Decoding Law Firm Finances: Creating Financial Stability and Success with Leah Miller

Now here's your host , Brian Glass .

Leah , welcome to the show .

And so we hear from our friends you need a bookkeeper , you need a CPA , you need a CFO , you need a tax advisor , you need a tax preparer . Who are all of the players that I ought to have on my team , and when should I start acquiring those parts ?

First and foremost , a bookkeeper is really important , because you need to make sure that you are keeping track of everything in your books , your expenses . That's what helps you when it comes time to tax time . Cpas do that and they offer that through their firm .

But sometimes you can get more value hiring your own bookkeeper so that you have more control over that day to day , and so that's what the bookkeeper really does is the day to day expenses , making sure everything is categorized correctly and quick books . All of that and that will help you in . The next step is you need to have that foundation of data correct .

Cpa is who you need for your taxes . They sometimes do tax advisory , sometimes they don't , sometimes they just prepare your taxes and a lot of people are like , my CPA didn't tell me that I should do this so that I can save on taxes .

These are really busy , especially during tax time , and so it's not top of mind for them to stop and say , hey , you probably should have done this last year . And so if you are expecting your CPA to do those tax advisory services , you need to have that conversation with them or look at getting another tax advisor if that's what you need to do .

So , bookkeeper , cpa , they look at the past . They categorize everything you've already done in the past . A CFO looks to the future , and so they take all that data of your historical what you have .

They look at what you anticipate in the future your settlements , your income , whatever industry you're in and a CFO is going to help you make those strategic decisions for your firm or your business , for growth , or if you need to hire somebody or what kind of marketing can you afford , and so they really help you make the future decisions for your firm , whatever

your goals may be . And so that's what a CFO is . People are like what's a fractional CFO ?

Fractional CFO is for those firms in that range that you said the 500,000 , probably the 5 million who do not want or cannot afford to have a full-time CFO on staff because that's an expensive , it's a big cost and so a fractional CFO just looks at your dad , then works with you a couple hours a month and gives you that insight and you work together as a

team to make those decisions . If you're thinking that you need to hire another paralegal or an attorney , then you can ask your CFO hey , what does my cash flow look like in the next 6 months to a year ? Am I going to be able to sustain this position in the personal injury realm ?

You're looking at 12 to 18 months before you're seeing income from the cases you're taking in today , and so if you have a new attorney , start today , they will bring their own business in and they will bring their own cases in , but you're not going to see any revenue from that for 12 to 18 months .

Do you have the revenue now to carry that attorney until they start generating their own revenue ? So that's a short part of that .

And the thing is that most of us think about employees and other attorneys and paralegals as costs , and if you're thinking about them as costs and liabilities in your balance sheet , you have a problem , and it's a people problem , because they're not going out and generating businesses , a business on their own and becoming assets for you .

So the financial planning and projection I think that makes a lot of sense in many practices family law , corporate law where I'm billing by the hour and I know that I can increase the amount of money that I'm making in one of two ways I can work longer hours or I can raise my rates , but talk to me about how that works in personal injury law and what kind

of data tracking I need to have to be able to give to my CFO for them to project out in six months . Here's what we expect the revenue to look like , because it can be very lumpy depending on what time of year it is and how many cases you settle and what the size of the cases are .

A seven-figure case can , unfortunately , turn into a zero case and terrible when that happens . But you need to be looking at that and tracking that information so that you have a data for the next 12 to 18 months of we have these cases we're anticipating settling in the next six months because we've already had them for 12 months .

This is what we thought that they would settle for . You need to go back and look at that every couple months as cases change . Then I think you need to look back at that once the cases do settle to see if you were right or wrong .

Because just predicting it and then taking whatever is fine , but if you don't go back and look , then you can't change the way that you predict what cases will settle for , because it is a guessing game in the end . But I feel like once you've been in it for so long , you obviously learn some of those things

.

I know that it probably takes that case about six to nine months from the day that the crash happened to turn into revenue . To your point about these things , I can't start billing the client right away . I'm not going to receive the money for six or nine months , even on the smallest cases , until that case settles .

And so after you have a certain number of these cases , you can go back and look , I don't know two years ago , say , okay , of the cases that I settled , how many fit into the soft tissue category ? Fracture surgery , brain injury and DUI cases in Virginia ? Dui is a different category .

And then what's the average fee that I recognize on this and that gives you at least a ? My friend , adam Rossin , calls it an educated wild ass . Guess about how much money you have in your portfolio . And then the difficulty for lawyers is finding somebody to go through your data and create an Excel spreadsheet .

So we had my brother , who was in college at the time , come as an intern and just do all that stuff .

And what we recognize , Leigh and I don't know if you have any experience with this is we had cases that were sitting for long periods of time , and so that became priority number one is how do we condense the amount of time from time somebody's done with treatment to time that we recognize this as a cash coming back , and so do you have any tools or any

recommendations for lawyers to start looking at the portfolio and finding where the cash flow gaps might be ?

That's when we get into setting KPIs , which are key performance indicators , and that's something I do with my clients is I set those and we evaluate those on a monthly basis , and so you start setting those for your paralegals and your attorneys so that we're making sure that everybody in the firm is taking that ownership of the case and moving it along , because

you're not going to see that revenue until it's done , and so if something's happening and that case is being forgotten , then that hurts everybody and it hurts the client . You're going to have unhappy clients if it's taking too long and obviously they're number one priority .

And so I think that is having the data and keeping track of your cases and then keeping track of anything that's holding up those cases and making that timeline longer . And if it's something that we can change , then let's change that and move it along . Obviously , there's the big cases that you end up in litigation for years and years .

You can't do anything about a lot of the time .

But the small soft tissue cases , I like to say those are the ones that like pay the bills day to day , and so you need those to keep moving and you need that to happen while you're still taking the time to work on these big cases and those are like the extra big , the ones that really bring in that extra revenue down the line .

So you need to make sure that you're working on both of that and keeping track of it and just having that data , like you said , getting it into a spreadsheet and having somebody to look at it and analyze it and tell you what it means .

And in one of those years it was a case that we took to trial as a medical malpractice case , which basically in Virginia are toss-ups and shit . If you don't win that case at trial , your million dollars is 400 thousand right , which is a very bad year when you're operating with staff and overhead and rents and paralegals and associates .

And so have you worked with clients on ? Okay , you have a lot of risk in these one or two buckets , but what do we have to do to build out the rest of that portfolio ?

Obviously , in personal injury there's not a lot of different practice areas , but we can look at the medical malpractice the DUI , the soft tissue and see what our return is on those and to see if do we need to ramp up our marketing for these cases so that we can bring in those smaller cases that are bread and butter .

They pay the bills day to day so that we're not hurt if we lose that one huge medical malpractice case throughout the year . We really want to diversify what we're doing with those cases . If that's your business model , I feel like a lot of that's how the personal injury world works a lot of the time with that .

We were fortunate that we got out of that space and got into a much more diversified portfolio a year earlier and it wasn't forethought . It was just like man . There's a lot of risk going into these one or two cases , but what can we do to spread it out ? You mentioned KPIs .

I'm curious if you have at the top of your head in an auto accident practice a list of KPIs that a firm can just start with .

There's a lot of productivity KPIs that are involved in that , which can seem to the paralegals and the legal assistants that you're micromanaging and watching them .

The way that I try to get around that when I talk to staff members of clients is giving them a sense of ownership of we're not micromanaging and watching you and keeping track of everything you're doing . We're just trying to make sure that we're efficient in our process . We're trying to make sure that you have enough work , you're not overworked .

If you're not able to get all of this work done , we need to know that and so setting those KPIs around that productivity and encouraging your staff that it's more of a we're trying to everybody take ownership in this and work together to make sure we have the most efficient process .

Then it's not a micromanaging kind of thing , and so I think in personal injury , the biggest thing is getting that case moved through presuit and getting that demand letter sent out . That's where you need to generate a lot of that .

So if you're paralegal and you're doing everything from answering the phones to answering discovery , to requesting medical records and police reports to put in the other demand packages and negotiate with insurance companies , that's a big , broad job , and maybe the answer at the end of this KPI discovery is that we need to hire somebody underneath you , like an assistant

who can go out , or a VA who can request all the medical records , compile them , so that we can elevate you to your highest and best use , which is putting together demand packages , getting them out the door and expediting the money coming back into the firm right .

to the financial part of it and that's where you generate the revenue and all of that , and so keeping track of that data as well will help you make decisions in your firm as if it's a business , not just trying to be a lawyer .

So you can take some of that money from the six months , but you can't take all of it because you're going to need that cushion to get you through that lean time .

And I think that's where using some strategic decision making really makes a difference , because I know people and probably smaller firm owners who are used to , are just getting over that 500,000 and getting to that first million and really seeing that money for the first time .

They may settle that $700,000 case that you're talking about and they're like , hey , great , I'm going to take all the profit from that , but you need to know that the next $700,000 case may be 18 months down the road and so do you need to take a little bit less so that you have the money to keep that buffer .

But because you can look on paper and you're making multi six figures . But it certainly can not feel that way sometimes because you've got to keep so much of the capital in the firm for those lean months and then you got to write a check to the government every three months .

And so my sense is , if everybody paid taxes the way that small business owners paid taxes , by writing a check instead of having it deducted from every other paycheck , we would have a very different tax system in the US .

But how do you manage that feeling that every time I take money out , it's not coming to my account , it's going back to the government or back to my employees and , like on paper , I'm making all this money ? But it certainly doesn't feel that way .

And so that's where you're going to get a tax strategist to come in , and I have some knowledge on it , but I won't say I'm an expert in any way , shape or form on taxes , but that's when you want to do that , and then your CFO can help you make decisions within what is left over , when you've decided how much has to go to the government , because you

obviously want to save for that . And so I think having the data and the understanding will help you not feel like help , you not have that feeling so much of you're doing all this work and you're getting nothing , because you should be getting something in the end if you're doing really well .

You just have to have that plan in place to feel like you are getting something and understand where it's all going .

Because as you get into those big cases , you're looking at a lot more costs , and so I've seen it done both ways . I don't think that there's a wrong way to do it as long as you're doing it smart .

So if you do have that line of credit , it's getting paid off , you're putting the money back into it , so you're not sitting on this big balance of debt , and so I think a lot of that is your .

How much risk do you want to have hanging over you with that debt and things like that , and how much you want to keep putting back into the business as opposed to how much you want to take out and how much you need personally ?

Am I more comfortable or less comfortable with capital in the firm versus taking a line of credit , having an accessible line of credit with the bank ?

So the firms that you have been working with , leah , what kind of level of financial acumen are they coming to you with to begin with ?

But it's just a whole different thing when it comes to your firm and it gets overwhelming as you're trying to practice law and run your business at the same time and hire employees and know how much cash you have .

And I've worked with people who have a really good handle on the finances and they just want somebody else to kick around ideas with and strategize with , and so I've really worked with all people on all ends of the spectrum when it comes to the finances of it .

If I have a new subject that I'm interested about , I read everything I can on it , no matter what it is , and so I'm big on helping people and educating them , and I feel like I get a lot of pride when people learn the financial stuff and really start to understand it .

So I like setting them up , but I also like being able to have those high level conversations and strategy of where are we taking this to the next level in our growth ?

If they need to get some cash flow , they can go out and generate cash flow tomorrow , and so the legal industry is a lot different , as we've been talking , where you have those ups and downs with cash flow .

And so I think , having somebody that at least has a basic knowledge of how that works in the legal industry , because you don't want somebody to come in and do a cash flow forecast for you if they don't know how your cash is generated .

So I think , getting somebody that is experienced in the industry , somebody that's going to be a teacher for you , that is going to work with you , and because I think everybody needs to have a basic understanding of the concepts . So I don't think as a business owner , a firm owner , you should just hire somebody and not understand it and just give it away .

You need to have a basic understanding of how your firm operates and works and you need to keep at your hand on that financial stuff for sure . And so I think , working with somebody who is going to educate you and talk to you in simple terms so that you understand it , because it is confusing for a lot of people . I think that's really important as well .

With my mechanic , I want my mechanic to talk to me like I'm not a moron , and so I think holding yourself out as somebody who is a partner and not an advisor , not above , and then somebody who's there to educate , I think that's a really smart business move . So , leah , how can people find out more about you ?

I'll talk to anybody on LinkedIn , especially . I like getting on there and chatting and just talking about the legal field , the PI firms and all of that , because I was in it for a long time . I worked at a PI firm for 10 years and so I like to keep my hand in the legal field and really learn from other people and talk to other people about it .