Mastering Financial Challenges Across Legal Specialties

Welcome to Accountants Law Pod, where accounting professionals and law firms converge, hosted by Linda Artesani, Sarah Prevost, and Steven Libhart.

Welcome back to the podcast, everybody. And how is everybody doing? We're grinding through the year. It's almost over. It's kind of scary.

It is scary.

Where did the year go?

I think every year we say this, and every year it just gets faster. It's like lightning speed every year. It's kind of—

Yeah. And I don't know when this is gonna land in the list because Tierra takes care of all of that. But Thanksgiving's late, and when it's late, it shortens to Christmas. It's just kind of like blinking. It's Christmas. It's like, oh my gosh, how did that happen? So yeah, it's really late. It's like the 29th of the month this year. It's really, really late.

So It'll be interesting to hear because it's my first— it's our first year as a family to have someone off in college. It'll be interesting how this whole thing, you know, like how—

Is he coming home?

Yeah, for Thanksgiving. And then, of course, well, we're, we're taking a family holiday for Christmas for the first time ever on Christmas.

Where are you going?

Portugal. Nice.

Yeah. But anyways, it'll be—

it's—

and so to, to like— and Linda's lived this with me, having seen my child grow up pretty much for a while.

Oh my gosh.

Yeah.

I mean, I remember when you could barely see him on the screen, then all of a sudden all I saw was his chin, and then all of a sudden that was gone.

Yeah. But yeah, it'll be interesting, right? Like, to be in this, like, oh, okay, now I'm doing that, that college thing of holidays coming home. It'll be— yeah. And you've got a dumping pre-Thanksgiving in your state. You have a dumping of snow, is that right?

Oh my gosh, we're getting hammered. We already have 12 inches on the ground, and it started snowing at 8 o'clock this morning, and they said it's forecasted not to end until around noon tomorrow, and they've shut down everything and called out the National Guard.

Can you send some of the cold down here? Because it's hot, sticky.

I was just gonna say Linda's in the hot sticky sunshine. I'm in the cold sunshine.

Yeah, it's warm down here. I mean, we just took the dogs out. It's really warm. It's like 90.

Our high is 34 today. That's it.

I don't feel like I live on the same planet as you 2.

I'm in the 50s right now.

So, so today's topic is going to be mastering financial challenges across legal specialties. So that's the topic.

Now that we've mastered, like, how our environments are— no, I'm kidding.

We've mastered the environments. Now we're gonna master the financial challenges. And basically, that's gonna be talking about financial challenges that law firms and attorneys face when running their firm. And of course, the first thing you think of is cash flow. That's like the first, you know, coming up, what we would think about when we think about challenges, especially if they're just starting out or I mentioned last week or one of the weeks about if you're hiring somebody new, how that cash flow can be used because you might have a few months before you actually realize the money coming in from an attorney actually doing the work if you're hiring new attorneys. But what other financial challenges, Steve, do you, do you think of?

Well, I think especially with new attorneys or really small firms, understanding their financial landscape, what their business mix is.

Mm-hmm.

Because they tend to appeal to all kinds of different cases, casework that they take in. And so that throws them into the arena of having different billing structures like hourly contingency, flat fees, those sort of things. So you really need to understand your business mix and get your arms around that and then optimize that mix into your billing practices, as an example. If you are handling those different mixes of cases, like I just brought up the hourly contingency and flat, you're not going to see your cash on the flat rate probably as quick as you're going to see it, or on your contingency as quick as you're going to see it on your hourly or flat rate. And so you've really got to get your arms around your, your mix and then optimizing your billing practices for that. You might communicate more with A contingency client to move that case along quicker than you might with an hourly client. I'm just, you know, that's just the first example that comes to mind. And then—

Billing rates and billing formats. Exactly.

Because like the other day, yeah, we did a, we did a consultation the other day with an attorney who does civic law. So he, he does law for different municipalities. And so I said, well, what's your hourly rate? And it was like several hundred dollars an hour. And I said, okay, do you do that full-time? And he said, no, I also take on regular work in addition to municipalities. And I said, okay, what's your hourly rate for that?

Yeah.

And it was a couple hundred dollars an hour. So there's this big gap in his cash flow with the type of work he's doing. So you got to get your arms around that, and then you've got to optimize those billing practices. And then if you have a staff, you've got to train them on all the nuances of doing all that different kind of work.

Just like what Linda was saying with, with the cash flow and hiring. I mean, it's the same. It, it translates over even though it's the front end. It's kind of what I think of front end, like billing rates, billing specialties. I also kind of look at, like, I'm thinking about this, and is the niche, like, the practice area niche? Like, so you've got one niche that you're going to serve. And then, like, to your point, Steve, you're saying, well, they're going to serve a different niche, right? It's a different style of billing. So then you've got back to the hiring thing. You got the training and the format and the work scope and whatever.

And your, your technology.

Yeah, of course.

Yes. You can't just go down and ask your attorney friend down the street what they use and think that you're going to plug and play because you've got all these different ways of doing business.

What about the technology adaptation piece of it in the sense of like, we see firms that have just migrated over to a practice management online, but yet the methods of doing the work are still in the old school method of check this, write this here, put this over here. Now go enter it. I mean, you've got like You're still doing— we were just, we were kind of doing this this morning in conversation of there is a central place where all the data exists. But really, to the individual that we were speaking with was like, no, the data all exists in here. And Linda's like, yeah, but best of luck trying to get this ship moved at this modern date and age and time.

And do you think that if you asked an attorney what was their most, um, their— what is their most challenging aspect of work, do you think they— most of them would answer that the most challenging part of work is finding more clients? Or do you think it would be cash flow? I think they'd say more clients. Like, that's, that's something they think about a lot. Like, how do I get more clients? What do I have to do to get more clients? Where are my clients coming from? Those are— they're always thinking about like getting more revenue and they don't think about the other side of it so much. I think from—

That's a good point. And I run into that in my, my, at the Bar Association where I teach to the new attorneys every year. I usually teach that accounting side of that class. And so many of them don't know. They have an idea what their niche, what they want it to be, but they also have to keep food on the table and the lights turned on. And so they're going to— and, you know, for those of us in the accounting and bookkeeping arena, We've done that in the beginning as well. We took in just about anything we could to keep the lights on, and then we, we honed our niche. And so to your point, Linda, probably, yeah, they're, they're thinking all the time, where am I going to get that next client? But then at some point in time, you are much better at what you do.

You can land higher rates.

Yes, right.

Getting the clients, right?

And you can hone it.

Well, then it's also you get the client, but then making sure you have the stuff to support it.

Right.

Exactly.

The converse happens, like, okay, oh my God, I opened my door. I did accidental great moment on marketing. And do I even have the staff to assist me? Do I have the workflows in place to, to ensure that I'm not missing my billing?

Or do I have to go out and get enough counsel attorney to help me work this case because I don't know what I'm doing?

And what is the technology to support you with that?

Right. Right.

I mean, you think— we just think about what just happened, right? So you just had an election, a change, and now you've got these immigration attorneys that are sitting back and you've got so much confusion about what's going to happen. They're getting phone calls where they're off the hook. They might have more business. It's a big unknown for them. But a good attorney that's managed and already planned for it— we have some amazing ones that we work with that have already like, all right, this is Plan A and this is Plan B. So whatever way— they didn't know how the election was going to either. So they plan for whatever was gonna happen. And in this case now, it might be—

Good point.

Work for them that now we gotta help them navigate. If they have great workflows and processes, they're gonna be fine. But we have to help them with the influx of work because it does shift, it's changing, it's in flux right now, and they're gonna have a lot more people coming in and how they're gonna support all that. And that's something that I think if you've got a client that's found a way to advertise and it's working, then I think you need to make sure you have the financial resources in place, the sufficient staff, and a strong commitment to financial management steps just to get it going so that they can have long-term viability. You don't want to have it in place where it's— they have this happen and then it could be a disaster all at the same time. So you really do need a good financial team to help you through that.

Well, the, the mix too there is— so you're, you're front heavy on that if you're in that, uh, practice area. But then back to what Steve was saying a little bit, what if you're like PI heavy or contingency heavy?

Mm-hmm.

You got hard case costs, you got a whole bunch of stuff, cash flow. Again, back to cash flow. You got to fund. You have no other practice area metric to support the livability of the firm because the firm has Not every firm can actually do that style only, right? Some do. I'm a little surprised, but I mean, you would need to, to have this. But if, let's say that you're in a contingency firm style, like you're saying, Linda, and you've got the immigration side. So you've got the contingency side, and then you got the immigration side, and one swings heavier to the other.

Mm-hmm.

Where, I mean, you— there's a big support change right there, to your point. And then also How long do cases go depending on the niche that you've picked? Family law is very different, right, versus intellectual property or trademarks, or there's like a whole mix. I'm, I'm sure, uh, criminal and civil and larger cases.

We just had a great conversation about, uh, client advanced costs in the Law Lab. And you, when you're looking at a personal injury firm. Sometimes these firms don't have the cash flow to support the influx of client fees, so they take on debt themselves. And now they're using debt to front their firm and use it for investing in their firm. Some of them buy new computers and equipment and all of that, and they're also using it to finance their court case, their case costs. So when they start to use that, It— that is a whole other layer to the complexity of managing the firm, because now you're looking at a loan or debt, and that's definitely something we have to track. We have to troubleshoot. We have to make sure that we're tracking by the individual matter. It is a loan, a loan out to case costs. So it's, it's interesting, and it has to be booked in properly. This is where you really need a good financial professional to take you through and guide you through this, because we've seen it where we've taken over files, and I'm like, This says loan expense, so it's not even booked as a liability. And, you know, these are things that you see on files, and we've seen it where even the loan isn't tracked by the matter. And then how do you fix that murkiness of it? You just— it needs to be fixed, and that means they have to hire a good firm to take care of all that. But yeah, I think—

That's a good— that's a really valid point. I mean, you have to know where your money is, the money that you've earned. Now, the money that you're loaning out to advance for costs, case costs, what is that money? Where is it? What is it doing?

And if you don't have great reports and records and data, then you're in that garbage in, garbage out. How are you going to run your firm if you don't have the right data and details? That's a problem. And you have to have— like, we have clients come to us, we say, look, you got to clean this up. And then they're like, can I get my reports? Can I get my reports? Can I get my reports for the coach? I can't give you reports if the data is not clean.

Exactly.

I have to give you clean data. So you have to have good financial reporting, and that requires us to do the data cleanup, which is not an easy, quick job most of the time. You have to kind of temper them, give them an idea of how long it's going to take to fix it because you have to have real data. I can't be giving you data on records that the prior bookkeeper booked in your income from the bank feed and then let the invoices and payments ride through there. Now you've got double income. I can't make your records be correct. Or maybe they booked everything as billable expenses and didn't put billable income. And now you're looking at this scenario where there's no offset and you weren't using advanced client costs. And how do you fix that? And those are the things that we face and we see that are things to think about if you're a business owner out there and you're looking at your own records and you're looking at your own person who's doing the work. Is it correct? And we haven't even talked about trust and compliance.

I know.

I was going to say. Not to scare everybody. This isn't the scary show, but there's things to think about.

There's legitimate challenges across the, the whole industry as a, as a whole with every, you know, type of niche that you're serving.

Mhmm.

Pluses and minuses to having both, right? But it's all in how you, like you're saying, look at the numbers, how you measure the numbers, how you track the information, and making sure you have a strong support staff to ensure that that data that you're getting is accurate. As you know, does it balance back to a bank account in the right way? Steve, I didn't mean to cut you short, but—

No, I interrupted you. Sorry. I just, you know, with all these multiple specialties that we're talking about today too, it's so crucial. Your point, Linda, with the financial reports being clean, but also reviewing by department, by specialty, what, what is your firm doing? As an example, maybe within the firm you have a department that does one specialty and another department that does another specialty and so on. And you have paralegals that are assigned to attorneys within those specialties, this would be a great example of maybe drilling down deeper and seeing what each specialty is doing. And that can be done in the accounting side. You can class account it or whatever.

Mm-hmm.

But taking a look at what each of those specialties is doing, how much is it costing you for labor, how much for benefits, all those sorts of things, and what is the return on the dollar? Specialty A collects— has a higher collection ratio than Specialty B. And you don't know that if you don't review that on a regular basis, if you don't look at that business and see. And maybe after 2 or 3 years, you're like, okay, Specialty B just isn't serving us well. We're going to stop doing that. We're going to, we're going to stop appealing.

You first need to make sure that you're actually setting up the foundation to track it correctly.

Yes.

Because that's the problem. You want to know this data, but you've never actually set up the file in a way that could be measured.

And you're always starting late to the game then.

And that's what Linda and I tend to see is you're asking for it in this fashion, but you never did that back there. So in order for us to get the stuff behind us to a current, that takes work. You got to decide. You can't just fundamentally just magic in the air. Oh, I'm going to track this metric. Okay, but what's the foundation that you've supported to track the metric? Nowhere. It's not there. So yeah.

And then you want to think about budgeting and forecasting, and those things are important too, especially if you're looking long-term. You're looking at— you're at a firm and you want to look a year from now, 3 years from now. You want to kind of forecast where you're going to be. What are your needs going to be? You want to start to look forward, and a lot of times we look backwards to look forward, right? So I think getting a good developed budget is important and come up with a plan that can help guide the firm to any of the major purchases or any of the additional fees or expense of just adding more staff. Those are critical decisions that you really need to talk to your accounting team to actually know what's the cost behind that because it's not just the salary and there's more to it. There's more layers to it, which is why I don't think our jobs are gonna be replaced by AI at any quick time.

I agree.

Maybe the jobs of the old days of just putting the data in and entering AR and AP and, you know, reconciling, that, that part's probably going to go away. But this stuff of being using your brain to let them know where it's going to go, we're going to be around for a long time when it comes to that.

Well, how many times have you guys done a study for a client? And I'll use just as an example, I'll grab a number out of the air and you run into an 80% labor cost because they didn't consider all the benefits that they're paying out, you know, their bus benefit, bicycle benefit, health insurance. To your point, Linda, with The immigration firms right now with what's going on in our country, what do we have to look forward to in businesses, law firms, whatever, with health insurance? What is that environment going to look like? And so, how often have you come across a super high labor cost when you put all these things together and they've got one avenue of income? They're either like a family law or an immigration firm. That's all they do. And you've got this huge labor cost, and you have to break that news to them and say, you know what, 85 cents out of every dollar is going towards cost of labor.

Yeah. You know, and it's true with— it seems like family law, they're kind of like the restaurant of, uh, of businesses because they run on a low— they don't have as large a profit margin as some of the other practice areas that we see.

Good point.

And the attorneys are burnt out. It's such a heavy emotional Practice area. God bless the ones that do it because you have to be that special person to take on that practice area. I think because you're on 24/7. These these attorneys give out maybe they have a secondary cell phone, but they give their cell phone numbers out and they absorb all the drama of whatever's happening in family law. And I think that that practice area, I don't think they ever get paid enough. And most of the people that they have for clients don't have a lot of money. So they're reaching credit cards or they're reaching out to their families to pay. And then there's a whole other. other heavy lift of the AR and collections. So that's another part of what we help with that could be a financial constraint or something that they need to look at. We want to look at how, for financial challenges, what do you have on your open accounts receivable? Is it collectible? Don't write it off. Get a good person that can really check your numbers. So you're looking at a realization rate maybe and see what that is. You're writing— we see attorneys write a lot of stuff down and it's like you work for all that and you're just gonna wipe it.

Yeah.

You know, well, the other thing, like, to your point, Linda, the—

if it's uncollected, what other payment terms do you offer? Do you— we hear this a lot. Oh, I'm paying so much in merchant fees. Okay, well, what you brought up, Steve, what is the admin rate it costs me to collect on that? How long will I collect? If I just offered a credit card, would that be a feasible way for me to collect really quickly? And the fee to that costs you What? Yeah, the mindset shift.

The mindset. Exactly.

Yeah, it's a mindset shift. And I think it does— it goes back to all those measurable strategic metrics and how you specifically decide on certain things or look at numbers in order to write those budgets. In order to write those, you have to make sure what you've got is aligning with back to the vision. Does it align with what your vision and ideas are? And are you actually moving the needle in the way that you need to grow? Or maybe you want to stay the same because family law is so hard. Maybe you just want to stay at a certain caseload tier.

Yes.

Unless you get that right person in the door that you know can support you. And the cost, the runway cost of bringing them up to speed is not as costly because they are seasoned. Well, with seasoned, you pay more in payroll. So again, it goes back to managing cash, the whole thing. So Yeah, it's, it's a really interesting— the other big thing I feel like is understated is technology. You really do have to reevaluate what are the tools that work for the firm and where are areas of improvement. I know Linda and I, after having been at Connect, we thought about things differently. We asked a few team members to approach things differently in the way that we do a certain month end, and it came back with glowing reviews. And it was nice. It was simple, simple touches. But that's the thing. You have to be able to, like, you'd be amazed at what your clients are willing to pay for you as the attorney versus what, like, they're going to get nickeled and dimed on, on a bill. I mean, let's be honest. We had that lively conversation today about interest charges, admin fees, 15-cent costs for coffee.

Coffee charges. Yeah.

Yeah. Like, I think—

how much does it cost you to charge that 15 cents per copy and click?

It's $1.25, I bet, for the 15. So to manage it, to measure it, to look at it, that's where it gets dangerous. That's why in the past you and Linda have both said be careful what metrics you want to monitor. And also Your marketing efforts too. If there's a way that you can measure what you're doing, or even if you're not and you want to build a budget to it, what, what looks reasonable in your market, in your niche? What can you afford? And that's all questions that we can kind of look at and help design the accounting side. But also, you know, we'd need to see what consultants will cost you and is it a viable piece?

What is your monthly net to run your contingency firm? I mean, the ship leaves the harbor and keeps on sailing, but you don't see money every month.

Yeah.

You should know that number as a business owner. You should know the number of what it costs to run your firm.

Do we know that number?

I do.

I was saying, do we know that number? Yes, we do.

If you're in that diversified service environment, like what we're talking about today, all of these things are critical. Crucially important. Yeah, crucially important. It's a whole different level of watching your business because so many things can go south on you. Now, instead of just one practice area, you might have five of them, you know, and they all are different.

You know something I heard this morning when I was kind of scrolling through a few things is one young lady said, "I always bet on myself. I don't bet on anybody else." And I was like. You know what? I like that because that's true. I mean, you're— if you're looking for outside validation for these things, um, and you see what this other firm owner is doing, you're like, oh, I got to do that. But is it really done well? Is it really done?

attorneys are really good at that too, aren't they? What made you pick that software? Oh, my buddy in court. Please don't go. What practice area does he have? Oh, he has this other practice area. Well, what made you think that was going to work for your practice area?

And what did he tell you about this software?

And he said, oh, it's great.

Okay. Yeah. You know, and he uses 2% of it and the entire firm tries to make up the rest, right?

Yeah.

That's an interesting— it is true though. We— I think it holds true to every industry, but specifically to—

Well, look at us in our industry. I mean, we in our businesses, the 3 of us, yeah, have certain specialties of lawyers that we're attracted to over others. You know, for a reason. You know, I mean, we have the same problems. I mean, we're in the books watching what's going on with all of these attorneys. We're creating these books for them. We know what they're doing. And you, you know right now which ones are going to have the cash to pay you quicker than the others, you know, or have more cash flow because of XYZ. And that attracts you to them because— You can really help them tweak it and go even further. I mean, there's— Sarah, something's bubbling up here.

Well, Linda and I see this often. You're paying for multiple coaches.

Oh, yeah. Yeah.

We don't see the ROI. No, but I'm watching you take an exorbitant amount out of different credit card lines and so forth. And really, A conversation could have been had where we could have, like, look at what that payment is. I'm not demeaning. A lot of them have been amazing, and we've enjoyed working with several in tandem. I think they need to be in the team, meaning you've got an outside coach. These conversations need to be circular, inclusive of the person that's handling all the financials. Yeah, for sure.

I think they sign up for coaching to understand their financials a little bit. And if they just talk to us, I think that they could— we could have that conversation and for a lot less money than they're paying some of these coaches.

We're the ones that are in there doing it.

There are coaches out there that are really good and strategic in the market, the niche that they're in for the forward-thinking things. But really, the construct of the basis, to Linda's point, really, we need to be having a conversation with you And it's not hard to do. I just feel like I'm watching for a few, a sizable amount walk out the door, and that could be your money for yourself. That could be your growth.

So we're not seeing any changes or improvements.

We're not seeing the improvements.

We're just seeing you pay a lot of money, and I don't see anything happening.

Yeah. That needle is not increasing your client caseload.

They're either not listening to the coach and not taking action, or they just want to stay static. Status quo so they can keep paying, charging. I don't know. I don't know the methodology behind what they do, but some coaches are great and some coaches, it's really— you got to know what you're signing up for and just be careful.

I would say measure it. It needs to be measured. Interview other people that are doing it to ensure, is it truly measured? Where do you see the difference? What is your gross return on this for the dollars walking in the door? Because that's what I see. If you have a financial team managing the back end, tap into that. Maybe pay for a little advisory moment time with that accounting team because we know the numbers. We probably know them better, way better than you, and it can explain a little bit better to translate that. So yeah, that's why I was smiling because I'm like, well, the number one line I'd be looking at right off the bat.

So I'm glad you brought that up.

Yeah. Well, that was a good conversation. Definitely lively.

Just do everything.

Must be in the air today because Law Lab was that way too. I got all like, ah.

Yeah. That was a very intense, not in a negative way, but an intense conversation of feelings, of perception.

Right.

I, I really enjoyed just the perspective. It was all kinds of everywhere feelings. But it ultimately, we're running businesses and we're business owners and we Have to think in line of that. And—

Well, and you know why we had all those perspectives in the Law Lab today?

Tell me.

On more of an emotional level, this ties into what we were just talking about 3 minutes ago. We're in those books. Yeah, we care about your success as much as you do. Don't put us on the back shelf here. Let us help you with all these specialties like what we're talking about today.

Don't put us on the back shelf.

Yeah, don't put us on the back shelf and just wait for your financial report, you know, be involved. I love attorneys who are involved with their numbers. You know, they're asking me before I can produce a financial statement.

That's good.

Yeah, that's a good thing.

Mm-hmm. Mm-hmm. Yeah, no, it's, it's good. It's— yeah, we're integral to the whole piece as long as we're invited— or not invited, but we're, um, you know, you, you engage with us, um, because we would love to engage. So yeah.

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That was great.

Bye everybody.

Bye everybody.