When Your Law Firm Needs a CFO: Scaling Profitably with Fractional CFO Strategy with Danielle Hendon

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

Hello everybody and welcome back to our podcast. Hi Linda and Sarah, I've missed you this last week. I didn't get to come— I didn't get to come to Law Lab on Friday and I was having withdrawals. I was like, where are my girls?

Well, we missed you.

You missed a good one.

Yeah, and it was good. It was—

I'll watch them.

Yeah, I'll watch the recording. And we were all just talking about where we're recording in the fall, so it's like really cold here in Denver this morning. And, um, our guest Danielle Hendon with Four Corners CFO, welcome down in the Houston area where it's nice and warm. And she even looks sunshiny this morning.

She does. Looking good. I think I knew the memo. I got my glasses to match your hair.

I love it.

There we go.

There we go. Danielle, we're so excited that you're here with us today. We're going to be talking about when your law firm needs a CFO and this, you know, to help scale profitability. And I think a lot of law firms get mixed up on what a CFO is or a fractional CFO, and they're like, well, why, why do I need that? Don't they just do my bookkeeping? You know, what do you say to that, Danielle?

So we actually, at Four Corners, we don't do bookkeeping or taxes. So the CFO work is— I like to think of it as the icing on the cake. It is a little bit extra on top of your traditional bookkeeping and tax prep.

So do you find that when, when you're trying to explain that to law firms and you're working with their bookkeeper, do you ever find that you kind of have to realign the bookkeeper to get the information that you need?

Almost always, but not in a bad way. Um, everybody has their own preferences and formats, and different bookkeepers do things different ways. I will give one of my favorite examples of something that we usually reorganize unless the bookkeeper is really, really good with clearing accounts. A lot of people will tell you that your billable expense income and the related billable expenses your client costs should sit on your balance sheet. Technically, that's true. Most bookkeepers are not clearing it the way that they should, and then the client loses that perspective of what that income and expense is and the fact that They should net out.

That is such a good point. We, we see that all the time and we talk about it in a lot of the groups that we're in. It's like, you know, the costs receivable are sitting over there on the balance sheet and they kind of get ignored, um, you know, in that fear that so many law firms have about what is the balance sheet and why, where's my money and all those things. But you're right, you've got to stay on top of it and you've got to balance it against the billing system.

Yep.

You know, when payments come in, you've got to, you've got to clear it out. And in many cases, if it's an uncollectible cost receivable, that's got to be accounted for separately as well.

Yep. So with a lot of bookkeepers and clients, when we first start out, we actually have them move it over to the P&L. We confirm with the tax person that it's not going to give them a headache, but we have them move it over to the P&L so that the client can see what that income is and what that expense is and know that it's supposed— the law firm knows it's supposed to offset.

You know, it's funny, my mentor in this industry way back— I started working with law firms in 2004— he was a CPA, an attorney, and an enrolled agent with the IRS. That's a lot of letters. And he insisted on cost receivables being as an expense on the P&L. Now, and he and I argued about it until the cows came home, but he, he always won. I like it on the balance sheet.

If you're, if you're going to put it on the P&L, and I'm just thinking of a personal injury attorney who holds those expenses and then doesn't win for 3 or 4 years, how do you account for it? Because we've seen it where they have it on the P&L, and then if you, at the end of the year, you look at the 2 numbers, one could be way up here and the other one could be way over here. And what do you do there? Because it's not giving the true picture of how the firm is doing. So what do you end up doing? Do you do an adjusting entry and then Reverse it?

Yes. So for tax purposes, we would put an adjusting entry, but also on our side, we would layer that into how we look at their cash flow forecast and the timing that goes along with when they're— the revenue matching, when they're actually going to collect it and all of that. We would look at that from a cash flow perspective, but on the P&L, I would tell them to leave it where it is unless you've got a bookkeeper that's clearing it. If the bookkeeper really is clearing things out and matching them, Then this is a non-issue. But in my experience, the majority of them are not looking to see if that stuff clears out.

It's really hard to clear in a QuickBooks scenario because you can't see the customer name.

Yeah.

So if you have a client that has a lot of expenses that are the same and then they're billing it back to the client, try to find that. You have to actually export it out to be able to figure it out. It's a lot of steps. It's a big— I think that's why you don't see a lot of people actually doing it, which I think Bookkeepers across the— that are listening are going to be like, I don't have to put it in advanced client costs. I can actually just dump it on there and then get rid of that task of reconciling that. Yay, sign me up. But I think it's going to be a conversation.

Either way, it has to be done the right way.

Like, it has to be a conversation.

You still need to make sure things are aligning.

Well, it's brilliant what you're saying on the PI side of it, because it is hard for people to understand the outlay of cash sometimes. And you only see it in a micro ledger, right? Of like, oh, I've got it on this side spreadsheet or this side platform. Whatever that is.

Sitting in Clio.

Sitting there. Yeah, I have it in Clio. And then it's kind of like, okay, what is— how much have I outlaid for this? Oh, I'm going to recoup that depending on how the case goes. And then depending on what your final awardment is and like how you decide. And so I think in some ways it's really brilliant. In other ways, to your point, and I've incurred this, it's been like totally missing. So all the collections is sitting on the P&L side in the revenue bucket. And nothing on the expense bucket. Sorry, friends, that's a glaring obvious thing. So yeah, word to the wise on this, to Linda's point, if you are going to do this, it's not a free pass.

No.

Make sure you understand what you're doing and you're following the money. And to us, especially depending on the type of contingency cases, you've got to be super clear about what that is and have it labeled correctly and ensure that you're marking it correctly. So Whatever doesn't clear, you're fixing it in that current year and not having it roll forward on that balance sheet.

And it is way simpler to do the P&L method when it's not a contingency-based firm.

Exactly.

The contingency-based, I actually would argue you're almost better off putting it in the balance sheet and figuring that piece out. But the more frequent turnover, the estate planners, probate, family law, those when— and we've actually had this with a client where They had their billable expenses were almost twice as high as that billable income. And I was like, you're missing— something is not getting billed.

Yeah, yeah. To that point too, like, what do you miss?

The PI, you could actually— with personal injury, you could actually put it in the balance sheet and sub it down so that you've got that picture.

Right.

And that will give you— if you have a lot of— if there's a firm with a lot of matters, you might want to consider doing that. But I can say that when you start to look at the big picture of all of this, I think that if you do it the method you're describing, it's going to answer that age-old question we get every year. Well, if I made this much money, where's my money?

Where's my money?

Yeah, we get that every year. Like, where did my money go? And where are my expenses? When you throw things on the balance sheet, the attorneys don't even want to look at a balance sheet. So when you dump it out into a balance sheet, you have to explain it to them. Then they're like, makes sense why you're throwing it in like a clearing, which is what the advanced client cost account is. But then it's like, why don't I see it? I outlaid all this money. And then you have to explain it's a mini loan. And then, you know, it gets a little bit convoluted. This way they can see it. But we had that firm one time, Sarah, that was a big PI firm. It was really large. And they had expensed everything. And they were like— were they class action suits? They were gonna be faced with a ton of income with nothing against it 'cause they had all these bad years. And I'm like— we looked at that. We're like, oh, my God, look at this. Where is the income? And then we look at them like, oh, they win this, which they were coming to— like, they were like 10-year-old suits or something like that, weren't they, Sarah? 5 or 10 years.

They were quite long and extensive. And it was interesting, to your point, Danielle, what's nice about someone like you is you're that middle voice in the middle. Like, you're hearing the tax, you're hearing—

Very well said.

Yeah. And you're in that space where it's a very precious space of like, hey, look, I'm trying to get operational efficiencies back into play. I'm trying to get your cash. You want to know where that net income is in your bank? Let's talk about the realities of that and how you plan for it. And so I think that in those conversations, it's like you're in this— also, you're an amazing person, but in this brilliant space of being able to be like, here you go, this is how we drive growth.

Well, also speak both languages. Yes.

And be the bridge.

She's the bridge.

So my goal is always that when we're talking to the owner, if they're looking at the reports, which, let's be honest, Half of them probably don't, but they should understand everything they see. And if that means that we go a little bit against the grain and put something somewhere that is not necessarily traditional, but it makes sense to them— like, let's be honest, these are not public firms. We can be a little bit flexible as long as both sides understand what we're doing.

Exactly. Yeah, because the end game is X.

I got a question for you then, because this just came up in a meeting. The client doesn't want to see the money he takes out in distributions. He wants to see it on the P&L. Are you okay with that?

No, but I will show it to him on his cash flow.

Yeah, there's another—

so that's where the cash flow forecast comes in. And I'd be like, look, this is going to really skew your stuff. It's going to— you're not going to get a good 3/3. You're not going to get your 1/3, 1/3, 1/3 if we put it there. I want you to see it in your cash flow. and know what your bank's going to look like. Because I get that every, every business owner to some extent does bank statement accounting. We want to look at the bank account and know what we can spend. And I get that, which is why we do cash flow forecasts. It doesn't belong on the P&L though.

Oh, Linda, I'm so glad you asked that question because you, you too probably see this a lot where one CPA/tax preparer wants it on the balance sheet, the other one wants it on the P&L. And, you know, we work with many clients and so it, you know, it's, oh, for this firm it's over here, for that firm it's over there.

Yeah.

Very good point. Oh my gosh.

Even if you temporarily put it there so they can see it in their little narrow way of looking, then you got to rip it out for taxes. I don't, I just don't think that's a great practice. But also—

So we want it on the balance sheet, but we want it named. So I want to be able to know what did you make in estimated payments? What did you make in distributions to yourself?

Oh yeah, we do that.

Like we want to make sure it's named because then that makes our life easy, and we're going to throw it on that cash flow forecast so they can see exactly where it went.

Yeah, because you really— to be fair to a business, if you want to know what that true profitability is, there's other ways to go about it. And I think it's just brilliant to say there's other financial statements out there. Um, just because the P&L and a balance sheet is part of a story that, again, most likely you're not looking at, and you've got your numbers that you want to cherry-pick off. Some of them are just depending on the type of firm. You're just looking at marketing or you're just looking at labor. Those are not the exact areas to focus on. What's the production that's happening on the front end? What is the whole flow through? And your kind of vision in that is you're looking at the person as the business owner, and then you're looking in past conversations. I'm only speaking from past conversations. She's looking at that front end. And saying, all right, what's happening here? Who are you inside of that? I think what we covered in a private conversation was also about true delegation and how you're going to delegate stuff. And you have a great philosophy if you want to share what that looks like to kind of the masses here of how you run a firm.

So I will give you— we call it our Reveal Framework. It's how we get clients from bookkeeping to budgets and cash flow and everything honestly in between. Before I get there, there's one more piece I want to tell to anybody that does have profit distributions on their P&L. You are skewing that net income number, which is then skewing how much you're putting aside for taxes.

Yeah.

And we never want a surprise at the end of the year. So that's another really big reason I want to see it in your cash flow, because I want— we calculate for everybody roughly 20% of net income is how much we want you putting aside for taxes. If profit distributions are coming out of that and they are not Deductible on taxes, you're going to have a surprise coming in April. Okay, so reveal framework. We go, we start with the balance sheet because anybody who knows accounting or has heard anyone talk about it knows we can't touch your P&L with a 10-foot pole if your balance sheet doesn't make sense. So we want to make sure that whoever we're working with on that bookkeeping side really understands what they are doing, but also that the client understands what that balance sheet means in terms of Sustainability and liquidity. And one of my favorite things to talk about when it comes to the balance sheet is different people have different risk appetites for debt. Some people are very debt-averse and on the, the Dave Ramsey bandwagon of things, and some people are like, give me all the debt in the world. And I can sit and tell you that you need to go get a line of credit, or we need to pay off your credit cards, or whatever the situation is. But if we don't have a conversation about how you feel about debt, then you're not going to actually take action on any of those items. So we go through the balance sheet, we do a high-level benchmark. You heard me mention the third, a third, a third. I'm sure you've all heard of it if you're running a law firm. We want to see where you land in that, how much of it's owner's comp, how much of it's going to your people, where's the money going? And we'll go over some high-level benchmarks. Once we do that, we jump over to revenue. And I am a big believer in what we call capacity-based revenue budgeting. So we want to know who's on your team, how much are they supposed to be working, and if they had an hourly billable rate, what is that? I don't care if you're contingency, I don't care if you're flat fee, I want to know what that hourly would be because you should be getting exponential benefits on your contingency and your flat fee above and beyond that hourly. So we're going to look at your team through that lens and figure out what are your different revenue streams. First of all, because you have more than legal services, and if that is the only line on your P&L, we're going to talk with your bookkeeper and update it. I want to know what those revenue streams are, and we want to figure out what those profit margins are. We want to know what it costs to get the work done, and that cost lies in your people. And if you're a smaller firm, part of that cost lies with you. So what does that look like? What are your profit margins? Then part 3 is jumping into all of your operating expenses. And I know that sounds overwhelming when I say it that way, but we are going to look at everything below that profit line and put it in 3 easy buckets. The first one is required costs. I don't know a business that runs without cell phone and internet today. The second one is what I like to call personal perks. My favorite example to give is that my kids are on payroll. They don't add an ounce of value to my business, but they are a personal perk that is tax deductible. Another option for personal perks might be the pro bono work that you do or the passion projects that you take on. Then everything else, if it's not required and it's not a personal perk, goes into the investments category. It is an investment in your business, and every single investment should return time, money, or both. Back to the business.

Man, isn't it a lovely framework to think of? I mean, it's a lot. It is high, high level. And then I think of it in kind of elevator levels, like 1, 2, you just go on.

Yeah.

Well, and you know, so many law firms require a certain number of billable hours out of their team every year, but they— I've seen it time and again where, okay, I have to bill 2,000 hours this year. What does that mean? In our mix of business. To your point of breaking—

What does that do to your budget? Like, are you actually following up with people? And I've even had, I will call it the eat what you kill firms, where everybody comes on at a certain percentage and we go through that same exercise with revenue. And they're like, well, I don't, I don't know how many hours. And I'm like, but your, your overhead stays the same. And when I say overhead, for everyone listening, that's that operating expense piece. Regardless of how many hours all of those additional partners in that eat what you kill model are doing, you've still got to pay the bills. You've got to keep the lights on. You've got to pay the accounting team. You've got to pay the associates that are on payroll. You've got to pay the pay— there's a whole list of things that still have to be paid. There has to be some level of expectation for those other partners on the team for them to then get their percentage, or you're going to throw off this whole third, a third, a third model, and it's going to get really skewed really fast.

Well, looking at labor costs, that's another one. You know, how— what does that mean in our firm? Let's pretend like we're in a firm that's got all kinds of different services they provide, you know, and what does the labor cost mean? Well, it, it can't be a big picture. You've really got to fine-tune it and break it down. I've used this example with Linda and Sarah before. I worked in a law firm that had 52 attorneys, and, um, we KPI'd clear down to the square inch that they took up sitting in their cubes. In the big pit and what it meant. And you know what, when we finally broke it down to the nitty-gritty, we were able to come up with labor costs by departments, by, you know, by everything. I mean, it was—

One of my favorite exercises is that. We call it a cost per person because, hey, it helps us when we get to budgeting, which by the way comes after the expense piece. But when we get to budgeting, it helps us to be like, oh, they brought on a new person, we're going to ramp up over 3 months, and this is the cost that we need to add to the budget, but it also helps you stay within that 3/3 model. And are we where we want to be?

And I wonder how many people listening to this podcast are going to be sitting back, especially if they're attorneys, and they're sitting back like, I don't think about any of these things. I just put my head down. I go to the court. I come back. I just work, work, work, work, work. And I never stop and think about these items that will help me run more efficiently and then help me get more profitability. And track where I'm going. I think a lot of them don't do the tracking part. It's so easy to get so dialed into your work.

Yeah.

That you don't think about it. And, you know, and then you— the thing is, if they go to sign up with you, they need to dedicate time, right? It's just like anything else. I want to lose weight, I'm going to calorie count. It takes time.

You got to take time.

No, so it takes time to turn a ship.

They—

our minimum sign-up is 6 months for onboarding and getting through that 6-part framework.

Mm-hmm.

But I will say, we know attorneys very well, and I know how billable and profitable your time is, which is why at Four Corners we've built it to where we do all the doing so that we can just meet with that attorney for 1 hour a month. And then, yes, you do need to be able to delegate to your team and have some of those management conversations about tracking time. I get it. I'm a CPA. I hated tracking time. We all hate it, but it is absolutely critical when you run a firm.

Yeah, it's, uh, and it's those insights, that's data-driven insights that you're helping kind of bring to the forefront without them having— it's not that much of a lift per se. I mean, there's—

It's eye-opening too when you first get that report. It's, you know, I think what we had one client and they gave a report card and he was like, I better not get a D, I don't want to get a D, you know. And he was nervous and they went through everything and then he— I think he felt better after that But I have a feeling he kind of worried about what his grade was going to be in the initial going through everything. But yeah, I think that sometimes it's good to find— like, it's good to have somebody from the outside look at it that's not inside the whole scheme of everything. I mean, and to have them— even like what Sarah and I do, we're redoing our practice management tool.

Mm-hmm.

And we're trying to all get to that point. We're trying to be more efficient. We're trying to incorporate— we're trying to incorporate more, um, you know, automation into our firm, but also cognizant of we have a high level of service. We sell a high level of service. We want that high touch point, which Sarah's like, I never should have taken her to the Four Seasons because now she's got this new level of—

I'm like, you want it?

She's like, oh my God. And what does she walk out thinking about? Not about how great the Four Seasons was, although that was part of it. It was like, we got to be the Four Seasons of accounting.

And I'm like, okay, Sarah.

Well, it's just that touch. It's that high touch. And I think honestly, we're all of us here are business owners. We know what it feels like. We know just like our clients, it's that spidey sense, that gut sense. And I think what the nice thing is, is finding a partnership. Like if you're in the bookkeeping space and you get to this level and the client, you can just feel it. There's a client that's already asking for more. Not in the sense of asking for more. They're just starting to, like, really, the wheels are turning. You see the— and you're like, well, I need a partner in this. And you want somebody who can partner up with you to help you relay what this information is and be that conduit. There's so many times where we've got our head down, to Linda's point. And Steve, you're the same way.

Yeah.

And bob up and you want to look ahead, but you have to maintain what's happening in order for these— this whole machine to keep going. And the fine-tuning and the tweaking, another set of eyes like yourselves inside the conversation for strategic planning and financial outlay, or maybe they don't want that, but they needed confirmation of where they sit as a firm. Am I doing okay with where I'm at today? Do I need to grow? Some people don't want to grow. They just want to—

That's okay too. One of my longest-standing clients has been with me almost 5 years. No. Yeah, 5 years now. And she literally started off with, I just don't want to go backwards. I want to be able to stay where I am and keep things going, which is wild, but I love it. It also reminds me— I'm a swim mom, so a lot of things remind me of my kids and their swimming and When we take my daughter to her private coaching, they always tell her it's about your distance per stroke. You could thrash in the water and work as hard as you can go, and you're actually going to move slower and go less far than if you focus on that distance per stroke. And I think as business owners, we get so busy that we're just thrashing. We're doing and doing and doing and doing and doing. But when you bring in an outside person with that strategy, you get that distance and that easier way of doing things.

I love that. Okay, so I have a question for you. This is a big question that we tend to find business owners don't think about but have this fear. There's 2 parts to this. There's the fear of cash. How much cash should I have? Or overdraining it too much, right? And then this, that time of year. So I'm going to throw this out here, and I think that we don't talk about this enough. The strategic spending.

I love the way you phrased that.

Yeah, cash and then that, because obviously 4th quarter, that's where we're gonna get slammed hard with these questions. So what do you think?

So with cash, I'm going to actually throw it back to the, the part where I talked about the balance sheet and the debt averse or not.

Okay.

I believe every single firm should have a line of Get it before you need it. There is something very mental, and I love working on the mental side of finance as much as I do the numbers, but there's something very mental about an empty bank account or a budget that does not meet the needs of what you want it to going forward. And if you are in a position where cash is tight and you don't have access to any other funding like a line of credit, You are going to grab everything in your reach, and they are not all going to be good things. And you make some of your worst business decisions in that moment just to put money in the bank account.

It reminds me of going to the grocery store hungry. You make the worst decisions. It's the same analogy. And I bring this up because I'm— I have always felt the same way. I kind of learned it early on being in finance and seeing it From the inside out. We needed financing before. We should have gotten it when it was the high, the low, because we were desperate. And that's when you take the stupid loans that are 33% and something.

The factoring loans that you can't even pay off early. I had a firm come to us with, gosh, I think she had 5 of them. And I was like, it just broke my heart.

Never mind that. The QuickBooks loan people sign up for, for no reason. They just clickety-click, click, click. Do you know what you just signed away for? And I take a picture of the percentage because it's kind of buried. It's there; it's just buried. And then when they look at it, I'm like, "Oh my God!" I'm like, "You you should pay this off.

Why did you take it out?

Oh, for emergency. Well, find another way to get an emergency loan.

That's not an emergency." Yeah.

If you're thinking a line of credit is like a normal loan, it's not. If you've never heard of a line of credit before, it is literally a. Take what you need, pay interest while you've taken it, and put it back. It's an ex— it's almost like a savings account meets debt.

Exactly. That's, that's great. Like, that's perfect. Okay, so how do you smart— how do you spend smart and strategic?

And at the end of the year—

Yeah, listen.

Yeah, let's go back to that.

And I love this podcast, and it was so smart in that the sense of like Hey, we, we have all these books about investing and how to be smart, but how do you be smart about spending? Because spending is a personal thing too. Even if it's in your business, it's a per— it's a reflection of you in some ways.

So I'm gonna go back to what we said about investments. You should not— first of all, you should not be spending money at the end of the year just to save on taxes. You're only saving, I think I said earlier, about 20% of what that actual dollar is. It is okay to be profitable and pay the government because that's what happens when you're profitable. And we're going to save up for it over the year. So it's not—

Attorneys have so much trouble with that.

Yeah.

It's okay to pay the government. We will minimize it. We will do everything I can. And while I don't do taxes, I know just enough to ask the right questions. And we will ask about kids on payroll and we will ask about the really crazy golf rental house rule. and all the things that you can run through your business. But we will not go spend a whole bunch of money just to get 20% off in taxes. What I love to see people do, depending on where your business is, if you are having a phenomenal year and let's say next year, you know, you're going to see a little dip, the trend has been down towards the end of the year, you're not expecting maybe quite as great a year next year, which I hope isn't the case. But if it is, Now is the time to do some of those prepayments. Take it off of next year's books and put it onto this year's books, and you won't pay as much taxes this year. That being said, if you do a bunch of prepayments and then you do kick it out of the water next year, you're going to have even more money at the end of the year.

Yeah.

But that is one that I— prepayments, I love. If you talk to your vendors, especially software, you can usually go do like a year at a time or Um, I want to say even malpractice, you can do some of your prepayments there. There are ways you can prepay and even get deals for doing so.

You can get deals. Yep.

Yep.

So I love prepayments. I also love, like I said, maximizing the tax-deductible things that are a benefit to you personally. Have you maxed out your retirement? Have you put your kids on payroll if that's an option? Have you done And I can't even remember what the name of it is, but basically you can rent your house to your business for like $14,000. It's ridiculous. It's a golf rule, but you can do it and you can write it off and you can run it through pending CPA advice and your personal situation.

Right.

Uh, like, let's throw that disclaimer out there. I'm not anybody's tax person. Um, but then everything else needs to go through that investment lens, whatever you're doing. Is it adding value to your business? And I'm going to give you one of my favorite examples of a difference between required and investment, because I do think attorneys— attorneys enjoy each other's company and they like to spend money here. But I know as a CPA, you have to get certain education units. As an attorney, you've got to get your CLEs. There is a minimum requirement in your head. Those education units are required.

Which they are.

But I also know, because I have to go get my own, that you can go pay like $200, $300 for the most boring, ridiculous, knock-it-out education units and just get done. The $5,000 you may choose to spend to go to a conference in another state and hang out with friends—

Oh, yeah.

Is an investment in your business or a personal perk. So if you're going to do it, make sure that you're doing it in a way that returns value to you. Far too often people go to these conferences, and I don't want to take away from them because I love conferences and I love education, but far too often people go, you get all this information and you have a great time and you do nothing with it. If that's going to be you and you're okay with it being a personal perk, have at it, but it is not a good investment for you if you're not using it on the other side.

I think also the part Steve and Linda, tell me if you think about this. As we grow, we see this and we see it in our own clients. Just to your point on these conferences, who in the team would benefit from going? What does that look like structuring that? That is a perk, but it's also an investment. And how you structure that is strategic.

Well, and that's a great point, Sarah, because if you've already maxed out, let's say, your personal retirement stuff, you've got the conferences. There is so much you can do for your team that may benefit you, and that is an investment. And it usually is a pretty good return on investment depending on how you're doing it to keep your team and to keep everybody happy and to keep everybody engaged. There are exponential returns in not having to look for more people because I can tell you so many of our law firms, especially in the family and estate planning space, are struggling to find good people.

Mm-hmm.

Keeping your team happy, if you've got a good team, Is more than worth that investment at the end of the year, whether it's bonuses or maybe it's putting into retirement for them, or maybe it's looking into compensation for next year and preempting some of that. Whatever that looks like for you, your team is a great place for investment at the end of the year.

True. Yeah.

Better to do like a conference. Look, we're going to one next week, um, to ClioCon, and we're bringing the entire team.

Yeah.

It's an opportunity for us to put, bring everybody together cuz we all work pretty much remotely. Some of us do get to see each other, but not, not all of us. So get them all together, but also to get them out of the headspace of work because they're there to learn and to be there just so we're together as a family, basically. And then we're also there to learn and grow as a group and work together on things. We— it's so much— there's so much benefit. When we found our first team retreat, to sit next to each other at a big long countertop and work together.

I love when those ideas bubble up from the bottom.

Because, yeah, a lot of times there's that always that quiet team member that doesn't say a whole heck of a lot. They're not really an extrovert. Then you get them out on a retreat and they end up coming— there's ideas that we didn't think of that they'll come to us and they'll say, you know, I do this every week and this is— I think if you do it this way and it might be better, what do you think? And, you know, they might not do that in a meeting or a team meeting, but they might do it One-on-one if we're sitting at the end of a, a countertop together working on something. So I think—

We're at that conference listening to somebody and they're like, oh, what if we did X, Y, and Z?

Yeah. Yeah. And especially with AI and all the stuff that's changing coming out, it's good to get them to a place where they're gonna learn a little bit of something, have fun, but also learn. And I think that that's, you know, a good thing.

Absolutely.

Well, Steve, In the world of fractional CFO planning and all these things that you can think about and your KPIs, what do you feel like— like if you were partnering up, let's say, with Danielle and a client of yours, what do you feel like you would want to start with first? I know she has her framework, but where would you like to go in your mind?

Well, every firm is so different. I mean, I've been sitting here thinking, okay, this firm could do this, this firm could start there. You know, that sort of thing. Um, so that's a tough one to answer is where I would start first. But definitely in the way that the financial reports are laid out and explaining— I really love how you explained it, Danielle, in getting the message across to the law firm owner of what— where your cash is and what your true bottom line is and how you can base things on that. Because, you know, the question I— or the comment I made about different CPAs/tax preparers want, want the distributions on the P&L report and other ones want it on the balance sheet. And, you know, really educating. So I think every single subject needs to be brought up of the value of what you do and why you do it, um, really resonates with somebody who's coming to you for your services because I think that they've had a bell ring in the back of their head going, I need to do this. And I can think of a— yeah, and I can think of a client of ours that, that they're coming up to a point where that'll really make a difference. They have grown exponentially in the last year and a half. I'm just so amazed. And I love having financial meetings with them because they get it.

Mm.

It's still a little rough around the edges as to where they want things. Like, they wanted their equity on the P&L, and I'm like, no, that's not where it goes. But Um, to answer your question, Sarah, those are the things— I mean, I'm really embracing this today. You, you were right. You were so right. Um, a couple things I want to touch on. One is— and let me, let me just say the 2 and then we'll, we'll let— turn you loose, Danielle. But one is that your children working for you, because a lot of people are going to have their ears perk up, and there are tax laws around different ages with that. So maybe you could touch on that a little bit. And then number 2, Um, year-end bonuses. I am passionate about year-end bonuses in law firms. I think that if you've earned it, it's a great tool. But so many times I've seen law firms give those bonuses at year-end, and then 3 or 4 of their attorneys leave because they were waiting for that bonus. And I like to coach people to think about why they decided on the dollar amount that Sarah's bonus is going to be and how they communicate that to her. Because then when they just walk down the hall and hand out a $2,000 or a $10,000 check or whatever, what does that mean? And then I'm gonna turn around and say, well, you know, Linda, you got $10,000 and Sarah, you got $5,000 and I only got $1,000. What happened there? Yeah, you know, because they do talk to each other. Okay, I'll be quiet. Go, Danielle.

Okay, so I'm gonna start with Completely unrelated— well, somewhat unrelated to the points that you just brought up. I do think the other place that KPIs come up a lot for me when it comes to the fractional CFO work is when we get into the budget to actuals, which we haven't really dove into.

Yeah.

But once you've got a budget and you're monitoring it against actuals, those KPIs are the drivers. And that's where we really start to focus in. And pivoting on that to your question about compensation. We love a quarterly model for law firms because it keeps people engaged throughout the year. We are also a big fan of what I would call mixed model compensation. You do not just have to compensate somebody through wages. Their wages plus their bonus plus their origination fees, but like, there are so many things you can layer into a full, full compensation package.

Yes.

Law firm that it makes sense to then say, okay, and I will be honest, almost all of our firms when they're looking to hire and when we're talking through this together, this is what we're doing. We're saying, what do we need them to do? What do they need to make a good salary? What, what do we need them to do to break even and be profitable at this salary? But then also, what would above and beyond look like? And how much of that above and beyond—

Right.

Can we give them so that they're incentivized? And as you grow, especially for those eat what you kill models, because I say delegate down to so many owners these days. As you grow, I want you to think about what does it look like to mix your compensation up between personal and company-wide.

Yes.

So that you are delegating down, you're filling up your paralegals, you're giving everybody the work. Because if they're so focused on their personal hours, your paralegal may be sitting there empty. So having that full circle compensation model with all the pieces in it is how you want to do it. And in my— Go ahead.

I did. Oh man, I just get so passionate about this, you know, learning what means something to each of the people that work with you and for you. So, you know, for me, a $5,000 bonus won't mean as much as maybe a weekend in New York. And if you don't know that as my employer You don't know how to— to your point, how to— what, what is meaningful to me? What, what will really get me excited and stick with you?

Yep.

You know, I owned a day spa and I interviewed every employee that came in. We had 30-some-odd employees, and I would— I had a questionnaire that I asked every single new employee. What's your favorite color? What's your favorite flower? What do you like to do on your day off? If you could do something you never got to do, what would it be? You're getting the point of this, and That's how we bonus people and that's how we kept them because that industry has a massively high turnover ratio. And guess what? I kept my employees. You know, I had hardly zero turnover. I was gonna say, everyone on my team fills out a form of— I love this!

Favorite things to do and personality.

Will you marry me?

I don't know if my husband would approve.

Yeah, well, there's that. Oh, I, I tell— I so believe in that, that, that business model. What means— what does it mean to everybody?

Well, are they doing what they like to do?

Right, right.

Yeah. So then to your, your other point with the kids on payroll, you are exactly right. There are age requirements and you need to consult your tax preparer to make sure that you are set up to do this correctly. It has to be defensible, like everything in the tax.

Sure.

It has to be definable, defensible.

Yep.

But it is absolutely one of my favorites because so many, at least for us, so many of the firms we work with are moms and dads, and they do have kids that could defensively go on payroll. They have a spouse that could even benefit from retirement and things like that. So when you're looking to spend money at the end of the year, absolutely find a way to put it back in your pocket first.

Yeah.

Yeah. Thank you for clarifying that. Okay, Sarah, did I answer your question?

You did.

And I was gonna swing back. Linda, you were just gonna say something. What were you gonna say?

I was just gonna say, when I think about what Danielle offers compared to some of the coaching programs that I see— so we got some attorneys that do this group, uh, coaching, and then some of them come to us and they want 21 reports that they don't even know why they're being asked for it, and they They have a lot of homework, and there's a lot— and they don't seem to look at that until the day they're meeting with their coach. I'm looking at that comparative to what you're doing, which it's not— doesn't have the coaching label. It's got the CFO label. But you're telling us—

There's equal parts coaching and therapy and all the things.

Right.

And it's also like you're doing the— you're a lot of it. You're not laying all that legwork on the client to learn, get an accounting degree in this, which is— Something I see, I notice with the ones that take these coaching things, some of them do it, I think, for the trip that goes along with it. They go to the beautiful islands or whatever, and that's part of their— and they get together with other attorneys, and there's a lot of value in that.

They get to write it off.

Yeah, and they get to— it's a vacation, they get to write it off, and they go all over the country all year long. But also, if they're not— if you're not seeing a difference or a change in the numbers, I always look at it, all right, you spent this much money on coaching and your trips, and I don't see a big change in what your goal that you've shared with me, your end goal, you know, if that's something— or maybe there's clients out there, lawyers out there, that they don't want to do all that. They just want to get— they want to get the result, but they don't want to do all the homework and learn accounting. They want to have someone guide them through. I think that's more of what you're sharing with us, that that's your service. And then you're not going to lay a heavy burden on hours every month On the attorney to do work. No, they don't. And I think that that might be what stops some of them from doing this, so that they know that there is another offering out here, which is really what we want to convey. Because we know that, you know, with us working with you, we understand that there's, there's a different one for everybody. If you want to be that other type that goes and travels, I get it. I like travel too. But then if you want to really head down and do the work, but you're not having to have a lot of homework. We've seen it where Sarah has to sometimes do the homework.

I do the homework.

She does the homework because the person, they don't have time to do the homework.

What's interesting too, Danielle, and in fairness to what Linda is talking about, I know exactly what you're talking about. Sometimes it hurts me to see that you're digging into your line of credit and your credit cards for the expense of this so-called program or whatever it is that you're doing.

And they're not getting better.

And I do not see the needle moving. I see you with the same lack of delegation, the same overhead factor issues, the same burnout, the same burnout, the same kind of testiness when you're getting on with us. It's like, hey, I'm interpreting your information. I'm not here to solve every single problem that you have chosen not to do.

Yeah.

So yeah, that's very important, right? Yeah, it does. It breaks your heart when you see it.

And we literally— I'm going to say this with a grain of salt— there are a handful of our clients that pay us on credit card, but when we send our bill, it's not even an option. Because if you have to pay me on credit card, I'm not doing my job. Like, we need to be doing something better. So we don't even— unless we've talked about it and there's something going on, like digging ourselves out of some factoring loans or something that needs that help. The whole point of having a fractional CFO, or a coach for that matter, is that you're seeing that return on investment. And while I will say it's not always that your revenue or your profit or your take-home goes up, sometimes it's that your hours and your peace of mind and you— like, sometimes it's on the other side and it's less quality, it's more qualitative, less quantitative. But at the end of the day, and I'll be the first to tell somebody if I don't know something, I've actually told one of our clients we need to go find a marketing coach because that, like, I don't know how to tell you to sell a firm. I know how to tell you to do a whole lot of other things in it, though.

Do you ever have a newbie attorney come to you and, and you're like, oh boy, let's, let's start from ground zero and go, and you have success stories with that?

Yes and no. So when they're starting from ground zero, again, because I'm just so cost conscious, cost conscious with everybody, and I want to make sure they get that return on investment. A new attorney usually has more time than they have money.

Right.

So we will do a set of strategy calls where we coach them through these processes rather than us doing the doing and charging exponentially more for that. And we'll get them in the right mindset and the right habits and the right tools so that when they do grow to that point— because let's be honest, we all know nobody wants to be in their own numbers— when they get to that point, they can hand it off and be free of it, but they've gotten themselves there in a way that makes sense.

I see so many new law firms, um, start out with this massive amount of advertising and marketing expense and get frustrated with it right away. And, and you try to coach them with ways to measure what's— what their ROI is on the different vendors they're spending. Oh, it's hard. It is. It is.

And I have found when a law firm is putting significant amounts of money into it, they are often very attached to it as well. It feels like the only way they can get those clients.

Bingo, bingo. So how do you coach them on that? How do you, how do you turn that around?

We go back to that 3/3. I want to see if you're spending this much, is it really getting you more in revenue? And if it is, like, I'm not going to go complain if you're bringing in $1 million and you spent $20,000 a month on, on marketing. If we're, we're going to lean up what we can so we can improve profit margins. But if, if they're really getting that return, and I would also say I want them talking to an actual marketing person and getting results that make sense. I am not that, but I want to make sure they have it.

Mm-hmm.

And then just like I said, making sure that they're still fitting in with their goals and their model moving forward.

Yeah, don't just throw money at it, you know, really. What measure— what gets measured gets done. And what— what— oh yeah.

A lot of them do that though. They throw money at it and they don't track it. They don't even know when you ask them like, how do you know where that lead came from? Are you tracking that?

Right?

Nope.

Or how many consults do you convert into—

how many turn into clients? Yeah.

So that type of stuff. And then my other thing I will say, and this applies to any outsourcing that you're doing, whether it's marketing or bookkeeping or tax When you start asking questions, you will be amazed if you do not have the best of people, how quick they start doing more things. We brought on a client recently and their bookkeeper was not doing the best job. And when we did start asking for why was this here and why hasn't this cleared and what's going on, this giant email and then like email after email after email for like 2 weeks straight. Because somebody was finally looking at it.

The multithread emails. Love it.

Very deep.

You know what I'm thinking about as we're kind of like wrapping through this whole thing? I'm thinking in my mind, Danielle must run her house very much in her thirds. The children have this. And I say it in the most lovingly way because I feel like it's kind of what you're talking about manifests both ways.

Yep.

You are in your personal life is your business life and vice versa. And we have clients that don't understand the difference sometimes, and I'm like, no, let's get real here.

Yep. And understand every client is different. I think my favorite part when we're going through that framework and we're going through budget is when we sit down with the budget and we can actually have a conversation about how many hours they're putting in and do they like their lifestyle right now and is the money at the end of this budget worth what they're doing right now? Do we need to hire? What's giving them heartburn? Where are we going as a firm? And I don't know, just getting to come alongside and be that partner, not just someone telling someone what to do or doing all the doing, but really helping them get through that.

Are you missing the Little League games on Saturday morning? That's huge.

I am not. So my kids don't do Little League, but they are— good Lord, we travel all over Houston for swim meets at the crack of dawn. And we— I'm on every one. I am treasurer of our booster club. I get to do all the fun things.

Love it.

How do you get the job of treasurer?

I mean, it took them a while to realize, but I got voluntold this year.

That happened to me.

I have it too.

Yes, Sarah knows.

But it's out of love and passion for sure. Yes.

Yeah.

Yeah.

Well, Danielle, we can't thank you enough for all this information today. Oh my gosh, where have you been? I mean, this is, this is awesome. And thank you so much. I think Tiara will be mentioning where we can find you.

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I think you need to have golden nuggets next to those because there's a— yeah, this one. Yeah.

I'm going to find out when this particular episode is going to launch. And Danielle, your phone's going to start ringing.

I am so excited. Thank you guys so much for having me on this. I love the collaboration that we're building. It's just, oh, I don't know, like-minded people doing like-minded things is a lot of fun.

It is.

And you get energy from it. I love it.

Yeah.

Thank you.

See you all next week.

Thanks, everybody.

Thank you. Bye-bye. Bye-bye, guys.