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Making Sense of Law Firm Metrics with John Scott

Published by Summit Marketing Team on Apr 29, 2024 1:22:18 PM

                      

The Modern CPA Success Show: Episode 118

John Scott, Anders CPAs + Advisors Partner, Tax, and Virtual CFO, joins Tom and Adam, to discuss Summit Virtual CFO’s services for the legal industry and John’s recently launched book, "Judicial Dollars and Cents.” They discuss John's background, the unique financial aspects of law firms, and the importance of data and metrics in scaling businesses. John explains the benefits of specialized financial services for law firms and stresses the importance of understanding cash needs, managing cash flow, and aligning partner compensation with firm goals.

 

 

Intro (00:00:00) - Welcome to the Modern CPA Success Show, the podcast dedicated to helping accounting firms stay ahead of the curve. Our mission is to provide you with the latest and greatest insights on cutting edge tools, innovative marketing strategies, virtual CFO services, and alternative billing methods. Join us as we change the way people think about accounting.

Tom (00:00:22) - Adam, we’re about to talk to John Scott. why do you think people should be listening to this? 

Adam (00:00:28) - Because John's a character, man. no, John's a great guy. I think, I think listeners will get a lot of value out of, you know, not only does he talk about kind of the content and things that are important to the law community, but we really dive into him, his thought leadership to how, you know, writing the book and kind of everything behind it kind of plays into that. So, I think there's some duality there in both, you know, conceptually how to interact with the clients, but then also, you know, kind of panning out because we talk about niches and we talk about thought leadership a lot.

Tom (00:01:00) - Absolutely. There is a lot in here. And if people want to kind of hear the process he talked about or about writing a book is really good. And then kind of hidden in theirs, even a piece of Hollywood that someone can pull in a character from a TV show, we'll see if people catch on to that. 

Adam (00:01:15) - Sounds good. 

Tom (00:01:16) - Cool. Okay, I hope people really enjoy. This is a really good one. Okay. For this episode of the modern CPA Success Show, we're going to talk to one of our own, someone who really focuses in niches and has a new book available that we're going to be talking about. That and the legal profession. I'm Tom Wadelton, joined by my usual co-host, Adam Hale. Adam, welcome today. 

Adam (00:01:36) - Hey, Tom. 

Tom (00:01:37) - Hey, Adam. We were talking before. We were excited to have Jon Scott with us today. And John, we've known for a while. And, John, why don't you introduce yourself so people know a little about you and your background? 

John (00:01:45) - Sure. Thanks, Tom. Hey. Great to be here. I've been a CPA for a million years. I started in the 80s and started with a small firm and moved quickly to Anders, and I've spent my entire career there. And at Anders, we seem to get, I guess, like most CPA firms, most of our referrals came from attorneys. So, we were very familiar in working with and for attorneys on their clients in a collaborative manner. And early in my career, I met a very entrepreneurial attorney who decided he wanted to scale his business. He wanted to work on his business rather than in it, and he took it from one metropolitan area with several offices to almost every state in the United States. And I watched him grow and scale his business, focused on data and metrics, and that really it gave me this great education as to how other law firms and other businesses could scale their firms based on paying attention to data. So, when Anders and Summit merged, the idea was that they wanted to scale what they were doing into different niches.

John (00:02:58) - And because I had this and we had this familiarity with law firms, I thought it would be a great natural fit to scale into law firm VCFO services.

Tom (00:03:08) - That is a great story. I love that. My guess is at the time that was really unique to be talking about data and metrics and how you're going affirm. It's very common now, but am I right? Kind of 80s and 90s, my guess is law firm. Maybe even today. Law firms did not think that way.

John (00:03:23) - Many firms didn't. I think more and more firms are focused on that, especially firms that want to grow in scale and go into different areas. But really what this guy had was a firm of over 300 attorneys, and he was the only partner. He found people that would follow a system could be very successful and rewarded financially, but never wanted any ownership because he just had an outline for how to open law office in a new area, and you just follow the system when you deviate from the system, it causes problems.

John (00:03:53) - But he knew that in six months he could be at break even, and beyond that, he would make money off the office.

Tom (00:03:59) - Wow, that is great. So, at the very top, you mentioned a book. You want to tell us what inspired you to put this down into a book?

John (00:04:06) - Well, you know, based on my experience and based on what summit does. We get so many questions from attorneys about how to run their business. And I get that because they didn't go to law school, most of them for accounting and finance. So, if they want to practice their craft, they need a blueprint as to how to grow and scale their business and how to run their finances. And so, I thought we would collaborate and just put some of these thoughts together, point out the different metrics and data points that they should be paying attention to help them be successful, and at the same time allow them to practice law and not be finance professionals.

Adam (00:04:46) - Yeah, yeah. Well, in talking about the book, can you call out the name? I mean, we've been talking around.

John (00:04:55) - It’s Judicial dollars and cents and it is it is very much in the line of digital dollars and cents that that summit and Jody had written. But it also it goes along the path of the e-myth where you want to work on your business rather than in it. And let's work smarter rather than harder.

Adam (00:05:16) - No. That's great. So, so kind of the inspiration there a little bit, you know, in terms of how it kind of follows through was Jody's book and really just kind of focusing on the metrics and some storytelling. I imagine inside of there. It sounds like especially with that, with that 300-person firm. I mean, I think that's probably pretty atypical. That's pretty cool for an attorney to be like partner of one and have that many people with them. Any memorable moments or, or stories that you can kind of share from the book?

John (00:05:43) - You know, I talk about, to many prospects and clients about. Setting a forecast. And the forecast is like your roadmap to where you want to get, where you want to go.

John (00:05:55) - And the accounting profession historically has been kind of like your grandfather taking you on a trip. The night before the trip, he pulls out the ten-year-old Atlas. He makes some notes. The next day he packs everybody in the station wagon and off they go. Where along the way, he can only react to what happens, you know. All of a sudden the road's closed because there's an accident. Well, he didn't know that. And then our parents had it a little better. They had a triptych which would tell them, hey, just outside of Atlanta, there was construction. Here's a workaround. Well, today, what we can do with modern accounting and advisory services is much like the Waze app or Google Maps, where you're getting instantaneous data from thousands of data points that will tell you up ahead there's a roadblock. And oh, by the way, here's a workaround to keep you on track to your forecast. And that's the biggest point of paying attention to the data, is allowing you to still achieve your goals, even though things get in the way, because we're anticipating those things to get in the way, and we're paying attention to the data rather than historically looking back and saying what happened?

Tom (00:07:03) - I think that's a great analogy.

Tom (00:07:05) - And the real time data that we have now available also just points out that no matter what plan you have in place, right, give me your one-year forecast. This is what's good. You know it's not going to go that way. It's going to be something different. So that ability to change on the fly. I'm curious when it comes to writing a book about law firms. What are some of the unique elements is you've got accountants listening who are hearing about law firms? What are some of the things that make serving law firms different from maybe just sort of any business?

John (00:07:32) - Well, law firm owners are very smart, and they're trained in the Socratic method, so you better be ready to serve. But additionally, law firms are not much different than any other business except for some unique things on their balance sheet. There's a trust account that holds client funds. That's not theirs, has to be respected and reconciled, because any mistakes in that trust account can cost an attorney their license. There's also the way they earn their fees.

John (00:08:01) - You know, you have firms that are hourly billers or fixed fee, or subscription based, much like some it is versus contingent fee firms that, you know, they don't win, they don't earn any money unless their client wins. And any of those advanced client costs which sit on the balance sheet are at risk, because if they don't prevail in that case, they're out that money, they're not going to charge the client back for that.

Tom (00:08:26) - Yeah, that's a great point. It's easy to see. Well, you see headlines of large settlements, right? And you think of a lawyer getting really rich. And probably what you miss is both how many cases get lost. And then I'm not sure what the typical is, but the time between seeing that headline and someone actually receiving a check can be forever, as things are tied up and negotiations and all that stuff that happens.

John (00:08:48) - Right in a in a contingent fee firm, it's a little more difficult to forecast revenue. But what we've built out working with the case management systems that they use is firms generally take only several types of cases, and they know what the milestones are within those cases.

John (00:09:06) - If it's a motor vehicle accident, we know from intake to demand letter to court date if we have to go to court, what that typical timeframe is, and that's going to be shorter than if we have a medical case or a toxic waste exposure case, and those are going to be longer. So, if you can build those milestones and data points into the case management system, we can get out a report that will predict when we might receive X amount of cash. And we also know what those cases are generally worth. We're going to be conservative in forecasting. You know this is $1 million case or it's 100,000. Our case will be a little conservative there. But that's the only way we can say, hey, six months from now here's our cash position.

Adam (00:09:51) - Yeah. Super helpful I mean I was I was just going to ask you know John like you know obviously I don't think there's probably any law books out there talking about how to run the finance side, at least none that I'm aware of. So, so I'm sure that, you know, the community is going to love that.

Tom (00:10:06) - But I mean, you know what? What kind of your hope that the readers will find, you know, most engaging or thought provoking about the book? Like, what are you hoping they, they're able to like, kind of glean from it?

John (00:10:16) - Well, I think the biggest thing is. To allow them to work to their highest and best use. Either hire internally a finance team that can focus on that so they can focus on law or outsource it. If you look at the most recent ALA survey, four out of five firms are outsourcing some non-legal function of what their firm does. Now, a lot of that's payroll in it. But more and more firms are outsourcing the finance function. And that's what we hope to, to serve in this niche.

Tom (00:10:51) - You know, I wonder if you find similar to what we find. So with digital agencies, one of the things they really like is they outsource toward us is we bring in common definition of metrics. And usually they've got some sense of those metrics, but they don't have them nailed down the way we do.

Tom (00:11:05) - And then our ability to compare to other companies because we work with multiple. And you got examples of here's how someone else changed shows. So is a question, I guess if you for most of your clients coming in, do you find it typically that they do have a fairly common practice and metrics and that it's well understood? Or do you think that's still a pretty big need in firms to say, no, you've got to have these key metrics that I can help you get in there.

John (00:11:28) - There are certain metrics that they pay attention to realization, utilization, and people do them differently. So, you know, to get that standardized so that you can compare it to other firms, your size in your region, you know, you can't you don't want to compare yourselves to a large multi office silk stocking law firm. If you're a single office in the Midwest. And so, I think it's important that you consistently and correctly calculate and look at the metrics so that then you can benchmark yourself against your peers.

Tom (00:12:05) - so what are a couple of those that are unique.

Tom (00:12:07) - You mentioned realization as one. Do you want to talk about those as those sound like the important metrics that you would help them with?

John (00:12:13) - Well, they are important. But I think if you take a deeper dive and you look at, not only staff retention and the staff experience working for your firm, but also the client experience. So, client experience starts with the first phone call that they make to the firm to intake all the way through the close of the matter. And client service and staff retention are two things that I think are under looked at by firms these days. We all know how hard it is to attract and retain staff, so the staff experience is one that needs to have some attention paid to it. And then. If we have raving fan clients, they're going to refer more work to the firm. So, the client experience I think is one that needs to be paid attention to as well.

Tom (00:13:44) - You know, John, I've, I'm a busy guy. I've got a very serious question for you. It's probably a little bit of a curve ball, so take your time. But, is this book going to be available and audible? And if so, do I get to hear your voice?

John (00:13:58) - You do get to hear my voice. It'll be in print, electronic and audible. And, we will provide. It should be out by the end of March. So, by the time this airs, it should be available. And in the in the show notes, we'll provide a link to all three options.

Tom (00:14:16) - I just can't wait to speed your voice up to like three times and listen to you. So, so okay, anyway, I like I said one thing that.

John (00:14:26) - Is the one thing of listening to the podcast. You know, you put it up to two and a half times and, and then you actually you meet the person at a conference or something and you're like, that's not how I remember your voice.

Tom (00:14:40) - Yeah. We'll be able to change our ringtones to be John's voice talking during the. 

Adam (00:14:46) - Yeah. That's awesome. 

John (00:14:49) - So I wanted to get Joe Buck or John Hamm to narrate the book, but that wasn't in the budget.

Adam (00:14:54) - Oh. I, you know, after they read it, I mean, especially attorneys. You I bet you get some really good, spokespeople for that. I mean, I think the biggest takeaway. So, John, like, with our audience, it's a lot of CPA firms. It's a lot of people just, you know, serving in the same capacity that we do.

Adam (00:15:09) - So saying things, you know, I think a lot of what you're saying resonates not only with what, what they're doing, but what we're talking about on a pretty regular basis. And I think the big call out for me here is, you know, you said that some of the inspiration for this was Jody's book and how he kind of outlined it for digital agencies. In the same vein, you're kind of doing the same thing for legal. And I think whenever you see those two things side by side, I think the more important overall theme that I'm hearing from you is like. People want to want you to kind of meet them where they are. And, you know, you got to kind of speak their language, understand how their business works, and it's not a huge lift to be able to do that. But theme of just making sure that they're being intentional with their business in terms of forecasting and the KPIs and things that drive the business is really what's, you know, really important whenever it comes to, you know, driving this home for, you know, our audience.

Adam (00:16:04) - And I assume that most people that, you know, if you have legal professionals, not only will it be a good book for them to read to be able to help and serve their clients, but, I mean, I think it will probably relate to other service based businesses as well.

John (00:16:16) - Totally agree. It's not just limited to law firms. There are some unique things in the book that are only applicable to law firms, but the whole thought process is don't be historical in nature. Be current with your financials. Make sure that they're in good shape, reconciled not just monthly, but reconcile your cash. You should know what your cash is at all times, not two weeks after the month end. And in fact, you know, one of our most recent new clients said that the only time they got good financial information was in the next year for the year behind them. And it was a function of a long time great employee who they just kept throwing additional responsibilities on, and she was still doing a great job on everything except the finances were the last of her priorities and she was good at it, but she didn't get anything done timely.

John (00:17:12) - And so you can't make any business decisions on historical information. You have to have current information and be able to look forward so that you can make good decisions again to get back to your goals.

Tom (00:17:24) - Attorneys are so busy, right? It's no different than whenever we talked to medical practices and physicians. You know, they're worried about the billable hour. They're doing all these other things. So rather than them have to kind of think through this stuff. And I know some super brilliant people that are just and not that it takes much to be smarter than me, but, there's a lot of those folks that just don't understand the finance. And so having somebody be able to kind of lay things out for them and kind of, you know, tee it up for them for that conversation, I think is, super helpful. And, and the reason why this type of business is just kind of taking off all across, you know, all across the country. but in terms of writing the book, I mean, what we also talk about on this, on our podcast a lot is the importance of thought leadership in teaching through, you know, really marketing through education, really.

Adam (00:18:14) - You know, you're not trying to really sell yourself or what you do. what you're what you're doing is trying to be helpful to the folks that you're serving. And I think that you accomplish that obviously by writing this book. So that's a that's a huge piece of it. So, talk to us a little bit about, you know, so people are like, oh, cool. I'll just, good idea, John, I'm going to write a book for the construction industry or whatever. So, probably not quite that easy. So, tell us a little bit about, you know, kind of the challenges or, you know, the obstacles you had to kind of overcome. What was the most challenging part of, of, writing this book?

John (00:18:49) - You know, it was a lot of brainstorming, just different stories and thoughts. And then that probably took six months. And really at that point I thought, I don't know how this is going to get organized into a book, even though I had Jody's book to kind of act as a guide.

John (00:19:08) - I didn't necessarily follow that same outline that he did. But once we had kind of the stories and the different components of it put into place, it was kind of like a puzzle. You know, you start out and you've got one side of it done. You're like, I don't know how these thousands of pieces are going to go together, but then you could see it come together and it really accelerated towards the end. And like, okay, I get this now, you know, you got the Rubik's Cube and you're almost there and you can see the path to the end. And that's that's where we are right now.

Adam (00:19:41) - Yeah. So probably took a couple, you know, helping you like project manage and kind of yeah there's the brainstorming phase and then there's like how do all these pieces fit together? So I mean, in that same vein, like, what advice would you give? Like if there are people listening and they're like, hey, that sounds like a cool concept, a good idea.

Adam (00:19:58) - Like, what kind of advice would you give people kind of aspiring to, to do this kind of thing?

John (00:20:03) - Well, there's a dictation software out there called Otter, and I'm sure there's ten others just like them. It resides on your phone, and a lot of times I would be out walking in the evening and I would have a thought about some metric, and I would just turn the otter on and I would dictate in there. I wouldn't think I wouldn't do punctuation and say, oh, that wasn't said correctly. I would just have, you know, I blurt out my thoughts, and then I would email that to myself and I would go back and clean it up. I find that a lot of times, you know, I'll just be walking along or sitting at home and all of a sudden an ideal pop into my head. That's when I jot those down using order and come back and pull it together and try and organize it that way.

Tom (00:20:47) - Well, was that most of your process? I mean, that was most of what you did as opposed to, you know, you'll hear a writer say, you know, I would take an hour a day and put myself in front of the computer and do this.

Tom (00:20:58) - Yours was mostly dictation.

John (00:20:59) - I did dedicate some time every week, but most of the thoughts and the stories that came out were dictated into Otter. And then that dedicated time was spent organizing those. And I had, you know, people that helped me develop these thoughts, critique them, give me ideas.

Adam (00:21:19) - Okay, Tom, we need to get our hands on that tape. I think I can only imagine the other stuff that. Yes, you know, John's like his other thoughts that might have eked its way into that dictation. 

John (00:21:33) - Or someone else in the room. You know, all of a sudden I'm talking into my phone and my wife says, what are you doing? I'm like, I'm dictating.

Tom (00:21:39) - If anyone's a fan of the TV series suits, I'm envisioning Louis Litt and his little dictation where his was always just really silly things that he's asking his administrative person to do for him. Get this. And that's what I'm envisioning, John. Just doing that, or neighbors watching you just walk around, there he is.

Tom (00:21:57) - Just walk around talking and they don't realize you're talking to something. What about the value since Adam's asking more about process, the value of having other people help you? Yeah. Where where could you leverage and where should someone think about?

John (00:22:10) - Yeah, I think you need to. You need to have people that are, really good with grammar. Because if you talk to my grade school and high school English teachers, that would. They would never have imagined I'd written a book. So, you need people to, you know, come back and say, hey, this isn't very clear. Rewrite it. Or, you know, fix up the grammar. That's just not me. I'm more of the cuff talk. I can get things organized and write it, but you need somebody that can proofread it and edit it and come back and say, okay, I get what you're saying here, but this doesn't support your premise. And then you just go back and rewrite it.

Adam (00:22:47) - Oh, so you would rewrite it because that's the I would think that would be kind of a little bit of the challenge.

Adam (00:22:51) - Right? Is you still want it to be your voice. And I'm with you a lot of times I'll write like I talk, which probably isn't the most, you know, effective way of communicating in a book. But at the same time, you still want it to be authentic. You still want it to be your voice. So, yeah, just kind of measuring how to win, to take their advice and when to go. Yeah, that doesn't sound like me. Kind of a thing, was probably there's probably a little bit of negotiating with some of that stuff. Right.

John (00:23:15) - Exactly. In fact, a lot of times in The Otter and even in the first drafts of the book, I would say things that I know I say like drum up new business. Well, when you see it in writing, you're like, I don't like that. How about business development? And so you change those things. But I know I say those things all the time. It's just when I read.

John (00:23:37) - It doesn't look right to me.

Tom (00:23:40) - Yeah, that would be challenging for sure. Are there certain parts of the book that you think of that will be the ones that get the most attention from a lawyer, for example, if they're going through and saying, they're probably saying new that, new that, new that, what are the ones where you're like, yep, that is one of the areas that I have not gotten figured out.

John (00:23:58) - Well, I think the parts where we focus on cash and what kind of working capital cash needs firms have and how and this is this is indicative of all businesses. The more risk you have, the more cash you need to have on hand. The less risk you have, the less you can get by with. But lawyers are in the habit of seeing a large cash balance and wanting to take it out.

Tom (00:24:22) - Yeah, 

Adam (00:24:23) - No, not lawyers.

John (00:24:24) - It's not just lawyers either. All business people, in fact.

Adam (00:24:27) - All of us. Yeah.

John (00:24:28) - I have a very successful, it's a medical device rental company.

John (00:24:35) - They do training, they do it nationwide. And this woman and her family, they make a fortune at this business, and they've built it up over time. And this just happened six months ago. we we were on a call, and we had QBO opened, and she saw more than a half million dollars in their cash account, and we said, hey, when was the last time that that cash account was reconciled? Because we're seeing that it's maybe eight months ago. And, you know, your staff needs to get on this and get this caught up, when in reality, once it was reconciled, there were disbursements not entered into QBO and there was only about 150,000 there. So, she wasn't thinking, hey, I'm going to take a couple hundred out to, oh, we don't have enough money to run. So that's the importance of the cash knowing how much you need to have and making sure it's reconciled. You know, we think you should reconcile almost weekly. You don't need to wait for the bank statement.

John (00:25:33) - You log online and reconcile as you go.

Tom (00:25:36) - Yeah. And the idea of cash, you know, is we talk to our digital agencies. We talk about having 10 to 30% of 12 months trailing revenue, which for many business owners that we start working with, that's much more than they have currently. And they'll say there's no way. And so we'll go through, similar to what you did, explaining why you would want to and helping them understand is it ten or is it 30. And we help them go through and make those risk decisions, just like you said, but then get to them to a path as to working toward that. And I'm sure just like you do, I've got lots of stories, especially as people hit hard times where that cash gave them tons of options that were available to them. Like you could keep your staff. If you see things coming back in two months, you've got that flexibility, don't have any cash and no line of credit. You don't have a choice. You're getting rid of good people that you think you might be turning around rehiring soon.

Tom (00:26:23) - So, just helping them with some of those metrics can be really important.

John (00:26:26) - Yeah. And there's ways to increase your cash position. You can, you know, get your clients, train your clients to pay within your terms, slow down your payment of accounts payable. But when you think about it, where does our cash come from? The owner either puts it in out of their pocket, not a good option, or they improve their cash position and the time frame that it takes to turn effort into cash. Or they borrow on the line of credit which lines of credit and debt have good and used bad uses. Supporting, the business working capital is okay for a dip in working capital, but it's not there to support the owner's lifestyle. I mean, we have to look at at some other option of getting the cash position built rather than debt. I like debt term debt for an office buildout or some sort of business expansion. Maybe you're buying a big piece of technological equipment. I'd like to match those payment terms with the amortization or depreciation of what you're buying.

John (00:27:28) - but lines of credit should be a safety net on the working capital component.

Tom (00:27:34) - I agree. Let me change direction just a little bit, and I'll ask you about kind of meeting cadence that you would usually keep with a law firm. But what I'd say at the beginning is there are some low hanging fruit, clients that I picked up that they don't have really any meeting canes. They don't frequently review their financial statements, they don't have a forecast and things. And there are times where they're saying the service we deliver is incredible. And part of what they're talking about is just once a week we're talking finances and they're updating their forecasts and they're reviewing their financial statement. And I love that they're happy. But there's part of me like, this isn't even really about all the value we're delivering. It's the fact that we're getting you to have this conversation frequently. I'm curious when you work with lawyers, kind of what's the cadence and do you think that's similar? Do you have lawyers that are so busy that they hope that the woman who's not closing the books is taking care of it on her huge to do list, but they're not engaging?

John (00:28:23) - Well, most times the lawyers aren't in every meeting because they are serving clients, but the fact that they're getting financial information that is more current than what they're used to is mind blowing to them.

John (00:28:37) - And then if you're meeting with the office manager or the finance person on the inside of the firm, you're holding them accountable so that if they're getting behind, you're pushing them to stay more current so that you can meet the needs of the owners and they don't have to pay attention. But we do like to have those weekly meetings. It would be great if you could say the weekly meeting is every Tuesday at 9 a.m., but in a professional service world, it doesn't work that way. So, you're constantly saying, okay, this week it's Monday at noon. Sure, next week it's going to be Wednesday at four.

Tom (00:29:10) - But at least you're having those. What is the typical cadence that you would do with a law firm in a if you do if you provide service during the month?

John (00:29:19) - It's 2 to 4 times per month. So, you know, at the controller level, it's two times a month. At the VCFO level, it's actually 4 to 6 meetings as needed, but typically it would be weekly meetings.

John (00:29:31) - One week we would focus on the financials. One week we might focus on the forecast. We could focus another meeting on pacing, you know, an hourly billing firms we have charge our expectations. In fact, our first client a couple of years ago, the partners hadn't taken a draw in six months, and they couldn't figure out why. And okay, it was pretty quick that we figured out that no one on the staff, including the two partners, were meeting their charge, our expectation, and so they weren't generating the bills, converting that into cash. And that's why they couldn't take a distribution. So, it took about 45 days after we identified that they were able to start taking partner draws again. And so that is a great meeting to focus on pacing in an hourly billing firm, because if somebody is falling short, we're not waiting six months to figure out that Joey didn't hit his charge hours. We know on that week that Joey is yet again short and they can go talk to Joey.

John (00:30:32) - And it's one of two things. Either the work's not there. Or Joey is not doing the work that is there. So, if the work's not there, we have a capacity issue and business development needs to occur. But many times the work is there. It's just somebody needs to manage. Joey.

Adam (00:30:50) - Yeah, I think that I mean, especially lawyers, you would think that they'd be used to hard conversations. But, you know, there's another dynamic at play there. So, it's one thing if it's your team member, you know, somebody working underneath you, a paralegal or somebody and you're saying, hey, they're not chargeable. But it's another thing. Whenever it's your partner or partners, you know, and you're talking about distributions and those kind of things. So, I imagine you've probably had a lot of experience working with, you know, partner compensation plans. And that's why it'd be so important to for the forecasting. Right, is like you're trying to although there is a business need for the cash, they're also trying to serve their personal needs.

Adam (00:31:25) - So and especially if you got kind of a lumpy business design, being able to see how to distribute those funds when you can distribute them would be really important. You got any kind of crazy stories there, like kind of, you know, it's kind of nice for them to have a mediator or a facilitator or somebody else pointing out, I guess the fact that like, hey, like you guys are equal draws here, but you're doing all the work or you're not, or you got any, any kind of, battle stories about any of that stuff.

John (00:31:54) - Oh, yeah. You know, when there's plenty of cash, everybody's happy. It's when the when the cash is, is low that the pirates start killing each other. But if you talk to ten different firms, you're going to come up with about ten different comp models. And what's important to understand is what is the comp model they currently have. Are they happy with it? You know, I've run into a few firms that are one for all, all for one, where they're 250% owners and they just split it 50/50.

John (00:32:24) - Adam, you had a great year this year. I'm going to benefit from that next year. I have a good year. You're going to benefit from that. I think that's pretty rare. I think attorneys and professionals are competitive by nature and they want some incentive to go beyond and no real upside cap. And so, but understanding what they already have. And then I'm a big fan of migrating comp systems if they want to make changes to a goals based system. And I think the organization has to have goals and then the individuals. And this is back to, I guess it's good to great where you have the right people on the bus. Now you got to put them in the right position. The individual goals need to align with the organization goals, and everybody's going to do better in that case, and everybody can earn more. You know, the Rainmaker is going to make more than the person who's actually doing the work. It's just like a football team, right? Patrick Mahomes and I won't give the Indy example for you, but Patrick Mahomes is going to make more than the center.

John (00:33:34) - But the center is very important. And so we have to we have to compensate the center to be a good team member. But Patrick is always going to make more money.

Tom (00:33:46) - So do you find yourself right in those comp conversations. Right. I mean that probably happens at the beginning of them saying here are the different things we're looking at. And by the way, one of us doesn't like the way that we, we do pay. Is that how that comes up?

John (00:34:00) - We do get into those, you know, early on in our relationship. It is what it is. And over time we get to start saying, okay, you're not happy with this completely. Let's talk about how we might modify this comp system that meets everyone's needs. It's never going to be perfect, but it can. It should have evolve over time.

Tom (00:34:21) - Yeah. And you probably bring in one of the concepts that we do. And Adam was the first one who talked to me about this, but the difference between your role in the company and what your salary should be, as opposed to your partner ownership and things like distributions.

Tom (00:34:35) - So in one company for partners, one's a CEO and one is a developer working their way down the line. And they had this arguing about we are all of our salaries should be the same. And so what we've gotten to is know you earn your salary based on what the role that you have within the company. And that's different than maybe if you're an equal partner, you can get the equal distributions that are there. Do you have a similar kind of conversation in law firms I assume?

John (00:34:59) - We do. And what it comes down to is. When you leave a bigger organization to go start your own firm. You should have an expectation that you bought yourself some autonomy. You got outside of the big organization, and now you're the decision maker. But you also want to make money doing this, right? This isn't a charity. And if you can make if you're going to make less money than you were working for big law, why don't you go back to big law and be an employee? So.

John (00:35:32) - We want you to run your business in a way that you have more freedom and lifestyle, but also make more money than you would in in the bigger law firm. And so, you know, I have seen attorneys that have gone out on their own. They've struggled, they have the autonomy, but they make substantially less than they did working for the bigger organization. They tend to circle back to that bigger organization. They said, okay, I tried it. It wasn't for me, and I'm going to go live the lifestyle I want, but be an employee. Maybe I'm a partner in an organization, but when you're a partner in a big firm, you're really just a high paid employee. You have some decision making, but it's very little.

Tom (00:36:14) - Yeah. Since law firms is a niche, what is the target for us where you're saying, hey controller ship and VCFO going external to someone like us this this really fits well for a law firm. How do you describe the kind of law firm that is the best suited for us?

John (00:36:30) - I think it's between three billing professionals all the way up to about 50.

John (00:36:35) - Okay. And once you hit 50 billing professionals, you probably are of a size that you would hire your own finance team, your own CFO. But in that, in that small to midsize firm category, I think we're a really good fit. And in fact, a lot of times we get an opportunity because the comptroller or CFO quits and they've been running things they can't. You know, it's a big risk to go find the right person. And so we can come in at usually 80% of the cost. I mean, when you think about the cost of hiring your own person, it's not just their salary, but it's the overhead associated with it. Yeah. And we can come in about 80% of that or less and provide probably better service than they were, because a lot of times people get. They get comfortable, they get repetitive in their nature, and they're just not doing the things they need to do to get the information to the ownership group that's necessary.

Tom (00:37:35) - Yeah. And the ability to look across other companies that are your clients is the comment that I've gotten from so many clients about how valuable that is.

Tom (00:37:43) - And we have with the digital agencies at the moment, pipeline and sales is difficult for them and the comfort that they take knowing that other people are dealing with this and us being able to say, well, here's what other people are doing to deal with this kind of thing. Someone internal really has a hard time keeping their finger on that pulse, right? There are conferences and there's some things you can do, but in general, when you're inside a company, you're probably the finance person or a team of 2 or 3. And it's hard to have that view of kind of what's going on across other companies.

John (00:38:12) - Yeah, that's the beauty of of being in a specialized niche is that you see hundreds of different firms and how they do things. I always tell the young people at our firm, you know, you could go to work at Anheuser-Busch or InBev, whatever it's called now, and there's the InBev way to handle certain things on, on the, the balance sheet in the income statement. But in public accounting and in servicing a specific niche, you see hundreds of different ways to do the same thing.

John (00:38:41) - And so when you get to a client and they only know one way to do it, well, you've got all these arrows in your quiver that says, well, I know you've been doing it this way, but what if we looked at it this way? This would be more efficient. It gets you better information. And so that's the beauty of specialization into a niche.

Tom (00:38:58) - Oh, I agree completely. And you've watched how that played out. And so I've seen some good and bad. You know, each solution is probably not perfect, but you can sort of help them understand those. I think that's a great description of that.

John (00:39:09) - Even by the entrepreneur I talked about earlier, that taught me everything about paying attention to data. He would make mistakes, but because he was reading the data almost currently, he could course correct. Whereas other folks that are more historical in nature make a mistake, and it might be six months before they realize that a mistake was made and then another three months before they make a change.

John (00:39:33) - So I think that's the biggest thing, is by paying attention to data, you can make those changes quickly.

Tom (00:39:40) - Yeah. And really trusting that data I've got a client who does things with their level ten meeting. So part of this EOS concept and they've got really good data. And one of the pieces is similar to what you said. What was the utilization of the team last week. And they make decisions very quickly based on that. But it was also really important that they got comfortable that the definition was correct. They started to trust the data. And so now when it's bad, they're diving into the data saying, what the heck happened? Not just, oh, maybe there's something in the data because I've got some other clients where they look at a bad number and they decide maybe my data is bad. So, they move on and you're like, that's your six months to figure it out and nine months to decide kind of person that's in there, right? Yeah, those are often the ones I think that we'll hear you describe this and say it sounds simple.

Tom (00:40:26) - These metrics, these that you're giving us sounds simple, but I know I need someone to help me implement them because they've done it before. And there's going to be a level of focus on getting that done versus some internal intention of doing it in. So many of those things just don't really happen. The way they should. 

Adam (00:40:43) - Yeah, John, I mean, it sounds like it's going to obviously be a great resource. and hopefully a little bit of an eye opening, a moment for a lot of the, the firm owners, I think they'll find it to be a super valuable resource. I think even, you know, people in our own industry will find it also to be I read these kind of books all the time. Whenever I'm trying to serve a certain industry, I learn a lot, even if I'm in kind of a related industry. Even so, it sounds like a great resource. They're something that you've got a wealth of experience. I mean, I think, what did you say? You're like 200 years old.

Adam (00:41:13) - Is that what it is? I mean, you don't look a day over a hundred. I'm just saying, like, you look great for your age, but, But anyway, like, I think that this is an example of how you can serve the community in a better way, be able to broadcast your image, you know, promote yourself as being that thought leader. We talk about that. And then I love the concepts in the books. You know, being intentional, forecasting, understanding where your business is, thinking ahead. I think those are those are great concepts to apply to any small business.

John (00:41:46) - I'm excited for the book to come out. My my children are all enthused that at my advanced stage, as you pointed out, that I'm still relevant and I'm still trying to improve myself.

Tom (00:41:58) - Well, I'm sure at our company retreat coming up soon, we're going to have a table with you and signing and all this stuff, right? Oh, yeah. I'm gonna I'm gonna have my T-shirt on and ask if you'll sign it and treat you very rockstar like, in there.

Tom (00:42:10) - It'll be pretty cool.

John (00:42:12) - And I will tell you how outgoing accountants are. I was at a conference in Vegas. And do you remember the movie Rudy? Yeah. So, Rudy was the motivational keynote speaker at this conference. There was 800 people in this big auditorium.

Tom (00:42:29) - Yeah.

John (00:42:30) - Rudy said, I have a football signed by Joe Montana and all the rest of the Notre Dame players that were on that team, where he already got to play. Whoever wants it, come get it. It was ten minutes before he got someone to come up and take that football. And then, of course, he sold another 100 of those for $100 donation to his, but to his foundation. But no one believed that he was giving this away for free. And these accountants were just, you know, like, oh, I don't know, I don't know.

John (00:43:03) - Have you ever seen Rudy?

John (00:43:04) - And he makes that offer. I want you to be line it up there and get that football.

Tom (00:43:07) - Yeah.

John (00:43:07) - Next one's going to cost you a hundred bucks.

Tom (00:43:09) - That's great. There was someone sitting like, ten feet from him, right? That had to stand up, froze and take two steps. That is so funny to have that I love it. Shoot, John, I would have got up and been like, can I have two? Or like, you have more than these all on tackle. I can sell these for a couple hundred bucks. A hundred? That sounds like a good deal. That's what I'd be thinking. I was like, Joe Montana, sure.

John (00:43:32) - It's on eBay right now, right?

Tom (00:43:34) - Yeah. I hope he comment. Did he make any comment about the length of time and compared to any other group? 

John (00:43:41) - He did. He pointed it out.

Tom (00:43:42) - Because I would guess you would have like, hey, when I was in a sales conference like there was a fight for this thing that people dove off this thing to do it. 

Adam (00:43:51) - Yeah, I'm sure he probably brings it up on a regular. He's like, yeah, I was in this room with accountants.

Adam (00:43:56) - Oh my gosh, you guys, you wouldn't believe this.

John (00:43:58) - I'm never going back there.

Tom (00:44:01) - Well, at our conference you can have your book and I'll, I'll be the one that'll run from the back to dive and get the book from you. 

Adam (00:44:08) - I just need you to email me the link to the audible. 

John (00:44:12) - Yeah. Okay. I'll sign it. Joe Montana.

Adam (00:44:14) - There you go. There you go.

Tom (00:44:17) - John. Thanks. I am so looking forward to reading this. Even if I don't work with law firms. I think, just the practice of thinking how through you do that and then for your own clients. Okay. He's saying it's this data. Maybe it's something different for different clients. If it is someone working with lawyers, I can't imagine why they wouldn't want this to up their game and figure out how to do advising.

John (00:44:36) - It should be helpful. And I appreciate you guys, helping me promote the book.

Tom (00:44:41) - Of course. 

Adam (00:44:42) - Yeah.

Outro (00:44:43) - Enjoy this podcast. Visit our website SummitCPA.net to get more tips and strategy for achieving Modern CPA firm success. We are here to be a resource in this ever-changing industry.

Making Sense of Law Firm Metrics with "Judicial Dollars and Cents," with John Scott