Optimizing the Value of Your Law Firm

Allison Williams: [00:00:11] Hi everybody, it’s Allison Williams here, your Law Firm Mentor. Law Firm Mentor is a business coaching service for solo and small law firm attorneys. We help you grow your revenues, crush chaos in business and make more money.

 

Allison Williams: [00:00:25] Hi everyone. It’s Allison Williams here, your Law Firm Mentor, and this week I have a special guest on the Crushing Chaos with Law Firm Mentor podcast. Our guest is Jennifer Katrulya. Yes, she is a partner at Citrin Cooperman. And her focus is on helping businesses grow through strategic planning, sales, improvement, technology, implementation, talent strategies and tax advisement. So I know that was a lot of different areas, but really the reason why I had Jennifer on is because she helps lawyers with exit strategy. So that means for law firms that are at a place where the owner does not want to own the firm anymore, whether that’s because you want to retire or you want to sell the firm and recoup all of that value that you put in by building your highly systematized law firm. She’s someone who can help you with this. And so for those of you that have maybe 10, 15 years into the practice, you may be saying, hey, that’s a long way off. I’m not retiring any time soon. But even if you are at the start of your journey of owning a business, thinking now about what you need to do in order to maximize your economic value so that when you leave, you don’t leave with nothing.

 

Allison Williams: [00:01:33] You don’t just transfer your interest to someone else and say, all right, I’m out. But you can actually recoup some of that economic value of all that blood, sweat and tears that you put into your business. That’s really, really important. And that requires some planning. And so we talk on this episode about some of that planning. But I’m going to tell you a little bit about Jennifer, so you know why I chose her to come in and talk about this topic and why I think it’s really such an important topic. So Jennifer Katrulya has spent the last 20 years helping clients create and execute the strategic and operational plans needed to scale quickly, secure funding, provide critical reporting and communications to company stakeholders, increase market share and position for a successful exit. Also nationally recognized as a pioneer and a thought leader in the area of outsourced accounting and technology services, Jennifer helps companies to leverage Citrin Cooperman’s rapidly growing BPO services group of exceptional comptrollers, bookkeepers and technology specialists. And she’s often been called a power connector based on her proven track record of bringing the right people and companies together to help drive business growth and success. All right. So without further ado, I bring you our special guest, Jennifer Katrulya. Jennifer Katrulya, welcome to The Crushing Chaos with Law Firm Mentor podcast.

 

Jennifer Katrulya: [00:02:56] Thanks so much for having me. Excited to be here.

 

Allison Williams: [00:02:59] Yeah, I’m excited to talk to you, too, because you do something that I think a lot of lawyers are curious about but haven’t necessarily invested their time and energy in really thinking about long term, because I think a lot of us stay in the here and now. But you really help lawyers not just manage and optimize the success of their business, but you also help them on the outside, on the flip side of kind of getting out of business. So we’re going to talk about some of that today. And we’re also going to be talking about the ways that you help lawyers. But I want to start with what I think is really one of those critical things that we help with is is is the idea of crushing chaos. Right. So I know that you’ve worked with many law firms to help them streamline their internal operations and to increase profits. So what would you say are some of the top issues that you find in firms that you work with? And what are some of the solutions that people can be listening for if they really want to effectuate change in that regard?

 

Jennifer Katrulya: [00:03:54] Sure, so certainly the top thing I look at is managing cash, managing receivables, a lot of firms, even if they’ve buttoned up their process of getting bills out the door and not all have. So we work on just the timing of cash. You know, cash is king in running any business. So in a firm, a lot of times there’s that focus on how we hit our billable hours, how we hit our expected billing amounts, but not on getting those invoices out the door and again, getting payment back and making it as easy as possible for clients to pay. So we look at how to leverage the best of of service, business management and technology in that area of the firm, but also in every practice area, whether it’s financial management, HR, overall practice management and growth marketing. So I’d say that that mix of service and human labor and technology.

 

Allison Williams: [00:04:46] Yeah. So there’s a lot in there that you just kind of shared with us. So when you talk about human labor and technology and growth marketing, I heard you say. Like those are some some pretty sexy terms. So what is the role of growth marketing that you actually work with law firms on optimizing?

 

Jennifer Katrulya: [00:05:01] So, you know, and firms certainly are in a trickier place than most professions and industries as far as what you’re allowed to do and how you do it. So but social social selling and traditional marketing, as far as content management, you know, consistency is king. So creating a marketing plan that gets information about the firm out in the public and you know how you actually help your clients, because it sounds like it’s the same across firms that are like kind and provide like services. But clients are hiring a feel, a connection, a personality and also a belief that you can serve them. And so, you know, getting beyond the brochure, I like to say as far as what we do and and getting your personality out there through presence on each of the platforms, through sharing case studies about types of of relationships you’ve helped and how you’ve helped. But just getting people familiar with your face and with the sound of you and interacting with you is very important in bridging, you know, again, past the veil of the website.

 

Allison Williams: [00:06:02] Yeah. So definitely you want to have people know who you are. And I would imagine that that would also help when you’re talking about things like your your collections processes, because, you know, people are bought into you, they’re more likely to actually pay the bill that you that you released to them.

 

Jennifer Katrulya: [00:06:18] Yeah, absolutely. And giving them, again, a number of ways to pay. It’s so easy now. A lot of firms are using whether it’s QuickBooks or a law firm practice specific solution, making it available through your website, making it available through an emailed invoice with a link. Any number of those ways just gives them someone who’s not wanting to sit down and write a check anymore, although many will, all ways to get the money into your account are beneficial.

 

Allison Williams: [00:06:45] Yeah. Yeah. So I want to talk a little bit about covid. And I know we are… The world is starting to open up again. We’re recording this in actually June of twenty, twenty one. I can’t believe the year is almost half over, but we have just been through one humdinger of a year in twenty twenty with covid. And a lot of us, a lot of law firms actually had varying different results from covid. Some people were hunkering down but still moving and trudging forward. Others started to actually see a real retraction and started to close their doors. So what are some of the ways that you’ve actually seen firms push through this year of covid and ultimately come out on the other side successful?

 

Jennifer Katrulya: [00:07:27] I think it was really the firms that, you know, first, the firms who found it easiest were those who were in a legal space that made it easy to continue to practice remotely. And that wasn’t true for everyone. So for those who couldn’t, simply didn’t work, courts were closed and other things impacted their practice. Some pivoted to providing services that could be, could be done remotely. But it really was. How comfortable were you with technology and with providing services that could be handled remotely? How comfortable are you with video conferencing? Just how did you pivot like many other companies, but also how quickly could you go digital as far as files and communication? And so those who weren’t prepared for it initially but got on board quickly, you know, certainly fared best. And also those who made the mental change and didn’t feel just simply defeated, like I’m going to be home for now for a year plus. And I think now getting back to work is very similar. If those have said I now have to wait till everyone else has returned to their office and everything else is open, you have to decide to be an early adopter of this, now a changed place and decide you’re going to live in it. And whatever you didn’t do over the last year, as far as digitizing and working remotely, realizing now that the world is going to remain a hybrid for a while, being accepting of that and now living in it is really important.

 

Allison Williams: [00:08:51] Yeah, well, it’s interesting that you mentioned that. Being the early adopter and deciding you’re going to go ahead and make the change, because I’ll tell you, we’re in the process now of hiring several employees. Our firm has grown quite a bit through covid. And one of the things that people have asked us is, are we are we going to be working remotely or are we are we going to be in the office? And I said, you know, my team loves this new hybrid world that we’re in right now. We have been hybrid really from the beginning. At first, our governor said, go home and then pretty soon for legal services we were allowed to be in the office. And people love the flexibility of being able to not have to get up, put on clothes, put on makeup when you know you’re just going to be working on a brief all day. Do it in your office at home. Right. And so a lot of people are, I think, making that determination. Do I want to go back to a brick and mortar office or do I want to become virtual or something in between?

 

Jennifer Katrulya: [00:09:41] Absolutely. You know, I think it creates a new set of requirements for firm owners and leaders as far as now setting the tone of what does work from home look like as far as dress code and and how do you present with your clients? Is it phone calls? Is it is a video? What is the setting? What are your backgrounds? And also what are the technology, cybersecurity rules, all of the other things. So back to again, if you’ve gone remote or if you’re off for a period, I can say off for a period of time in that you just said, I’m going to check out for a period, it’s really important to use it because even when you return to the office, these things will still be there. And so top talent, when you get into hiring, that is going to follow where the perks are and the flexibility and that that new office setting, I believe as well. So there’s no no escaping it, if that was the hope.

 

Allison Williams: [00:10:29] Right. There is no escaping all the compliance issues. If you own a law firm, you’re in the business of compliance. (Exactly. Exactly. So.) Yeah. So we’ve been talking a lot about kind of surviving the the the change and also how to how to pivot when necessary in order to survive the change. But one of the things that you help lawyers with is once they have decided there’s no more pivoting, I’m done with this. And I think that’s actually kind of a fun topic because I think a lot of lawyers don’t think enough about what it’s going to look like to stop practicing. They just kind of figure one day I’ll stop. But, you know, it’s not like, you know, you’re you’re walking down the street and you can just suddenly decide to not pick up your next foot. I mean, it really is a huge involvement of process in terms of whether to sell, whether to transition to the next chapter, whether to close up shop altogether. So how do you actually help lawyers with exit planning? And what does that look like when somebody says today, I want to be out two years, three years, five years down the road?

 

Jennifer Katrulya: [00:11:28] So I and I really do think you made the great statement just now that I think it is important to be looking three to five years plus down the road. And the reason I say that is because deciding to exit from the firm is very similar to any other company in that it needs to be a well-run company that a buyer could see fitting into their practice and could see buying. So all of those things that we kind of possibly do, especially in a smaller firm or smaller business that’s kind of customized and outside of just the mechanics of a sound business, whether it’s governance, how is is the firm run? Do you have, I don’t say an advisory group. For a smaller firm do you have people who are providing support and additional marketing coverage, really your banker, your practice attorney for business things you don’t do, your insurance person, all those things. Do you have the right team on board? From a human resource standpoint, are you buttoned up? Are your receivables and your financials in order? Are you profitable? Are you making the minimum bar that someone buying you is going to want? What is your involvement going to need to be? Is it a business now that could function without you? Or are your clients so tied to you personally that there really isn’t going to be value in the client list when you move it on? So what we work with several years in advance is ideally moving you to a support person within your own firm so that there is a practice that when it transitions on, can be as profitable or more so maybe in some cases as you decide to retire.

 

Allison Williams: [00:12:59] Yeah, well, I loved your speaking my language. When you talk about having a system and having a business that can run without you, because that’s very much what we focus on here at Law Firm Mentor is getting your law firm to the place where you’re not necessary for it. Right. And the idea of you being in the support role, I think a lot of lawyers will probably get triggered by that. And they just you know, we’re such control freaks that it’s like, what do you mean? I wouldn’t be necessary? What do you mean? My clients wouldn’t be calling me. They’d be calling someone else. And so how do you help them make the mental adjustment necessary in order to decide, first of all, that they are going to be a lesser important role in the company? And then second, that that’s really in their economic best interest because, you know, if the business is bloated with compensating you as a shareholder, that’s very different than compensating you for actual legal work or even a strategic role that would have to be compensated if you were gone.

 

Jennifer Katrulya: [00:13:53] Sure. So a couple things that I do, and again, there are different approaches to this, but first, so I like to come up with a few scenarios as far as valuation. What could you expect from the practice if you make these changes? So, again, if you remain at the helm and if the practice is all about you, what could you possibly expect from what becomes essentially a purchase of your client list? Because it’s not a purchase of a business anymore or a sale of a business. So ultimately, if it is a firm that you can transition on without you in it again can remain as financially successful or more so and your team members are as on board, that’s a different scenario. So I like to run through those and say how much how important is it to you to earn this additional amount at the point of exit? What’s your return that you’re looking for? Secondly, that in terms of actually practicing that, you know what? If we gave you a set of business cards that now said, you know, director of business development and you are no longer the primary leader in your firm, the primary billable individual, and so over time moving you into a rainmaker role. And also I’ll call it a PR role, but a role that has someone else now as the lead person in the firm, likely that person who would be so during the transition and and really moving you into that role. And and. Also, identifying who the rainmaker will be aside from you and toward that last, you know, year or year and a half, making sure that you really do become actually an internal administrative role that has no visibility at all. But moving you out of all, back to your point, you just made, out of those control positions, both for your own sake, but then also so that really the firm is running successfully and it’s demonstrated so without you.

 

Allison Williams: [00:15:35] Yeah. So I love that you’re talking about the different ways, like you actually have an approach to this, because one of the things that I have seen and ironically, I happen to have a couple of people that I know right now that are seeking to either retire from the practice or lateral out. They don’t want to be an owner anymore. And one of the things that is a real challenge is that the valuations are all over the map for law firms. Right. So you have those high those high end enterprise goodwill and law firms where owner dies tomorrow, law firm essentially runs the way that it does now versus the mom and pop shop where somebody is the name, the face, the marketing, the energy, and everyone comes to the firm for that person. And yes, that person may have associates, but for the most part, the work is generated through that person. So that person goes, so does the work. And trying to figure out what is the right number for that just seems like it’s all over the map. In fact, I actually, this one person actually showed me a database where you can list your law firm for sale, and they went on and looked at different law firms and some were looking at like two point five times the EBITDA value and others were looking at one time the value. And she was like, well, that could be several hundreds of thousands of dollars difference. I mean, so how do you even help law firms to get to a place of saying this is the value of my law firm based on concrete factors that I can actually engage in optimizing right now instead of kind of the crapshoot as it could be anywhere from one to three to five to 10, right?

 

Jennifer Katrulya: [00:17:07] Absolutely. So well, I honestly think it’s positioning for sale now and beginning to have those conversations, because to your point, they’re all over the map. And so there’s no reason to think, especially about three years out, that you aren’t ready to start shopping for who you will sell to because it also gives you a period of time to build for acquisition, meaning starting to really date that, make sure it is a right fit, starting to tailor the marketing, the relationships, the interactions so that a transition would be smooth. Far better do that before the actual transaction and find that there’s something wrong or it’s not going to be quite a fit and also shorten the time period that you as the owner need to stay on afterward to facilitate that transition. But it allows you to shop for pricing also. I mean, really again, it’s what the buyer will pay and where you feel there’s the best fit. So I think to your point, there are certainly getting an actual valuation. And as an expertise that we provide in our firm and others provide, you can get a range of what the firm would be considered as being worth. And then and then really you need to go to market and find that buyer.

 

Allison Williams: [00:18:14] Yeah. So if we’re looking at trying to find the buyer, you know, one of the things that you have to talk about with potential sources, potential purchasers, is how you have maximized the value. So if you’re working with a law firm client and they really want to maximize the value of their law firm, where do you tell them to start?

 

Jennifer Katrulya: [00:18:32] First, I want to document it. So we actually work to create a pitch. This is, this is what we do. This is our team. This is how we handle each of the best practice areas of our firm. It makes us an ironclad business to purchase and a really secure and successful purchase you as a buyer could make. And it’s making sure that you can then again have meetings with and date the potential buyer of your firm, do your presentation. Make sure that in ongoing relationships, you have to just be polished and bring your A game to each of those relationships and make them super excited.

 

Jennifer Katrulya: [00:19:07] You know, firms are going to be very excited about a potential acquisition that either equals where they are today as far as what they bring to the market or feel they do, or they feel is going to make them better and help actually raise their game. So you have to be able to do that and demonstrate, you know, getting yourself appropriately in the media back to the marketing and sales people who see that you’re getting positive, ongoing attention in the marketplace, again, helps them feel that it’s going to move the firm forward. So there’s there’s nothing magical really about it. It’s just you need to be that top polished, firm and really, so that people are seeking you, quite honestly.

 

Allison Williams: [00:19:46] Yeah. So I just want to make sure I understood that last part because it almost seems like there’s a little contradiction. Right. Because in one moment you’re saying you need to not be the front facing. You know, I’m the I’m the person in charge. I’m the leader here so that everyone’s looking to you. But on the other hand, you’re saying to make your firm more desirable, you need to be out there and be front facing so that people are looking at you as positive press. So how do you balance those two contrary needs?

 

Jennifer Katrulya: [00:20:11] Well, it’s actually, so to clarify and thanks for raising the point. The firm needs to be public facing the stories of your successes, the types of work you do and the clients you work with and the success stories. So it needs to be about what your firm has brought to the table and not your face. So, you know, the art, the graphics, the stories need to be great and it needs to not be about the person selling the firm.

 

Allison Williams: [00:20:36] Yeah. And one more thing I want to follow up on that you said is this idea of, you know, that you can shorten the time period that the owner has to stay on if you have a well-run business that you’re transferring to another that to a purchaser. So is it always the case that someone has to stay on afterward? I mean, is there ever the kind of clean, psychological and actual break where you say, OK, today, today we’re making the transaction and I’m going to have a 30 day cease fire so that I can tail out of any and everything that I’m doing and help new person to take over my role. But for the most part, I’m not going to be here afterward. Or is it more common that you see people for months at a time, maybe even up to a year, being kind of the the the liaison between the firm of of yesteryear and the new firm that that’s accumulating and acquiring that firm?

 

Jennifer Katrulya: [00:21:28] I would say it’s most common for me to see the want that someone will stay on for a period of time afterward and facilitate the transition. But I’ve been part of situations where someone became a judge and couldn’t be in the firm anymore or became elected to do something else and decided to take on a role where they weren’t allowed to be part of the practice anymore. Or again, something’s happened suddenly and a family is in the position of having to help move on the practice. So there are things that happen and other people they’ll just say covid was a good time period for this. Or some people just said I’m out and and decided to transition the firm. So, you know, again, if it’s been a solid running business up to that point, I always feel like it’s going to affect the the exit value to some extent. But you position yourself. If you can hand over the playbook for your firm and the client list and the team, and it transitions very cleanly to a new firm. And if you’ve done a good job of matching up so that you fit another well running firm and you’re not so custom that it’s hard to find a match, then you stand a very good success of still getting a great exit value.

 

Allison Williams: [00:22:30] All right. I think that’s an excellent point. And that’s where we’re going to wrap up for today. Jennifer Katrulya, I want to thank you so much for being a guest here on the Crushing Chaos with Law Firm Mentor podcast. As we expected, you were a wealth of knowledge, especially about how law firms can really optimize their value so that when they do step out, they can step out into that future instead of that nightmare of still holding on to the firm of the past.

 

Jennifer Katrulya: [00:22:53] Well, thanks for having me. It’s a pleasure.

 

Allison Williams: [00:22:56] All right. And everyone, thank you so much, as always, for being here for another episode of The Crushing Chaos with Law Firm Mentor podcast. You can find us in our usual places and spaces. We welcome you to join our Facebook group, as well as to check out our website and those information… That information will be in the show notes, as will Jennifer’s information. If you want to reach out and get some real substantive guidance on how to exit your law firm. Bye everyone.

Allison Williams: [00:23:35] Thank you for tuning in to the Crushing Chaos with Law Firm Mentor podcast. To learn more about today’s guests and take advantage of the resources mentioned, check out our show notes. And if you own a solo or small law firm and are looking for guidance, advice or simply support on your journey to create a law firm that runs without you, join us in the Law Firm Mentor Movement free Facebook group. There, you can access our free trainings on improving collections in law firms, meeting billable hours, and join the movement of thousands of law firm owners across the country who want to crush chaos in their law firm and make more money. I’m Allison Williams, your Law Firm Mentor. Have a great day.