In this episode we discuss:
How doing your own bookkeeping is taking time, money, and energy that could be going into your law firm.
- What are the benefits of choosing the right bookkeeper.
- Bookkeeping will save you time and energy while you run your business.
- What your numbers are telling you about the health of your business to be able to hire.
- Asking the right questions when interviewing a bookkeeper as he/she will act as an advisor.
- How automation is an important and essential component of law firm management.
SEE THE FULL TRANSCRIPT BELOW
Allison Williams: [00:00:02] Hi, everyone. It's Allison Williams here, you're a Law Firm Mentor. And welcome to another episode of The Crushing Chaos with Law Firm Mentor podcast, where this week we are going to talk about the benefits of bookkeeping in your law firm. So bookkeeping is one of those topics that a lot of us would say is dry and dull, and it's not something that we get really excited about. But I want you to get excited about the opportunities that are available when you choose the right bookkeeper and when you utilize that service in your law firm.
Allison Williams: [00:00:32] Now, I'm going to take you back to when I started my law firm. It was back in 2013, and I remember very distinctly I had a conversation with an accountant. I had just kind of started the idea. I had worked with this accountant before with my private taxes, but I when I was going into business, I was like, I don't I don't know how to handle the finances and I'm really very nervous about it, and I was scared about what it was going to cost. And we had a conversation and he said, you know, let me tell you a little bit about what bookkeeping is and why it's so critical that you start out on the foot of having your numbers in line. And I won't go into all of the gory details. You know, it's an account and it wasn't the most sexiest conversation, but he gave me a real framework for working with a bookkeeper that made sense to me.
Allison Williams: [00:01:23] And the very first thing he talked about is the thing I'm going to share with you, which are the basic numbers of bookkeeping, right? So for a lot of us, we think I want to save as much money as possible when I'm starting out, I want to start out scrappy. I want to only add expenses when I absolutely have to. But here's the thing. Whether you are $1,000,000 law firm owner or you are making your first $5,000 a month, the reality is that the time and energy that it takes for you to keep on top of the level of meticulous detail that is required in accounting and in particular law firm accounting is usually going to eclipse what benefit you get from saving the dollars, right? Because the dollars that you are taking away from your law firm to do your bookkeeping are usually dollars that you can make somewhere else.
Allison Williams: [00:02:14] Now, this is true whether you are billing by the hour, whether you are a flat fee service, whether you have a subscription model, doesn't matter whether you are doing something lower ticket like traffic court or you are doing something higher ticket like mergers and acquisitions. The reality is that you are taking time away from legal work which is compensated at a higher economic value. Then to do something that is less well compensated, right? Bookkeeping requires less skill, it requires less education and therefore is compensated less. So it's important that you just recognize straight out of the gate that you are costing your business money every time that you're doing your own bookkeeping.
Allison Williams: [00:02:54] Now, how much money you're costing yourself is going to depend on where you are in the, in the pricing scheme, right? If you are pricing yourself high in the market, if you're $500 an hour, you're costing yourself more than if you are $200 an hour. But either way, you are still costing yourself money.
Allison Williams: [00:03:13] The second thing that's really important to understand just about the basic numbers of bookkeeping is that the time and energy that you spend doing the bookkeeping is only one cost to your business of doing bookkeeping. There is also the cost of all of the questions that tend to arise when you don't have a firm handle on your numbers. And those questions take away energy, which is the most important asset that you must preserve as a business owner. Every moment that you are spending with that question mark of how much money am I making? Am I profitable? Can I afford to invest in this strategy, this tactic, this asset, this person, whatever it is that your business needs, that time and energy takes away from actually doing the work of business. I can't tell you how many law firm owners that we speak to day after day here at Law Firm Mentor that will tell us at that point where I have too much work and I want to hire, but I don't think I can afford it. Right. You should know whether or not you can afford to hire, right? And you should know what the range is of affordability for your next employee.
Allison Williams: [00:04:21] Now, I say that with some trepidation, because for most law firm owners, you don't recognize that in order to hire, all you really have to do is monetize the role. So even if you have $0 in the bank, you can actually hire someone with a, with a plan to be able to generate revenue for them through the work that they do. You should not be hiring people based on dollars that you have already earned. You should be hiring people based on the ability to monetize the work that they will do in the future or otherwise at some point you're going to run out of the money that you have in the bank, right? You need to have money in the future. So that is very real as a concern for law firm owners. And I don't want to discount that concern, but a lot of times that can. It arises out of sheer ignorance, right? If you don't know how much you have, then you have to spend the time and energy to figure out what you have when it's time to hire someone. And the problem is, if you're figuring it out today, it's going to change tomorrow, right? Because money is not static. You're always going to be laying money out for expenses and investments and you're always going to be generating money in through sales and collections. And so if you're not clear about that relationship between money coming in and money going out, something that a bookkeeper typically can help you to do, then the time and energy that you have to spend in order to figure out not just a snapshot of today, but over some period of time what your numbers are telling you about the health of your business to be able to hire takes away time from actually going about the process of hiring. So people then hire in a state of uncertainty, a state of fear, and a state of distress that oftentimes makes those hires less likely to be successful and less likely to be profitable just from the gate. So we really want you to have a good firm handle on your numbers, and working with a good bookkeeper can absolutely help you to do that.
Allison Williams: [00:06:07] Now, the second thing I want to talk to you about, beyond just the importance of having a bookkeeper, is the fact that you need to ask questions when you are interviewing a bookkeeper, but the questions are not can you do and do you understand how there are questions that are priming the pump to see what kind of bookkeeper you're going to get?
Allison Williams: [00:06:26] Now, what I mean by that is that there are obviously varying levels of skill in any profession when you're hiring someone, but when you're hiring a bookkeeper, I think what a lot of us do is we look again to solve today's problem. Right? We're trying to figure out, can this person put the data where it needs to be in order that I will get my reports on a timely basis, in order that my books will be maintained appropriately, according to the Bar Association, according to financial accounting, if I need to go apply for credit, am I going to be able to understand my numbers based on this person's work with me? And those are certainly important things to explore. But the way that I suggest that you explore them is that you're looking for someone who is more knowledgeable about bookkeeping than you are.
Allison Williams: [00:07:11] Now, For those of you that are CPAs who went to law school as a second career, or for those of you that have a spouse that works in the financial industry, you may be thinking, Yeah, yeah, yeah, I already know how to hire someone who does what they do because I understand bookkeeping, right? I understand how logistically it works. But I want you to putting those, those few of us aside, right. Even if you're in that category, there's something to be gleaned from asking questions to allow someone to demonstrate their knowledge to you. And sometimes I will ask questions that I know that I should know the answer to rather than asking of the bookkeeper. But I ask those questions really with an eye toward seeing what that person knows.
Allison Williams: [00:07:52] So, for instance, I will ask sometimes, how frequently will you be giving me reports right now? If the bookkeeper is astute, he or she will say, Well, I really want to be guided by how frequently you need reports. But traditionally, this is the this is the timeline that businesses your size will be gathering financial data or this is what I would recommend if you are growing, if you are if you are looking to bring people on, if you're looking to make changes in the business, this is how frequently I think you ought to get that data. And then, as experience has shown me, I will typically accelerate giving you those reports when you have certain high stress times, if you're acquiring another business or if you're hiring someone to join the company. Right. I want that kind of answer because that kind of answer shows me that the person doesn't just do what I tell them to do. The person is a thinker, right? The person understands that using financial data in a business is not something that is purely within the purview of the business owner. It really is something that is going to help all professionals that are working in the business.
Allison Williams: [00:09:04] So you're always going to be looking for how can I take, how can I take this this moment in time, this conversation that I'm having with this bookkeeper and extract information from this person that shows me that he or she is going to be a partner, a team member with me, and not simply a delegatee. Right. They're not just going to take my numbers and do something and then turn it around on a schedule that I give them. But they're going to be somewhat of an advisor right?
Allison Williams: [00:09:32] Now, you have to be careful. There are a lot of financial roles in in a business and in a law firm also, you know, from bookkeeper to accountant to CFO, fractional CFO or full-time CFO, you know, you certainly need to have your, your dream team, if you will. And many bookkeepers will not step into the realm of giving advice or guidance. They really see themselves as just doing the data, and that's okay. But the better professional the professional who's going to go a little bit deeper with you is going to be able to help you to understand your numbers at a deeper level, because they're not just understanding it for themselves. They see it as their responsibility to help you to understand the information for your business. And that person is going to be more valuable as a team member, especially as you are growing to the stage where you're going to amass a full fledged financial team. If you don't yet have a management accountant who is giving you strategic advice and meeting with you every quarter and giving you tax planning guidance if you don't yet have a fractional or full-time CFO who is onsite making, helping you to make these big visionary decisions that are going to ultimately plan out for you how much money you need to be accumulating and retained earnings and what your budget should be and what your labor efficiency rate is, right. If you don't yet have that type of guidance. A bookkeeper is the very, very, very minimum to be able to give you some understanding and awareness about what you are doing today. Right.
Allison Williams: [00:11:02] Now, the great thing about bookkeeping, if you have a good one, is that the bookkeeper should be able to give you information not only about what your business is doing today, but kind of a retrospective. Right. One of the things that I'm a big fan of is helping lawyers to look at their trends in their law firm, because a lot of times when you start to see your, your sales are slowing down, right? You have kind of a trickle effect. You're feeling like there's water seeping out of the bucket. Or if you're using the boat analogy, you're on the, you're on the ocean and oh, my God, there's a hole in the bottom of your boat and all of a sudden you're sinking, right? That's what that feeling can be. But a lot of times that feeling is driven by our emotions. And those emotions are oriented toward a fear response. Right. Because obviously, the more we fear things that seem to be harming us, the more action we take to secure them to, to resolve those issues. And the problem with that is that as we are looking to resolve those issues, because we are in a state of fear, we are oftentimes making knee-jerk reactions, knee-jerk responses today without a long-term plan. We are deciding in a state of lack a lack mindset rather than an abundance mindset. So we are restricting, we are limiting, we are forcing rather than allowing and fostering and supporting.
[00:12:26] And so when we have these challenges with our numbers because of lack of knowledge, it's really important that we stop and pause and that we look at what has happened historically in our business. So that in a moment where our sales might be lower, we could say, oh, you know, third quarter is always slower for my business. Or I notice that we, we just brought on this person and that person is taking up more time and energy with training and onboarding than we would normally expect. So therefore our sales have been sluggish, or our deliverables to be able to build and collect against retainers has been sluggish. We really can solve that problem by virtue of becoming more efficient with our onboarding in the future, but also taking back some of the time we're allocating to this person to make sure we make up that shortfall.
Allison Williams: [00:13:12] Right. That is how numbers, analysis can really help you be a more sophisticated business owner, and that tends to happen through the help of professionals outside of yourself. Okay.
Allison Williams: [00:13:23] The third and final area that I want to cover when we talk about bookkeeping is the value of prioritizing automation. Now, the topic of automation has really become a, an essential component of law firm management and growth over, I'd say, probably the last 3 to 5 years, right, where there's been a surge of discussion of automation, especially as we've had movements of people really looking how looking into how to create a virtual law firm, being able to work from anywhere around the world, not being tethered to a physical location, especially as things like Zoom have, have been much more common in video conferencing, much more common in court systems. And so for the benefit of the bar, we have involved automation in the law firm, but we also are doing that for the benefit of the individual right. You can offer either lower-cost legal services or more efficient legal services. You can get to the end result faster when you can press a button to be able to repopulate a brief or a pleading or some other document that's going to be necessary in a business. So we intellectually understand that it is a benefit to the profession as a whole and to those it serves by virtue of having automation.
Allison Williams: [00:14:38] But when we talk about automation in the sense of bookkeeping, we're talking about the ease with which you can organize your finances so that there's not kind of the stop and pause in the middle of the year where you have to go through a big old box of receipts to gather up data for the accountant, and then you are avoiding your accountant. Your accountant is frustrated because the work is not being done timely. You are going to miss deadlines and have to put yourself on an extension and that could have financial consequences. It's just not good all around, right? You want to be able to have an orderly set of books and the best way of creating order is before chaos is ever ensued.
Allison Williams: [00:15:15] So as I mentioned earlier, when I started my law firm, I talked to an accountant who was then my accountant, and he gave me a really, really great roadmap of how to create automation through my bookkeeping. That made it a lot easier for me. So at that time, we were using QuickBooks and we set up QuickBooks in a way that every time I wrote a check, I wrote it directly out of QuickBooks, right? So we had QuickBooks checks, and when I would write checks I had already, every time I wrote a check, there was a new category created as to where that check needed to be organized in our chart of accounts. Right? The chart of accounts is all of the categories of activity that we have in our business, so that any time an expense arises, we know where to put it for purpose of defining the expense. Right? Is the expense of marketing expense? Is it a rainmaking expense? Is it a payroll expense? If it's a payroll expense, what type of employee did it go to and how was that broken out between taxes and compensation and benefits? Right. All of that is spelled out in advance in our chart of accounts so that every time we have any type of expenditure out of the business, it is already organized. So that when we write a check or if the expense comes directly out of a bank account through a draft or something like that, and my bookkeeper then goes back to reconcile. She's able to look at the transaction and say, Ah, this is a transaction that always universally belongs in this category of expense. So I'm able to look at every time we, every time we spend rent, right? It goes in the occupancy expense category. And then we have that same expense for January, for February, for March, and so forth. Now, you might be thinking that's, that's a lot of tedium, like, why do I need to do that? But here's the thing. As your business is growing, you need to understand how you are allocating your resources. In fact, one of the things that was most light enlightening for me is I'm going to give you a book reference here,the book is written by Greg Crabtree and it's called Big Numbers Simple, Big Profits. Simple Profits. Oh, God, I hate that. I can't remember the name of it, but I think it is Simple Numbers, Big Profits, or something like that. But it's written by Greg Crabtree. It has an orange cover referred to me by actually a very good friend of mine. And the name of the book escapes me right now. But I do know it is the book by Greg Crabtree. I do remember the author. Because I had the beauty, the benefit of actually going down to meet him in his office in Huntsville, Alabama, to walk through an exercise to determine my labor efficiency rate. Right. How much am I getting for what I'm spending on my labor? And that was such an enlightening exercise because it helped me to see that the proportion of my revenue that's going to people is out of line with what I would need to be able to produce from my people in order to get to a certain place. Right. And it doesn't mean that you couldn't get there otherwise. It just means that you would get there less profitably. You would get there with more risk and so forth. And I won't go into all of the minutia because I'm sure I'm going to distort it in talking about it. But it was for me, a clarifying exercise where I could actually say, okay, understanding how much I'm spending in this category of expense, I can determine that I either need to make more in this category or I need to spend less in this category in order to maximize what would be most profitable for a business my size to get to the next level. Right. And it really helped me. But the starting point of that, the real, the first point of being able to even have that conversation was to look at my numbers. And my numbers had always been very well maintained because I have a bookkeeper and I also had my bookkeeper set up automation from the start of my business.
Allison Williams: [00:19:04] Now, for those of you that are in smaller shops, right, if you have less than $500,000 a year in revenue, this is particularly helpful because the less time that you have to spend actually category categorizing expenses or having a bookkeeper categorized expenses, the less costly your bookkeeping will be, right? So it's almost like you kind of set yourself up to spend less in the future and to have more clarity.
Allison Williams: [00:19:30] So at any given point in time now in both of my businesses and my law firm and in our coaching business, I'm able to go into our QuickBooks account and I'm able to run a simple profit and loss statement, also known as an income statement. And look at where we are. Right. And I can look at where we are today in a snapshot. I can look at where we have been over the past several quarters. And I can do that with a certain level of knowledge and comfort that not only have my books been reconciled and closed out by my bookkeeper every single month and reports generated for me every single month. But if in a moment I have a question about something. Right. How much did we spend on this? Generally speaking, how what is the percentage of our marketing budget that's allocated to a particular expense? When I'm talking to a marketing vendor or how much is, what is the trend of compensation for our administrative staff in this particular area relative to what someone is asking for in terms of a salary demand? Right. If someone is saying I want X, I should be able to pull relatively quickly. Ok, generally speaking, this is how much the benefits package and total compensation package is for an employee. So either this number is in line or is not in line with what we tend to spend, right? Those are valuable questions to be answered and valuable answers to guide decisions in a business. And that all starts with having a bookkeeping service that lines up with what you need to accomplish as a business owner.
Allison Williams: [00:20:55] All right, everyone, you have been watching The Crushing Chaos with Law Firm Mentor podcast. I am Allison Williams, your Law Firm Mentor and I'll see you on our next episode.
Allison C. Williams, Esq., is the Founder and Owner of the Williams Law Group, LLC, with offices in Short Hills and Freehold, New Jersey. She is a Fellow of the American Academy of Matrimonial Lawyers, is Certified by the Supreme Court of New Jersey as a Matrimonial Law Attorney, and is the first attorney in New Jersey to become Board-Certified by the National Board of Trial Advocacy in the field of Family Law.
Ms. Williams is an accomplished businesswoman. In 2017, the Williams Law Group won the LawFirm500 award, ranking 14th of the fastest-growing law firms in the nation, as Ms. Williams grew the firm by 581% in three years. Ms. Williams won the Silver Stevie Award for Female Entrepreneur of the Year in 2017. In 2018, Ms. Williams was voted as NJBIZ’s Top 50 Women in Business and was designated one of the Top 25 Leading Women Entrepreneurs and Business Owners. In 2019, Ms. Williams won the Seminole 100 Award for founding one of the fastest-growing companies among graduates of Florida State University.
In 2018, Ms. Williams created Law Firm Mentor, a business coaching service for lawyers. She helps solo and small law firm attorneys grow their business revenues, crush chaos in business and make more money. Through multi-day intensive business retreats, group and one-to-one coaching, and strategic planning sessions, Ms. Williams advises lawyers on all aspects of creating, sustaining, and scaling a law firm business – and specifically, she teaches them the core foundational principles of marketing, sales, personnel management, communications, and money management in law firms.
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Book: Simple Numbers Big Profits! By Greg Crabtree
00:11:49 (35 Seconds)
The more we fear things that seem to be harming us, the more action we take to secure them to, to resolve those issues. And the problem with that is that as we are looking to resolve those issues, because we are in a state of fear, we are oftentimes making knee-jerk reactions, knee-jerk responses today without a long-term plan. We are deciding in a state of lack a lack mindset rather than an abundance mindset. So we are restricting, we are limiting, we are forcing rather than allowing and fostering and supporting.