Profit from Business: The Value of Understanding Your Numbers with Brooke Lively
We don’t talk about profitability of law firms enough. Lawyers usually avoid this topic because they are afraid to hear it. They do not want to even think about numbers on top of their regular work. And yet, gaining profit from business is what's going to help you grow your firm to where you want it to be. Therefore, attorneys should not shy away from a numbers conversation. You need to learn how to talk about it, and it is all the more important to understand it.
In this week's episode, Brooke Lively joins us to tell us all about the important numbers you should be monitoring. She shares how you can keep track of them and discusses the things that lawyers are usually afraid of. Lastly, she talks about the importance of being transparent and communicating with your clients.
If you want to learn more about how you can profit from business, then tune in to this episode!
Here are three reasons why you should listen to the full episode:
- Find out what the six key numbers lawyers should be monitoring to keep an eye on the pulse of their business.
- Discover how you can profit from business without adding to your expenses.
- Learn how to increase your collections without having new clients.
Resources
- This episode is sponsored by Smith.ai. Curious how you can use a receptionist service at your law firm? Download the Smith.ai free eBook: Are you Lawyering or Laboring? 7 Steps for Running a Highly Productive Law Firm with Virtual Receptionists.
- This episode is sponsored by Get Staffed Up. Learn more at www.getstaffedup.com/VIP
- Get yourself a Free Coaching Session and learn more about the 90 Day Law Firm Turnaround Coaching Program.
- For a payment plan solution, visit LawFundAR now!
- Tools for Titans: Tools of Titans: The Tactics, Routines, and Habits of Billionaires, Icons, and World-Class Performers by Tim Ferriss
- From Panic to Profit: How Six Key Numbers Can Make A 6 Figure Difference in Your Law Firm by Brooke Lively
- For Profit with Law listeners: Click here to access Cathedral Cap’s free Cash Flow Forecast spreadsheet, Billing Grid, and video course on the topics covered today.
- Fireproof: A Five-Step Model to Take Your Law Firm from Unpredictable to Wildly Profitable by Mike Morse and John Nachazel
- You’re Doing It Wrong with Mike Henderson Leary podcast: How to Fireproof and Scale Up Your Business Through the Lens of a Law Firm
- 2020 Legal Trends Report from Clio. If you’re looking for highlights instead, access the summary here.
- The Tim Ferriss Show podcast
Episode Highlights
Brooke’s Background
- Brooke was running her family’s seven-figure law firm when they hired someone to help them with sales and marketing.
- Soon, that person's clients started coming to her and asked if she could do what she was doing for her family for their firms.
- That was when she realized lawyers do not like numbers, and they were not looking at data to make decisions.
- She then started Cathedral Capital to help law firms make data-driven decisions to become more profitable.
Six Key Numbers That Could Make a Six-Figure Difference
Brooke: “If the captain of the boat gives you [these] six key numbers, you will know enough about your business to be able to make a good decision.”
- The first one is your cash flow forecast. How much cash are you going to have at the end of the week or the next few weeks?
- Second, look at your production or work in progress. This month’s WIP becomes next month’s revenue.
- The third thing is about marketing and sales. By looking at how many sales calls are booked, you can figure out how many clients you will have next month.
Brooke: “These [first] four numbers that we’ve talked about give attorneys the ability to see a decision coming and be prepared for it and think about it.”
- The last forward-looking number is net new cases: the number of people who hired you minus the number of people whose cases you finished. It tells you how much staff you need and when you will need them.
- The two numbers that will help you get back on track are budget vs. actual and owner compensation.
Brooke: “Are you being fairly compensated [not only] for the work you’re doing, but also the risk you’re taking as the owner of the law firm?”
Being Transparent with Collection
- When you send your client an invoice at the end of the month, they may get surprised. They may not have realized how much they were accruing over the month.
- The realistic average collection rate for attorneys in the US is somewhere between 75-80%.
- When invoicing a client, firms tend to look at the work done and decide whether or not it should have taken that long.
- You need to communicate with clients throughout the process. Reveal how much you have already spent and how much more you will have to spend, and ask the client if they want to move forward.
- During a sales call, set expectations. Get an initial retainer equal to three months' work. Tune in to the full episode to learn about other types of retainers you can set up.
Moshe: “I have found that with clients that I work with, solving some of their cash flow issues sometimes is as simple as changing the way that they invoice their clients and the way that they collect money.”
What Lawyers Are Afraid Of
Brooke: “AR is created the first time you meet a client, and it’s created because you don’t set expectations. You don’t set expectations about how you’re going to bill, you don’t set expectations about how you’re going to collect money, you don’t set expectations about the cost of this endeavor that the client is taking on.”
- Help your client in the best way possible and communicate in a way that they understand.
- You may fear that clients aren't going to hire you if they know the cost upfront. And perhaps you worry that this will affect your conversion rate.
- But say your collection rate is 75%, and you remove the 25% that isn't paying you.
- You now have more free time, and 100% of your clients are paying you.
- All we have to do is overcome our fear, not get in our own way, and be transparent with clients.
Brooke: “It’s about informed consent. Are they making the right decision for themselves? Are you setting realistic expectations? Are you really being an advocate for your client?”
Profit from Business by Keeping Track of All the Numbers
- For cash flow, ask yourself how much revenue you think you are going to have. How much AR are you going to collect?
- You look at your WIP weekly.
- Make a list of expenses as well.
- Everybody needs a dashboard.
- Track the number of your sales calls, the names of those contacting you, and where they are coming from. Also, check whether or not they booked a sales call.
Why You Should Hire Staff
- Hire a full-time person who can do all of the things mentioned above for you.
- One of the biggest things that stop us from hiring someone is thinking about the salary, benefits, and taxes you have to deal with.
- Do not do your own bookkeeping. You can delegate it to somebody else who is more qualified, knows what they are doing, can do it faster, and do it for less than the opportunity cost of you doing it.
Brooke: “When you have data, when you have these six reports, when you're actually looking at your dashboard, your Jumbotron or whatever you want to call it, you make that decision at four o'clock. And then you don't have to think about it again. Because it was an informed decision.”
Final Thoughts from Brooke
- The important thing is that you rewrite your fee agreement. Have an initial retainer, an evergreen retainer, and a drip retainer if you need that.
- Take payment by credit cards.
- Improving your collection rate will help you profit from business.
- Focus on what you’re working on and see it to fruition because until you do, you can’t determine whether it was a success or a failure.
Brooke: “Improving your collection rate will impact your business more than anything else you do. It does not create any extra work—maybe a little bit in the beginning until your team gets comfortable with how replenishment works. But it doesn’t take any more work, and the benefits are amazing.”
About Brooke
Brooke Lively is the founder and CEO of Cathedral Capital. This company consists of a team of CFOs and profitability strategists who help entrepreneurs turn their companies into profitable businesses.
After earning her MBA in investments and corporate finance, Brooke built a seven-figure company in less than two years. As a Chartered Financial Analyst (CFA), she and her team work with Hall of Famers, INC 5000 businesses, CEOs, and small business owners. Her expertise lies in growth management, creative problem solving, and profitability strategy.
Brooke has been named in the Top 25 Women to Watch and Fort Worth’s 2016 CFO of the Year. She’s also a highly regarded speaker and the author of several books. Her most recent book, From Panic to Profit, is an Amazon international bestseller. She has been featured in media stations like CNBC, Forbes, US News, and World Report.
To connect with Brooke, email her at [email protected]. You can also visit Cathedral Capital, or reach out to her on LinkedIn.
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Author
Moshe Amsel
Author
Moshe Amsel the host of the Profit with Law podcast is not an attorney. As the owner of a successful accounting firm DreamBuilder Financial and Law Firm Growth coaching organization Profit with Law, Moshe has proven that there are better and different ways for a law firm to do business and be successful.
