Think back to that feeling you had when you made up your mind to start your own law business, before you even told anyone that you were going to make the switch from employee to owner. The bottom of your gut knotted up like a rock but you felt like you were flying at the same time, off into the unknown but excited at all the ideas that you had about how you were going to help people, make a difference, make money while doing it, AND have more time with the other things in life that matter to you.
Now your firm is bringing in good money but at the end of the day there’s not enough cash left for you to take what you would really like to make. After all, you’re the one investing your blood sweat and tears into your practice.
Time and money are so interchangeable these days. We started exchanging time for money at our first few jobs where we clocked in to start getting paid and when we clocked out, the money stopped. Now that you own a law practice you have access to this new way to view time as it relates to money because you now have residual power. Residual money is not money you clock in and out for, it’s the money you receive because you have created a service supported by systems and aided by people (that are not you) that removes your money’s dependency on your hours. But the quest to discovering your residual money formula is more complex than just clocking in and out.
There’s a law out there, Parkinson’s Law, that says for every increase in revenue, expenses will increase to meet or exceed that increase within 3-6 months UNLESS a specific force is put in place against it. Cash flow management is the specific force you can put in place to avoid letting your business eat your profits up.
May the force be with you…
Putting up your force field takes a little bit of setup time but it creates residual efficiencies that you reap the benefits from long after you traded the hours to set it up. We advocate for a bank account budgeting system which reflects the methods in books like “The Richest Man in Babylon” by George S Clason, “Profit First” by Mike Michalowicz , even a book not yet released called “Profit First for Lawyers”, and preached about by many financial gurus and the people who use the system. We came up with a comprehensive guide to getting a system like this set up in your law practice.
There are many hats that come a long with being the boss, but money doesn’t have to be one you struggle with.
Three things this system does that will innovate your firms cash management.
It protects profits. With all the newest latest and greatest products out there from softwares to devices, there is no shortage of ways to spend your money. If you’re not proactively protecting your firms’ profits, it will surely find a way to eat them up. This system physically removes your profits and sets them aside to be used for something bigger than the day to day firm activities.
It sets good money habits. There are a lot of convincing lies out there that will mislead you about money. One of them is that you must spend money to make money. It fuels a mentality of new revenue means there’s a new expense we must take on. Not true in all cases. By limiting your expense allowance, this system gets you in the habit of considering more options and becoming creative about how you get things done in your law business. It also promotes efficiency which means less time to make the same or more in revenues.
It prioritizes paying yourself first. We also have this idea that in owning your own business you must make substantial sacrifices like not paying yourself. This is another line of thinking we need to get out of. Your firm should serve you, it’s creator and leader.
When you know better, it’s your responsibility to do better.
Now, go do better legal warriors!
All opinions, advice, and experiences of guest bloggers/columnists are those of the author and do not necessarily reflect the opinions, practices or experiences of Solo Practice University®.