I use the term ‘sweat equity’ often when I suggest that in order to build a solo practice you will invest more of your ‘time’ than dollars in the beginning in marketing, networking, and rainmaking because you will have more time to invest than dollars.
But when you hear a venture capitalist use the term “sweat equity” they usually mean while a business owner is building his business he shouldn’t even think of drawing a salary but reinvest monies coming in right back into the business to grow it to the next level.
That’s just a fancy way of saying you’re going to be eating Ramen noodles until you are discovered by those who want to invest in the next Facebook.
So let’s look at what the VCs are suggesting and why you can’t think this way when you are opening and growing your solo practice. (And this, incidentally, not only doesn’t contradict what I have to say but drives my point home.) The reality as a solo is if your law firm closes its doors it will not be because you paid yourself a living wage. If you can’t pay yourself a living wage then the harsh truth is your practice has much greater business problems than you taking a salary. As lawyers who are running your own business you must pay yourself the full value of your services first. If you can’t, this should be a HUGE red flag there are other issues in your practice which need to be addressed. What could the issues be? Lack of clients due to poor marketing and networking? Excessive overhead because you thought you had to have the fancy office first? Poor use of technology? Bad time management? Or a series of bad choices (usually made from lack of knowledge or bad advice)?
Not being able to draw a salary and have a living wage impacts your ability to continue practicing law and serving your clients. It is why I sometimes have an issue when new lawyers are told to do pro bono. You haven’t even established your practice yet, haven’t started paying yourself a living wage, and you are expected to put in this type of ‘sweat equity’ because the profession says you should?
You’d be amazed at how many lawyers who hang a shingle will argue this point. Most solos will underpay themselves. There’s an idea among solo practitioners that there will come a day when they will be able to draw a proper salary and one which they deserve but for now they need to put monies earned back into the practice. These new lawyers are decent human beings who believe that if they put in the labor and treat clients well and exercise patience they will reap the rewards down the road. If they rent that office space, buy the research subscription, get the virtual assistant, meet all these financial responsibilities first, the trappings of a law firm they believe are required right from the beginning, eventually they will be able to pay themselves. The reality is everything that doesn’t earn money is overhead. When you are starting out you should be rewarding the money earner first – you. Slaving away to pay for overhead rather than to pay yourself is a recipe for failure.
The desire to create a practice which provides a living wage and a comfortable existence isn’t a crime. It’s the whole point of entrepreneurship in general and practicing as a solo specifically. It’s what motivates us as well as the professional satisfaction of knowing you’ve served your clients well. You can do well by doing good. Remember this.
Instead of delaying your financial gratification because you’ve been told you should, make taking care of yourself a priority. By paying yourself a reasonable income from the get go, it will also lay the foundation for your business to grow properly. Pay your most important employee a competitive salary first. That’s you.
Keep in mind the following as well:
- Without exception, work to provide yourself a good salary. Then pay your expenses. You. Then the bills. That’s the order.
- Provide yourself a reasonable reward. If you can’t pay yourself at least 50% of each dollar as a solo, shut your doors (Overhead should never be more than 30% of each dollar!)
- Pretend you need to take a sabbatical from the practice. If you had to pay another attorney to run your practice in your absence what would you pay them? This is the amount, at the very least, you should be paying yourself.
- Never forget ‘why’. Keep your eye on the ball. Remember why you went solo in the first place - to control the quality of your life.
- Do periodic checks: If you can’t continue to pay yourself a proper salary, what are you doing incorrectly and how can you fix it?
- Remember: If you can’t pay yourself, you eventually will not be able to help clients either because you will be shuttering your doors.
I can’t empahsize this enough. You must take care of your financial needs first in order to stay motivated, gratified, and become the kind of practitioner you want to become as well as take your practice to the next level. You have a responsibility to your clients, your practice, and your family. But most importantly, you have a responsiblity to yourself. You are the one who holds all the risk with your license on the line. You are the one investing your time. This is your future. Therefore, you should reap the rewards from day one.