak their language, consider quarterly review arrangements for cost‑effectiveness, and not feel shame in seeking help, linking financial clarity to overall well‑being. The interview wraps up with a reminder that staying on top of statements, budgets, and operational tweaks is essential for sustainable growth or a successful firm sale.
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So today we are with Terrell Turner, who's a CPA out of Charlotte. And on his LinkedIn bio, I think the most important thing for people to know is that he's a guy who's good at making complicated topics simple. And I have had the pleasure of working with Terrell for quite some time. And today we're going to talk about why financial statements are so confusing and how to decode them. And I think that a lot of firms do year-end books. So I feel like this is a good topic to hit at this time of year.
Absolutely. Well, thank you for having me.
So anything else we should talk about, about you?
So I'll say this is that I am I'm a member of the American Bar Association in the Law Practice Division. I'm the chair of the Law Firm Finance Committee. So part of my job is just helping create content to help make finance less of a stressful thing for lawyers and law firm owners. And it's something I really care about because I don't think that finance should be the most complicated part of running a law practice because there's so many other very more important things that lawyers are doing, like actually helping their clients work through mostly traumatic things going on in their lives or very big things happening in their lives. And lawyers shouldn't be so concerned about, well, what's going on with the finances that you can't really focus on providing the legal services to their clients. So it's something I'm very passionate about.
And you have a running podcast, right?
Yes. So I host a couple of podcasts. So one for within the ABA or the American Bar Association called The Law Practice Today. And there I sit down, have conversations with law firm owners, law firm leaders from both, you know, big law to the solo firms. And we talk about different topics that are important to lawyers. And then I also have another podcast that I host called Law Firm Success. And there we just highlight some of the success stories. And that one, the idea is to keep it like 10-minute conversations. We'll pick one thing that a lawyer feels has been a success in their firm, and we just talk about like, hey, tell me the story about how that thing came about or how you got into that. And so we, we like to keep them short and sweet.
Great. So you can find Terrell at tlturnergroup.com and on LinkedIn. So let's talk about why financial statements still confuse lawyers. Probably because they don't— many of them, some of them do, but many of them don't have CPA degrees like you do, and many of them are not super math-forward. And then, of course, you know, things happen like you have a bookkeeper or a CPA service and they don't, you know, they're doing certain things for you, but they're not necessarily reviewing financial statements. And so thinking about why do you think that financial statements are intimidating?
Yeah, I do think to what you said is lawyers are not trained to be accountants. Well, let's say most lawyers, most lawyers are not trained to be accountants. And a lot of times when it comes down to financial statements, unfortunately, I think this is bad on accountants. We have done a— and I say we because I am an accountant myself— we've done a bad job of really translating the accounting lingo into everyday common, you know, people language is what I would call it, is we talk about things from a technical perspective. And I think this is something that accountants could definitely learn from lawyers, because when you really get into the practice of law, like, there is a language of the law that is not the language of the people, but lawyers have been trained to translate the language of the law into common language for the people. I would say, unfortunately, accountants, we just haven't really taken that same approach to do a good job of translating it. So sometimes It just becomes stressful because, I mean, it literally is like learning another language if you're trying to dive into it. And I don't think that accountants have done a good job to help lawyers kind of bridge that gap to say, hey, let me just break this down in plain English or common language so you understand it. And so I think because of that, it becomes stressful. And if you're an attorney, I mean, you're thinking like, man, I need to practice law, I need to take care of my firm, take care of the people in my firm, I got my own personal life, and then on top of that, I need to learn the language of accounting. Like, all of that is stressful. And so I think all of those things kind of compounding is stressful. And then I think when you put on top of that is, all right, you know when there's something financially off, but if you don't understand the language of accounting, it's like, it's hard for you to figure out what's off. I mean, it's almost like, you know, having a physical ailment where there's a problem, you know, there's a problem, but you don't feel like you have a way to fix the problem. It just makes the stress even more. And I think that's what happens with finances and law firms.
So, and I'm sympathetic because I get my HOA statements because I'm the board president, and I look at those and I'm like, this, this doesn't make any sense to me. Um, so what do you think are one or two sections when you get a financial statement from your CPA? What are one or a couple, a couple of sections that you should pay attention to first?
Yeah, so first off, I tell anyone is when we're looking at the financial statements, let's start with the, you know, knowing that there's a profit and loss and then there's a balance sheet. So profit and loss is going to tell us you know, in general, how much money came in, how much money went out for expenses. The balance sheet is going to tell us things like how much cash you have at a point in time, like how much debt you have, whether you own different things or whether you owe money to other parties. So let's start with the profit and loss. First thing I want to look at is the revenue because I want to get an idea like how much money is coming into this firm. And if you're looking at it, let's say on a monthly basis, you can kind of see, like, are we talking about, you know, $5,000 a month coming in? Are we talking about $50,000? We talking about $500,000? Like, 5— like, getting an idea on how much money is coming in, I would say, is a starting point. So understanding what does the revenue look like? And then I want to drop all the way to the bottom of the profit and loss, and I want to see, okay, out of all the money that was brought in, how much was actually left after you had to pay all your other expenses. Because that gives us an idea on like, hey, if that number is negative, I immediately know, okay, all right, we have either we have not enough money coming in or we have too much money going out. But I think looking at the top end, like the revenue, and then looking at the net profit gives you a kind of overview on Am I looking at a good story or am I looking at a bad story? And if you're looking at a good story, then let's take the next step. Or if you're looking at a bad story, then let's take the next step. Let's understand what happened. And that's where you start to look at some of the expense categories and seeing where are we spending most of our money on, because that will kind of help you understand why you have a good story if you're profitable, or why you have a bad story if you're not profitable.
Yeah, I talk to firms and one of the questions I often ask is, in terms of getting the invoices out, do you do that timely? Because especially for sole practitioners who are kind of the chief cook and bottle washer, getting the invoices out is not fun. This is oftentimes not what they got into law for, was running a business and sending out invoices. You can't get paid if you don't send out invoices. So I think, you know, your financial statement will quickly show that because if you go, we should have, we should have had more money incoming, maybe it's because you're not getting the bills out. And so, you know, just, just keeping an eye on your monthly financial statement, I think, and again, focusing on the parts that you're talking about will quickly tell that story. Can you share an analogy or a story that helps kind of break down a balance sheet?
Yep, yep. And I would say before I jump into that balance sheet, I mean, I think I'll reiterate even on the point you just made, which is so, so good, is if we're starting off by looking what, you know, what's the revenue coming in, like how much money is coming into this business. And a lot of times I would ask an attorney is how much money do you think you are making on a monthly basis? And they'll tell me what they think the number is. And I'm like, okay, all right, let's go look at the profit and loss and let's see how much You know, let's see, you know, whether reality aligns with what you think, because a lot of times some of the decisions that I think attorneys are making is because they think that there's more money coming in than what's actually coming in. And I'm like, well, if you think there's $200,000 coming in a month, but there's only $120,000, then I can see why there may be some disconnect. And then there are some attorneys where it's the other way around where they are really stressed because they're like, man, we're only seeing, you know, $70,000 come in a month. But then when we look at the numbers, we're like, no, it's more like $85,000. So it's like things aren't as tight as you thought they were. And I think that's what looking at the numbers kind of helps us see the reality. So the decisions that you're making and like that kind of gut feeling that you have, let's kind of see it. Let's, let's test some of your assumptions. Because I think if your underlying assumptions are wrong, then you may be putting more stress on yourself than you should, or you may be underestimating what the reality looks like because your underlying assumptions were wrong. Now, to your point on the balance sheet, the way that I usually tell people when we're talking about the balance sheet is it's probably not the statement that people are going to spend the most time with. Because there isn't a whole lot that changes in, you know, multiple areas of the balance sheet. So the way you can think about the balance sheet is think about it in 3 sections. The first section is going to tell us what you own, whether that's the cash you have in the bank account or whether you own any property or you own any vehicles in the name of the business, or whether you have accounts receivable, which is meaning you're waiting to collect money from people you've provided legal services to. So all of that kind of tells us what you own as a business. And then the second section is going to be what you owe. This is money you've either borrowed from other people, or these are vendors that you know you need to pay, you just haven't actually paid the bill yet. So we look at all of this money that you owe, And then what we want to do is we want to compare. If I look at what you own minus what you owe, then what is left after that is like, do you have— is that a positive number? Is it a negative number? And those are like the 3 sections of the balance sheet that I tend to look at. And a lot of times what I will do is working with an attorney is just let's just look and say, all right, how much operating cash do you actually have? And do you have enough to actually, you know, fund your business? Like, you know, if no customers gave you any additional money today, do you have enough? How long would the cash you have in your bank account last? If you tell me like, hey, we did the math, it'll only last me 2 days. Well, then we need to make sure we get those bills out because we need to start collecting. Now, if you say, hey, we have enough cash to get us through the next 4 weeks, Well, we still need to get those invoices out, but it's not as much of a pressing thing to do it immediately. But looking at kind of how much cash you have does give us a good idea on like, you know, how long could your business last if you didn't collect from your customers?
And kind of slightly throwing in a different topic, but I really feel like it's important to talk about is budgeting. Um, because all of this I think can influence your budget, and your budget can help then identify. And, and I, I guess here's my question: should a budget be done at the beginning of the year and not touched again, or is this something that you can refigure your budget when you look at your balance sheets?
Yeah, I would say, I mean, I think you should redo your budget on an ongoing basis. I think you want to have a baseline kind of strategy. And I would compare it, even if you look at like a legal strategy, whenever you go into a case as a lawyer, is you usually have a general legal strategy you're going to take on the case. But as new information comes out, as you start hearing some of the opposing arguments, or As witnesses get on the stand, like, your strategy does kind of have to change if you still want to win the case. And I think about the same thing with your budget is, yes, you want to have a general budget and a guideline to really give you some direction, but as you start seeing major things change, like, hey, we thought we were going to have a second attorney hired by March, it's June and we still don't have a second attorney. Well, your entire budget probably is going to look a little bit different. Or you say, hey, well, we thought that, you know, our collection rate, that our clients were going to be able to pay all their, you know, their trust bills, but we have a few people on payment plans. Well, that kind of changes, you know, things, how things are going on. Or, hey, we were going to hire a new paralegal through a recruiting agency. We thought we were going to have to pay a recruiting fee. We didn't. So our expenses are lower than what we expected. So you do want to kind of keep an eye out for if there are major things changing in your original strategy, then you probably want to update your budget in that area to say, okay, based on these changes, what should we do moving forward now that we know these major things have changed?
And I feel like you could probably— I wouldn't— I would keep the original budget and then create an updated version so you can go back when you create the budget next year. But one of the things in my world is we do a budget at the beginning of the year and then it doesn't change. And that I often think, well, we need to reflect reality and yeah, these major, major impacts on the budget so that we can budget more effectively the next year instead of waiting till the end of the year to do the budget for the next year where you have to kind of recall all the things that happened throughout the year that would affect your next budget. Um, and I guess we're in budget season right now, as far as in my head, um, is kind of having that reality. So, you know, you know, and the cost of rent, the cost of electricity, things go up. Um, again, shifting topics slightly and going off the script, and I'm sorry, but I know you know these things. I work with a lot of attorneys who are starting practices, and they create LLCs as business entities. And from a tax perspective, I think a lot of them have to pay estimated quarterly taxes, which is something that I think when you have no idea how much money you're going to make is a hard lift. Kind of like you've got to budget to pay quarterly estimated taxes. You're going to guess at how much money you're going to make. And how much you're going to have to pay for those quarterly estimates. Um, do you have any advice for people who are starting out and trying to figure out, like, how much do I need to set back for quarterly estimates?
Yeah, so I think, you know, that's a really good point. Glad you brought it up because it is something that a lot of attorneys do kind of struggle with, and I think this is why it's important to have at least some kind of budget overview because what that's going to do is it's going to give you an idea for you to estimate like, hey, we think we're going to be this profitable this year. And I think when you look at it that way, depending on like, you know, what your tax strategy is, I would say is work with whoever prepares your taxes is I would just have a conversation with them and say, hey, we think we're going to make this much money. You know, this year in the firm based on kind of doing some math. And if you share that number with them, they can come back and say, okay, all right, based on all the other things in your, you know, your personal life and your tax rate from last year, you should probably be paying X% each quarter. So let's say if it ends up being something like 25%. So take how much money you think you are going to make. Let's say if you're going to make $100,000 in profit, take that $100,000 times 25%, and then just make quarterly payments to the IRS. Just send the check in to the IRS so that, you know, when you get to the end of the year, you're not sitting there with this, this huge bill that you need to pay when it's time to file your taxes. And I know that it may feel a— I mean, let's just talk about the reality. It feels uncomfortable. To send off a check that big if you're like, well, I'm not sure how much I'm going to owe. And I think that it's something that we all have kind of been used to. It's just even when you work as an employee of someone else's company, like every paycheck, the amount of money they're withholding from your paycheck, it's really estimated taxes that they're taking out. They're assuming that, hey, we assume that your salary is going to be X amount for the year. They have no idea if you're going to get bonuses. They have no idea if you're going to get raises, so they're taking out an estimated amount each paycheck. And then when you get to the end of the year and you file your tax return, they find out whether you are due a refund or whether you still have a small, small amount, additional amount you need to pay. And so I would just tell anyone, you're just starting off and you have absolutely no idea how much money you are going to make. One of the things that the IRS does say is, or guidance that they give is, if you look at how much taxes you paid last year, as long as you pay about 90% of whatever that number is by, let's say, the end of the year, you should be able to avoid any penalties. Because for the IRS, they're like, well, if you're not making estimated payments throughout the year and you get to the end of the year and you have this really big bill, sometimes the IRS will actually charge you interest and penalties because you didn't make estimated taxes throughout the year. And so they give you an exception if they say, hey, well, based on your— we know you didn't know the exact amount you were going to have to pay, but you paid at least 90% or 100% of what you paid last year. You paid that in estimated taxes. So usually they kind of waive The, they waive the, the fees or penalties if you do that. But I think the best thing you can do is, you know, create a budget that, you know, to the best of your knowledge, say, here's what I think we're going to do. To have a conversation with the person who prepares your taxes and say, hey, here's how much money I think I'm going to make in my business. And have them calculate and tell you, here's how much you should pay in estimated taxes. But also to the point we were talking about is as things change throughout the year is you want to update your forecast and say, hey, based on what we're seeing now, we didn't get that second attorney hired. We didn't have as many cases as we thought. Here's what we think we're going to be making now based on those changes. And then just have your tax preparer recalculate what your potential tax liability is., and then they can tell you, hey, you've already paid enough in taxes. You don't have to send any more payments in based on what we're seeing. Or, hey, you're going to do better than we originally thought. Let's increase the number a little bit for the last few quarters of the year.
Yep. And this is all so that in, you know, April, you don't have a whopping tax bill that is a surprise that you didn't budget for. I think it's easier to budget quarterly., and then adjust as necessary, which is why I think both reviewing financial statements and having a budget are incredibly important. Um, how, how does a financial statement impact a firm's operations? How can you get a better understanding of, you know, like it's not just numbers and what can you do operationally to adjust based on the intelligence you get from a financial statement?
Yep. And I would say the best way to think about your financials is that the financials are just telling you the story of what is happening in your business. And so if you think about that, if you're following the story and if the story tells you, hey, we're losing money, then that probably means we should make some operational changes. And I do think sometimes when people look at the numbers as, oh, that's just the report with numbers on a page. If you look at it that way, I think you, you really give your— you do yourself a disservice because then you're not putting yourself in a position to make the necessary changes. Because if I came to you and let's just look at a completely different analogy. If I came to you and I said, hey, you know, the water in your, in your pipes in your home, they are, you know, the pipes are broken. Water is running through the walls and is, you know, getting all— getting your floor wet on your first floor. You wouldn't look at that and be like, oh, that's just, you know, a report in a plumber's report. You would actually make a change. And I think if you looked at it the same in the business, if I came to you and I said, hey, based on the money coming in, it looks like we're spending a lot of money on software. We probably should take a look and say, are we even using all of that software? Have we signed up for some subscriptions that we no longer need? And so when you, when you get that data from the financials and the financials is telling you a story of like, hey, we're leaking a lot of money in this area. We probably shouldn't just be like, oh, that's just numbers on a page. It's like, no, there is something operationally we should probably look into that and say, hey, do we need to stop spending money on these things? Or do we need to stop spending money in these areas? Or if I come to you and I say, hey, based on the financials, we were expecting to see about, you know, let's say $300,000 coming in a month. We're only seeing $220,000. Well, that should probably tell us maybe we need to change our process around collections, or like maybe we need to require clients to maintain a higher trust balance so that When their invoices come due, we can actually just move the money from trust into the operating account because they're, they're properly funding for the legal services that we're giving them. And so I, I do think that lawyers probably should look more at the financials as these financials are telling me a, a story about what is happening in my business. When it tells me the story, The next thing is, is I should ask myself, okay, what can we change operationally to fix the problem that the numbers have helped us identify?
Yeah, I, I see a lot of attorneys with redundant systems. And so I feel like if you're, if your financial statements telling a story that, you know, At any time of the year, I think it's a good thing to look at redundancies and reduce them. But I did a whole— and I'll put this in the links in the article— but ROI and understanding the return on investment on the technology spend, I think, is very helpful. And reducing redundancies and spending less and getting more and leveraging the tools that you already have and all of those kinds of things are really important. But it's not just technology. It's also people, um, and processes. And, you know, so if you're letting— and this is something we see a good bit that from a lot of surveys that have been done, firms often don't answer the phone, you know. So you've got— you spent money on marketing, you spent money on your website, you've spent some money trying to get people to call you, and then they don't answer the phone calls. And so that's one of the things where I feel like, you know, if you're looking at your, your financial statements and you're seeing the income is not what you're expecting, how can you, I guess, create a more efficient process so you can have the time to be responsive to potential clients? The other thing that I've seen, and you may have feelings about this, is the use of CRM or customer relationship management tools, which are kind of a rising star in the legal tech stack. It wasn't something— in fact, I remember talking about CRM probably 10 years ago, and the attorneys around me in the seminar were kind of going, well, why would I share all of my client information with the firm? Because, you know, they had an eat what you kill mentality.
Yeah.
Um, on the other hand, now if you start collecting that information, um, you can take action on not only responding to clients more quickly, streamlining the processes, but also see which kinds of matters are most profitable. So you focus on those versus taking the, the kind of easy things that don't make a lot of money and spend more time than you probably need to spend. Have you seen anything with CRM being helpful in your financial predictions and managing the firm financially?
Oh, absolutely. And I'm glad you brought that example up because, I mean, there's several good examples you brought up. So, let's just kind of go through a couple of them. First one on the CRM. So a scenario that I've seen with several firms where we were looking at their, we started off looking at their financial statements and I saw that, okay, all right, we're spending a lot more money on marketing. They had increased their marketing by, let's say, 50%. So they were spending, you know, more than what they had in the past. And the first thing I wanted to see is, okay, all right, if we're spending 50% more in marketing, Let me look at revenue. Let me see if revenue actually increased. When I saw that revenue wasn't going up, I'm like, okay, all right, we're spending more to attract more customers, but our revenue isn't going up. So after looking at financials, it was a sign that, okay, we need to figure out what's going on here. And one client, what we did is we went into their CRM and we said, okay, all right, now let's just look and see on average how many new clients were you getting per month in the past? How many new clients are you getting now? And then we looked and said, okay, all right, how many leads were you getting in the past? How many leads are you getting now? And in the process of looking into the CRM, what we identified is you have a whole lot more people that are scheduling consults, but the no-show rate for consults is like 65%. So I'm like, that's almost 7 out of 10 people book a consult and then don't show up. And I'm like, well, you're spending a lot more in marketing to get them into like your pipeline. But by looking at the CRM data, we were able to see is like, hey, there's a high no-show rate for, you know, consults. And so we looked at it, we did some research, and then we said, okay, what if, or I guess why are so many people not showing up? And then what we saw is that in their CRM system, it allowed people to book a consult. Without having to make a payment for the consultation fee. And so we said, all right, what if we just change this, meaning we require them to pay the consult fee before they book the consult? When we did that, we saw that their show-up rate went, it went from, it was what, 35% before? It went from 35% of the people showing up to 70% of the people showing up because we moved that one change in their CRM. And I think we would've never found that if we weren't actually looking at the data. And then I think there was another firm that was doing flat fee work and they were telling me like, man, we're working really, really hard. We're busier than we have ever been, but we're still seeing cash flow issues. And so I looked and I said, okay, let's look to see what has your cash looked like? And the cash balance had been going down some over time. And I said, okay, let's look in your CRM to see how many new customers did you have over that same time period? The number of customers went up and I was like, okay, all right, this doesn't make sense. Your customer count went up, but your cash is going down. And then when we dug into the details a little bit more, I said, okay, all right, let's look at these customers by case type. And what I realized, like, oh, this is the problem. You're spending about 60% of your time on the lowest value cases. We probably need to make a shift in that because they were just looking at, we need to get more clients. I'm like, you don't just need to get more clients, we need to get the right types of clients. And if everybody is coming in for this, you know, very, very inexpensive service you offer on a flat fee, it's taking up all of your attorney's time, your paralegal's time, where they don't have time to work on the cases that are more valuable to your firm. And so by looking at the CRM data, we were able to kind of diagnose a problem that we found first by looking at the financials, but then we went to the CRM to dig a little bit deeper to find what is the operational change we needed to make.
Yeah, I feel like that again, that's And you can get a fancy CRM system, but I think it also can be tracked in any variety of ways. There's so many tools on the market now, um, like Notion and Obsidian and OneNote and just, you know, any, any tool that you can kind of figure out how do you track, as you mentioned, the pipeline, the, the people who are coming in. Um, those who sign on the dotted line, those who don't, that you lose, why did you lose them? How do you follow up with them? Um, and, and I think that's something that a lot of firms— I talked to a lot of firms that have been in business for quite some time and they tell me they don't do a lot of marketing and they're very busy. And it always worries me a little bit because they tell me, you know, we're doing good. And I think now that you can't stop just because you're, you know, things are going well now, because you have to look at next week and next month and next year and making sure that the firm is growing. One of the things that I have observed is you're either growing or you're shrinking, but there's no such thing as stasis in business. You can't, you can't just— and I think some firms are like, oh, we're just going to hold the line. We're good here. But that, that is inevitably going to tip downwards unless you take efforts to make it move up. And I think some people are uncomfortable with the notion of growth, but growth doesn't have to be adding staff. It, you know, it can, it can look different depending on what you want that growth to be. But if you don't focus on growth, then you're going to decline. So, and I think again, looking at your financials and having somebody help you kind of parse out what does this look like, um, is a good thing unless you're winding down your practice. But then I talked to a lot of lawyers who are winding down their practices, but they also may wanna sell their practice. Well, the practice has to look attractive to sell it.
Absolutely. And I would say an example I had of that is I was talking with a law firm and we were looking at their numbers and they were saying like, okay, they were making about $180,000 in legal fees each month and they felt really, really good. And I was like, okay, all right, that is great that you are doing that. The question I now have is what does your sales pipeline look like? Like how many leads do you have? Because What happens when these cases are closed? Because they had some really good cases that they were currently working on that were high-conflict cases, so they were in court a lot. But I said, okay, all right, if you're a good lawyer, at some point that means you are going to reach a resolution on these cases. When these cases are done because you have done your job as a lawyer, are you going to have additional clients to work on? And when we started looking at that, they started realizing like, yeah, we really don't have that many cases in the pipeline. So I'm saying like, hey, these cases are going good for now, but these cases are probably going to wrap up within the next 4 to 5 months. You don't want to go do great for 4 to 5 months, and then once these cases wrap up, now you're back down to zero. Like, that's probably not where you want your firm to be. And I think that's where you want to have that steady attention of, yes, let's take care of the clients we have now, but let's not forget that, hey, we want to have clients in the future. So we need to have, whether it's someone on the team or whether we hire an outside company, like someone needs to help us maintain an ongoing pipeline so that when these cases wrap up, We have new clients that we can serve. And I think that a lot of firms tend to struggle with that perspective. And I understand, I completely understand why it's a struggle because especially if you're a small firm, you're trying to do the legal work and trying to keep the pipeline active. And it can be a lot to do if you're doing it by yourself or you're doing it with very, very few people. And I think that's why, you know, having simple processes of just saying like, hey, what if we just do a little bit of effort, whether it's if you're a solo, hey, if I set aside a couple hours a week to really just say, hey, this time is set aside to focus on the sales pipeline to make sure we have some leads going on or reaching out to people who have sent us referrals in the past. And just keeping those relationships active. Because once these current cases wrap up, I'm going to want more clients to work on. And unfortunately, I've seen it with some firms who didn't take that advice where they were doing great. I mean, they were giving out bonuses. And then when those major cases wrapped up, their revenue, it dropped by like 60%. So, I mean, they went from doing $180,000 a month in revenue down to something very low to where they couldn't even afford to pay their salaries on a weekly, on a biweekly basis. And I'm like, you know, this is kind of why we do need to kind of plan ahead and even just breaking it down to, hey, let's set aside a few hours a week to make sure that we are thinking about the pipeline and a CRM tool I think can help or a CRM process, even as you said, if it's, if it's something as, as simple as a spreadsheet all the way up to a sophisticated system, it's just having some attention on, are there potentially new clients that we are taking through the process? So when these current cases end, we have some new clients to be able to support.
So to bring that full circle, If you're not looking at your financials, you're not able to anticipate what's going to happen budgetary, um, cash flow perspective, looking at, you know, once these cases wrap up, do we have something coming in? Um, estimating what's making you money versus not really making you money, where you're spending a lot of time, um, with the low-hanging fruit, flat fees, which is a good way to subsidize your income. But, you know, as you want to build, I think there's a lot of firms I see that will, especially with contingency work, um, and also, uh, you know, plaintiff's defense. Sometimes you get a really, you know, something really complex and really good. But I also suggest you have some flat fee work that can keep you going in between the good and the bad. So again, I work with a lot of startup firms where they're, you know, looking at something and I'm like, you're not going to want to take a case that's not winnable. So because you need to make money if you're working on a contingency, so what can you do to supplement your income throughout while you're waiting on that next really good matter to come up? Um, On the other hand, balancing that with we're taking all of this kind of flat fee stuff that while we're very busy, it's not making us money. It's not high, you know, high income work. So it's, it's all stuff that again, the financial statements, understanding and being able to forecast and look at the future and think about what you need to do now versus finding yourself in a bad situation and trying to adjust then. Which is super stressful.
Yeah, and I think to that, for a lot of the firms that work on, like, say, contingency or like the, the plaintiff work where cash comes in in huge chunks, to where you're working on a really big case and you may not have the time to do as much of like the steady work that brings steady revenue in, is if you're in a situation like that, I always advise firms is when that lump sum comes in, let's make sure we set some money to the side. Because if you know that, hey, it's probably going to be another 2 months before we get another big case, or another 6 months, or another 3 months, however that time is, let's just take some of that money and set it to the side. Because let's say in March, we close a really big case in the month of March, where you still have to make payroll in April. You still have to make payroll in, in May and June. So what you want to do is say, all right, how do we take some of that money, set it to the side because we know we have expenses that are going to happen between now and the next time we close another big case. And I think that's a very smart strategy of what you said of like, if we know that our, we go through these really big cycles of a lot of cash comes in all at once. Let's set some to the side. And then let's also look to say, is there some flat fee work we can do in between those big kind of peaks and valleys to kind of help level things off? Because if your business is surviving off of the peaks and valleys, I would say there's only so many years you can do that before you're just exhausted mentally, emotionally. And that's not the best place for you to be as a lawyer or as a law firm. And, and I— that part I am very passionate about because I've seen so many lawyers kind of go into this state of depression because their business goes through these peaks and valleys. And often when lawyers are going through those kind of valley times in their cash flow, that is the time where depression increases. The alcohol abuse increases, drug abuse increases. And so I think the firms that I've seen to say, hey, we're going to start thinking strategically about this, knowing that, hey, there are going to be some financial valleys that every business goes through. I mean, even the biggest businesses in the world, like if you look at companies like Apple or Google, they go through financial valleys as well. But it's, I think it's what you do about having a financial strategy that kind of helps lessen the pain of those valleys. And I think more lawyers, the more lawyers are doing that, being strategic about it, I think it not only helps them avoid, you know, the stress of finances, but I think it also helps provide an all-around kind of better wellness strategy for lawyers because if you're just riding the money roller coaster up and down, like, it is mentally and emotionally exhausting on top of the legal work that you're trying to do. It's like, it can be a lot for a human being to go through. And so I think if you're being strategic, you give yourself a better chance to have a smoother kind of emotional relationship with money.
Well, I Any, any last thoughts? I think we've kind of— my fault, but meandered a little bit. But again, taking it back to being on top of your cash flow, your financial statements, understanding the story that they're telling, um, how you can adjust as it happens versus kind of doing this one and done. You know, we do the budget at the beginning of the year, we look at the financials to make sure we're not insolvent and we move on, but we don't adjust as it happens. And I think that's hard because you're in the middle of everything else and making a shift during, you know, the course of the year, um, is hard. And it's hard— change is hard and change is hard on people. So if all of a sudden you say, okay, we're going to have to review whether we continue to use this particular tool because it's, you know, it's, it's draining our cash flow because we're, you know, we're waiting on a big settlement or, you know, whatever. All of this is kind of something that I think embracing change, which is hard, is something that you have to kind of adjust your mindset to, but it really does start out with paying attention to what those statements are saying. So any final thoughts?
Yeah, so I would say, I mean, I think just in recapping, just kind of the journey we've been on, even in this conversation, is that understanding that a lot of times finances seem overwhelming and scary because a lot of them lawyers are working with an accountant who is not the right teammate for that part of their business. And so I always tell, you know, different law firms is not every accountant is the right accountant to be on your team. And even I, I tell, you know, lawyers that, that, that come to us, like, we may not be the right accountant to support your firm because you want someone who can translate it into a language that you will understand. And you want someone who can kind of work in a pace that actually works with your business strategy. And so one of the things that I've recommended for, like, if you're a solo or you're a small firm and you're like, hey, well, you know, finances are tight to be able to pay an accountant on a monthly basis, and which I think is a very real thing, like the accountant and the bookkeeper should get paid for the services that they provide. And so I always say is, you know, talk to them about if there's a different strategy you can take, whether it's, hey, We do quarterly check-ins, um, to really just get a feel for like, hey, how are things going, as opposed to doing a monthly fee. Because the, the doing it quarterly check-ins could be a way of allowing you and the accountant to be able to talk about the things, but the price point that you pay for that service could be different than doing it monthly. And then I do think also is If you have been working with an accountant and you don't really feel like, hey, I don't feel like they're explaining it in a way that I understand, and you feel like you've legitimately invested, you know, the time or made yourself available to have those conversations with them, but they're not able to explain it in a way you understand, it might be a sign that, hey, that might not be the right accountant for you, and it's okay to find another one. And the other thing that I would say is that understanding that, you know, finances can be a very intimidating topic altogether. And I know that, you know, something I talk to account— I mean, lawyers a lot is they feel like, hey, I'm a lawyer, I should understand this. And the truth of the matter is it's like accounting is a completely different language. And I'm like, unless you've been trained in it, You shouldn't understand it. Now, it's helpful for you to understand, but unless you've gone through the process or work with someone who's kind of helped you learn how to understand and interpret the language of accounting, it's like there should be no shame in asking for help, or there should be no shame in seeking support. It doesn't mean that you're a bad lawyer. It doesn't mean that, you know, you're not a smart person. It just means that It's a completely different language. I mean, it would be the same thing as if you brought Greek to me. Like, I know a few Greek letters. I think I'm a smart person, but I would never assume because I'm smart at accounting, I should also be smart at understanding Greek. I'm like, no, it's a completely different language. So I'm not afraid to ask for help in a language that I don't understand. And I think accounting is that same way. And so I always encourage lawyers is that don't feel bad if you need some help understanding the language of accounting. It is not the same as plain English. I know numbers are numbers, but how you interpret what those numbers mean does require some skill, and there should be no shame in asking for help.
Well, I think the smartest thing is to know when you need help from someone else and admitting that, um, because yeah, there's things that You know, for the same reason that lawyers are constantly reminding clients, you don't necessarily need to go do the legal research. You can, you can do it, but please help me help you by interpreting it, which is something, you know, we're seeing even more and more with AI as people trying to represent themselves and not always, not always the smartest move. So, well, Thank you so much for joining me today and having this conversation. I'll put your contact information in the, the post, and enjoy your holidays upcoming, and I will again see you soon at one of the ABA meetings.
Absolutely.
