Optimizing Law Firm Finances with the "Eat What You Kill" Model

We're gonna talk about a pretty important topic, and that is if you're a legal bookkeeper, you know that you're gonna run into different compensation pro— programs and scenarios with law firms. So how do we optimize law firm finances and how does that work with the Eat What You Kill model? Yes, that is a name of a way that attorneys track their compensation. I can remember the first time I heard that, Had a conversation with attorney that said, talked about Eat What You Kill. I was like, you've got to be kidding me. Only a lawyer would make that name up. But it is a name of a compensation model, a way that the attorneys bonus out their other attorneys that work for them if they have that in their compensation package. And compensation is definitely a topic you want to get and sharpen your skills when you work with attorneys. It's an important one because years ago they did this other model where it was a tenure thing. The longer you worked at the firm— and I'm sure you've heard of attorneys that just climbed the ladder, and as they got to the firm for a longer period of time, that's when they were able to make more money. So they worked hard, hard, and at the end of their career, or in the final maybe 10 years of their career, that's when they made the most money. They could sit back and maybe not work as hard, let the underlings do the work, and then they made a bigger percentage of compensation. Mm-hmm. So that's how it used to be, a very popular model back then. But the younger populations are not excited about that, and you have to adapt your compensation model to be something that will draw the attorneys up into work for your firm. As an attorney, that's important. But as a legal bookkeeper, you have to have that understanding and figure out how to manage the finances and how to track the way that these items are being bonused out, track the way that the intricacies of the model to ensure the firm's financial stability, but also support the attorneys that are working for it that are getting paid these bonuses. You want to make sure that everything ties back to the finances and that you can prove out the funds and prove out the work that's being done. So I'm going to explore this model with you to explain it as easiest and easiest, simplest terms as I can. Know that most attorneys will come to you and say, yeah, I've got the eat what you kill model. And then you ask to see the spread spreadsheet that goes with it and they've modified it. So it's not your basic cut and dry. So this is a base for you to guide you through, but know that a lot of them, when you get your hands on the spreadsheet that they've been using to calculate it, it doesn't always align with the books. So that's usually the first hurdle we have to jump over. So like I said, traditional firms used to always emphasize seniority in billable hours. That was the way it was been done for a bazillion years. But the eat what you kill model just takes away those disparities. So you work hard, you get compensated, and it directly links the attorney's earnings and revenue to what they bring in and what they generate to how they're compensated and how they're bonused out. So for the bookkeeper, this model will demand more of a meticulous approach to tracking the financial transactions, including individual attorney revenues. So you're gonna need to track the originating attorney as well as the workabee or the responsible one. And then you're also gonna be very much in tune with the expense side of everything, the client expenses, keeping those detailed records to ensure the transparency. Because when they do the bonuses, you wanna provide the attorneys with some kind of accounting of this. They're probably tracking it on their own side, and it's paramount to the successful execution of this compensation model. So one of the things you're gonna want to do is revenue track by attorney. How do you do that? You can do it in QuickBooks and you can make a class and put the attorneys as classes. You can do it in Clio or LeanLaw and track it there. I think there's ways of tracking it. You can actually track it with classes and push it through into QuickBooks and Clio and in LeanLaw. It's up to you how you want to do it. Do you want to just track it in the legal billing software or do you want to track it fully in the accounting? I lean towards the latter. And then you want to make sure you track your expense allocations. Make sure you deduct the direct expenses such as client-related costs, any marketing that's for this work that you're getting the client leads in. And any administrative support. Sometimes you take a percentage of the administrative costs involved, depending on how this model is set up. And then you want to take that net profit calculation. So factor in the attorney's share of the overwide— overwide firm overhead costs. So they calculate them as a whole, and then you're going to take that percentage that belongs to that particular attorney and align the earnings to the individual contributions for the law firm success. Origination is also a fee that you're going to have to deal with. If the attorney that's doing the work didn't bring the work into the firm, that attorney usually gets like 10% for bringing the client in. You need to track that whether you have no software and you're working only in QuickBooks, which I do not recommend, but you could make a custom field for that. Or you can use like Clio and LeanLaw, both have ways of tracking originating attorney. So it's important. It's really worthwhile to have the software. Yeah. Time-saving. These products are built for this type of work. And then ongoing evaluation. You really wanna make sure that everything balances to the books. Always. That's where we've run into problems, especially when you first start with the attorney, you'll find out that nothing aligned with the books, and then you have a problem of correcting all of that. And you really wanna maintain the accuracy. And if you're using Clio, Xero, or QuickBooks, you wanna make sure that everything ties back. Using a spreadsheet opens you up to more errors and mistakes. So know that you really wanna review the formulas when the attorney gives you their side spreadsheet and then make sure that works and that they actually are coded properly. I can't tell you how many spreadsheets I get from attorneys. Don't— the numbers don't make sense. And then when you look at the coding in the formula calculations, they're not correct. They may miss a column, they may miss a section. Those are the things you really need to watch out for. So to drive the attorney's success, and really this is a way for them to bring more work into the firm. You have to have strong client relationships. That's key to be able to get referrals, which is what most attorneys work through. And also, they usually— that's how they get their customers, unless they're like a PI firm that needs to have billboards and other forms of advertisement. So you need to make sure that they have a way to cultivate that and cultivate that within themselves. So they may work and go to court, and if they go to court, they might find that they are able to work with other attorneys and get referrals that way. It's really Critical with law firms, they do get a lot of referrals, and if you ask 90% of the attorneys how they get their clients, they're going to tell you it's referral-based. That's how we work as well. So it's professional services. You want to make sure that you help your client, especially your primary owner of the firm or owners of the firm, to deliver to them clear financial insights. Bookkeepers, bookkeepers will empower the attorneys to track their own performance as well, set growth goals. So that's a nice way to really get them really encouraged to bring more work into the firm. And then they might need to adjust their way of calculating, especially if they've veered off the path of eat what you kill to a side model or a tweaked model. You might want to help veer them back because it's easier to track through the system. And then you want to foster accountability and performance, making sure that this model has got a culture of accountability, that there's no way for anybody to game the system. That's important too, right? Yeah. You wanna make sure that their earnings are a direct reflection on the work that they've done and they've provided. And that's really where we come in. We make it transparent, we give them financial data, we help the attorneys measure the impact of their work. And then also, this is a way to boost workplace satisfaction. That's important. You don't want a lot of that rail kind of feeling in the firm. You don't want any of that backstabbing. You want it to be a collective, everybody supports one another. If a case comes or a matter that somebody brings in is a certain kind that they don't really handle, that it gets moved over to an attorney that's their specialty. So it works best for the client. It's always about the client at the end of the day. So the Eat What You Kill compensation model for law firm compensation really helps elevate our role as the bookkeeper. It helps us step in front of everything and provide that financial clarity and success. And if you're able to have that precise— Precise. Accurate accounting for your client, you're really empowering the attorneys to maximize their potential in the firm and also keep the firm working as a cohesive whole. That's where we come into play. So the synergy between the bookkeeper and the attorney, this model really fosters a dynamic of performance-driven workplace. And we're the people that are giving them their report card. So remember that. I hope this is helpful and we'll see you all next time. Bye now. Bye.