Latest / Wealthy Woman Lawyer Podcast, Helping you create a profitable, sustainable law firm you love / 185: Danielle Hendon | Taking Control of Your Finances with a Fractional CFO

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185: Danielle Hendon | Taking Control of Your Finances with a Fractional CFO · Wealthy Woman Lawyer Podcast, Helping you create a profitable, sustainable law firm you love

• InterviewHendonAud === Davina: [00:00:00] Hi everyone, and welcome to the Wealthy Woman Lawyer Podcast. I am so glad you're here. I'm your host, Dina Frederick, and I want to introduce you to Danielle Hendon today. I'm excited to have her here. She is the founder and owner of Four Corners, C-F-O-L-L-C. She has more than a decade experience in corporate finance and accounting. Davina: And then she decided to go out and take that knowledge and help business owners, small business owners, really understand how to use the financial information that they have to help grow their businesses. So I'm so glad to have her here. We're gonna talk about lots of financial things today. For those of you who struggle with, uh, financial. Davina: Managing the books and managing the finances in your business and learning how to use it as a roadmap to help guide you in your business. You're definitely gonna want to tune into this. You might wanna listen to it if you're [00:01:00] walking, if you're driving, you might wanna listen to it again when you're someplace that you could take notes. Davina: 'cause I'm sure you're gonna learn some things today. So welcome, Danielle. I'm so glad you're here. Danielle: I am so happy to be here. Thank you so much for having me, Davina. Davina: Wonderful. So tell me about your journey from kind of corporate. Did you always know you wanted to be a CPA? Was this something that you had, you know, as a little kid, you had your little calculator and. Davina: I Danielle: dunno that anybody could honestly say they always dreamed of being a CPA if they did, they are few and far between. Um, I actually went to college starting out as a music major, um, and I had an English professor that made us write a, an essay on the future of our career. And I realized very quickly that the future of a music career was not going to afford me the lifestyle I wanted. Davina: Exactly. Very few musicians live the high lifestyle. Danielle: Right. And so I had some friends that were in the accounting major section of things and [00:02:00] I tried out a couple of classes and I really enjoyed it. So I went and got my, my master's in accounting and did like most people do from college. I went into a public accounting firm here in the Houston area and I got my CPA license. Danielle: And honestly, I loved what I did, but I started a family and I quickly realized that 80 hour work weeks and a newborn don't go very well together. So I landed in oil and gas because leaving public accounting and going into industry, most of Houston is oil and gas. That's where a lot of my experience was. Danielle: Um, and again, I was with a company I absolutely loved. I was with them for more than a decade, and through highs and lows, the, the end being the low, we went through bankruptcy. And on the other side of bankruptcy, the, the company was owned by financial bankers that just started slicing and dicing and, oh. Danielle: Then the pandemic hit. Davina: Wow. Danielle: For me, the pandemic was a bit of a a, [00:03:00] so it was a double-edged sword. It was okay, things are really closing. We knew for sure they were selling things pennies on the dollars the company was gonna close. But it was also an opportunity for admittedly this workaholic mom to take a step back and get to be swim team mom and school mom and I got to know the teachers and the friends and the coaches and the kids like. Danielle: I didn't wanna give that up. Yeah. I knew that I could go back into corporate, I could go do all the things I was doing, or I could take a leap of faith and try to figure out how to do what I love doing with the flexibility that allows me to be there for my family. And that's exactly how the business got started. Danielle: I found a few people that were going into this fractional CFO world, which is kind of a growing market online and helping small businesses do what big businesses already know how to do. And I realized, I never thought I would say this, but having gone through that bankruptcy. And, and [00:04:00] helped the team through that. Danielle: I knew how to take big business concepts that a billion dollar business needed down to the 20 people we had by the time we were left, so Davina: right. Danielle: I know how to make those really big concepts fit a small business in a way that fits them and works for them. And that's exactly what I get to do now. Um, I tell people all the time, I used to work to increase share price or shareholder value 'cause that's what they say in corporate. Danielle: And now I get to work to increase livelihoods and legacies and that just feels really cool. Davina: That's wonderful. That's wonderful. And you. That sounds like the story of a lot of the women law firm owner clients that I have and, and, um, people that I'm talking to, women law firm owners who the pandemic really shifted for them because it gave them a chance to experience what it was like to be more involved with their families on a day to day basis. Davina: Mm-hmm. And then to give that up, you know, just didn't seem like the best option, you know? And so a [00:05:00] lot of, a lot of law firms. Lap, laptop, lifestyle lawyer kind of things, was born out of this pandemic, I think for a lot of people. And, um, of course, you know, we encourage, no matter how you start, we encourage you to grow, right. Davina: And get, and get, get more people on your team to help you. So you still preserve that kind of time, right? Danielle: Mm-hmm. Davina: Because that. Doing it solo can very quickly turn back into workaholic mom. Right. Danielle: It turns into a difference. It's the when the kids go to bed and the laptop opens back up. Davina: Yeah, exactly. So, uh, we encourage our clients to, to start growing a whole business so that they can, you know, still preserve that time for them and actually have more resources and help. Davina: But I'm glad you're here today 'cause we have a lot to talk about because this is an area. Finances are an area that I think a lot of business small business owners struggle with. Um, [00:06:00] even, you know, with our law firm owner clients, they are highly educated, highly intelligent, and they are really great lawyers. Davina: But they, you know, they often put the pressure on themselves to know how to also be a really great marketer and a really great financial, you know, CFO and a really great systems person and all this, and, and. What they don't realize. All those are their own unique professions, right? And so you may be intelligent enough to sort of grasp it, but you definitely want to build a team around you of professionals who already have the knowledge. Davina: It's instead of asking, how do I do it, you ask Who can help me do it? So you're one of these people that can come in and say, let's, let me help with managing the book so that. I can advise you and you can make good decisions as a business owner, as the CEO, not the CFO, right? Is that kind of the role you play? Danielle: 100%. And I like to tell, I like to say I'm kind of the anti CPA. I'm never gonna be the person that comes in [00:07:00] and tries to tell you how to run your business. That's not my job. It's my job to come alongside my clients and empower them with the information that lets them run the business the way they want to. Davina: So I wanna dig into financials and I wanna talk about financials so that they're, for those out there who may feel like they're embarrassed because they don't speak financial language, or they, they, they feel like there's, they should know more. I wanna share a little bit today so they can start feeling like empowered and they have a little bit more knowledge. Davina: So why don't you tell me some of the key financial reports that a, a woman law firm owner should be looking at. In her business and how frequently she should be looking at them, and then we'll talk about what's in them. Right. Danielle: So I'll start with frequency, and that's going to a lot of accounting. Answers are always, always gonna be, it depends, but I'll give you some of the why. Danielle: It depends and what it depends on. So your frequency is gonna depend on how big you are, how much activity is running through your financials. That's gonna help you [00:08:00] decide how frequently you wanna look at them. You don't need to be in your financials every week if you've got. Five or six clients are helping. Danielle: That's just not a good use of your time. And being a billable hours kind of person myself, I know how important and crucial that time is when you calculate back to what it could be earning you. So we don't necessarily need to be in it weekly if you're only doing a handful of clients. However, if you are growing and running a team, I recommend at least getting in there monthly. Danielle: And when I say getting in there, I mean getting into QuickBooks or whichever tool you use. Most of my clients are in QuickBooks. A combination of QuickBooks and some kind of legal software. Like case Davina: management. Danielle: Yeah. Whichever management software you wanna use. But you need to get in and you need to know a couple of different numbers. Danielle: I'll, I'll throw out the one that everybody knows. Everybody knows their revenue, and revenue is a great number to know. Revenue is not the profit that gets into your pocket. So when you pull up that p and l, that profit and loss on QuickBooks, you don't just wanna [00:09:00] look at revenue, you wanna be looking at your profit margin. Danielle: So when you take revenue, minus your cost of goods sold, which for attorneys is your, your associates' time, your paralegal's time. Your partners, you wanna have all of that time, whether it's billable or flat fee based. If you are paying it, it's a cost of goods sold. And then I always recommend for attorneys and professional service providers, if you are paying for time, that is administrative, I highly recommend separating that from time that is billable or service product related so that you know what is your cost of goods sold. Danielle: Because at the end of the day. We were talking earlier, kind of if you have, let's take an estate planner that's that's building out a will for somebody and they're gonna charge $2,000 for that will, a lot of estate planners are trying to move to this flat fee services environment. You need to know how much time and money is going into building that will and what actually is profit.[00:10:00] Danielle: Left in your pocket. At the end of the day, and this is not overall profit, you've still got all the other expenses to pay, but you need to make sure there's enough money coming from what you're billing and what you're paying to then pay all the other things, including you. So profit margin is a huge deal when it comes to professional services and especially attorneys 'cause there's so many moving parts. Danielle: You have so many people involved in a firm and that get their hands on one service. For one client, you really wanna be able to keep track of that. Davina: Yeah. So tell us what report we'd find that on. Danielle: That is gonna be on your profit and loss statement. So again, profit and loss statement. And, and I'm just gonna use QuickBooks 'cause that's where most people are. Davina: Yeah. Danielle: You're gonna pull your profit and loss statement outta QuickBooks. You're gonna see revenue right at the top. That's the number it should, you should have a gut check on that. You know, roughly what you think you're bringing in. And then your cost of goods sold is gonna be how much are you paying all your people. Danielle: At the end of that it, it's gonna [00:11:00] say profit. We wanna know what is that profit that you're getting after revenue and cost to get sold. And then, so that's kind of the top part of it. Underneath that is all of your operating expenses, and depending on who your bookkeeper is or how you've asked for this to be organized, you may see it in different buckets. Danielle: You're gonna have marketing expenses, you're gonna have licensing fees, you're gonna have permits and potentially rent. You're gonna have cell phone and internet and website domain. All of those things are gonna hit your operating expense. And then at the very bottom, after everything's paid is a little section called Other income and expenses. Danielle: A lot of times this is where, uh, credit card points that you cash out, things that aren't necessarily driven by your key business will end up in that section. And then the very, very, very bottom of your profit and loss is your net income. And at the end of the day, that's the number that should be left. Danielle: If everybody's paying their bills and you're paying your bills, that's the number that should be left to hit your [00:12:00] cash. Davina: Right. Right. So tell us about the, I wanna hit just some of the top reports and kind of what they mean for people. Yeah. Because I think that's often a confusing part for people. You would be surprised. Davina: A lot of people actually do not know their revenue. I talk a lot about revenue because I believe that we get to a certain revenue that allows us to, that allows us to really grow and expand by hiring people, right? So if you help, if you're making $50,000 a year in gross, gross revenue, you're not gonna be able to hire people to help you in the way you are if you're making 500 in gross revenue or a million in gross revenue. Davina: So that's why, and the reason oftentimes people, uh. Coaches, for instance, my focus on revenue instead of profit is because there's a lot of strategy in in profit as well. Oh yeah. There's tax strategy involved in profit. You may not wanna show us, you know, a certain amount of profit because you don't wanna go over a certain tax threshold. Davina: There's all kinds of things that are involved in that, but, so that's why if you hear people talking about revenue [00:13:00] there, there's a reason for that. But it is not the full picture in a financial analysis. Tell us about the balance sheet, because I think that is one that a lot of people are like, I don't even know what this means. Davina: What It's so confusing. Why do I have to look at this? Right. So tell us about the balance sheet and what that should be telling us. Danielle: Yeah, so balance sheet comes second to cashflow being the most confusing, but the balance sheet is going to be separated between assets and liabilities. An asset in your business means it has value for your business. Danielle: Someone owes you money, you have money, or you have equipment and physical assets that add value to your business and could be sold. At the end of the day, everything on your assets technically should be able to turn into cash if it had to. That is your assets. Then your liabilities are all the people you owe, including yourself sometimes. Danielle: So the liabilities are gonna be payables to your employees, payables to your vendors. Um, any debt that you've taken on, so [00:14:00] payable to a bank, those are all gonna show in your liabilities. And I know most business owners, me included, work off of using credit cards. 'cause let's rack up those points while we can. Danielle: Right. And that's gonna show in your liabilities. 'cause it's gonna be a payable every month. Theoretically, I try to get my clients to a point where we're paying that off every month, and it's not just growing, but that is also gonna sit in that liability section. So your balance sheet is assets, liabilities, and then this one gets a little tricky and equity. Danielle: So there is a financial formula where we say assets equal liabilities plus equity. Equity is your business ownership. What have you put into the business? And I'm not talking sweat equity. This is the financial numbers, the income that you've allowed to stay in the business or the. Distributions you've taken out. Danielle: I, I can't tell you how many times I've worked with business owners where that equity number starts off negative because they've taken on debt [00:15:00] or they've taken on distribu, they've paid themselves from debt because, let's be honest, everybody's gotta start somewhere. And that's, I'm not saying there's anything wrong with that, but if you are in a position, especially right now where everyone's afraid of what the economic outlook might be this year. Davina: Mm-hmm. Danielle: If you are in a position where you need to go talk to a bank, they're gonna wanna see your balance sheet. They wanna know that you are worth more than you owe as a business if they're going to give you more money. Davina: Excellent. See, it's excellent information, I think for people to have that and understand just. Davina: Conceptually what that means when they're looking at their balance sheet. 'cause that's really about the value of your business, right? Mm-hmm. And if you have a lot more debt, I mean just like in, just like in your personal life, if you have a lot more debt, then you have assets, things of value that can be sold, then you're gonna be upside down, right? Davina: So that's something. And so people often think in terms of, I [00:16:00] could sell this one day. If you are, if it is your goal to sell your law firm business one day, this is something that's very important for you to understand. About what this says about the value of your company. So it's not just borrowing money, but also potentially we get ready to sell it. Davina: What, you know, what value does it have to somebody else? Mm-hmm. Right. That's a huge point. Um, cashflow. Cashflow is a huge cash. Cashflow is the thing that I don't think anybody really understands. And it's also so critical because that's the feeling when you're going, you think you're high on the hog and then suddenly. Davina: Two months in a row, you're going, what happened? I don't have any money left to pay my bills. I'm having to like, get out of these, you know, get out of as much as I can because we're struggling. So tell us where we can find that information and how we should look at it. Danielle: So I'm gonna be honest. There are many accountants and CPAs out there that don't truly understand a cashflow statement. Danielle: We don't like the format of them any [00:17:00] better than business owners do. So actually with my clients, we don't use a traditional cashflow statement. We take a cashflow forecast approach where you can use a very similar format to your budget and say how much cash is coming in the door for sales. How much is going out the door for that cost of goods sold? Danielle: We talked about how much goes out the door for payroll and then how much goes out for all of those operating expenses that we talked about on your p and l. And you can do this by categorizing your bank statement and just saying, oh, that was sales, that was cost of goods sold. That was, and we build that out. Danielle: With actuals and then you forecast it forward using your budget. How much are we budgeting in sales and how much of those budgeted sales normally sit in receivables? Because especially with lawyers, I know there can be some really big lags sometime between when you invoice somebody and get paid Alternately. Danielle: You may have cash coming in the door [00:18:00] that needs to go sit in your trust account and isn't gonna hit your operating account just yet. And we wanna make sure you're, you're tracking that in a cash flow forecast. So what is the sales coming in the door that is truly yours and earned? What is the cost of that? Danielle: What are you paying in payroll? What are you paying in operating expenses? And you should be able to tie that number at the very end to what was in your bank account. Then you say, okay, that's my start for what are we gonna think about next month? So let's say you've got $20,000 in the bank account at the end of December, and you've wanted to start forecasting for January. Danielle: That $20,000 becomes your beginning balance. Now, what is in your budget for sales this month? Sales that are earned? What is in your budget for providing those sales? Who do you need to pay on payroll? What are your monthly operating expenses? Make sure you add in any of those one-offs when you're traveling and conferences. Danielle: And those need to hit there too, just [00:19:00] like they would your budget. And then what number do you expect to see at the end of the day? And you can roll that to the net. You can literally take a budget and roll it into a cash flow so you can make sure that number doesn't go negative. 'cause we both know at the end of the day, cash is king and that is what makes or breaks the business. Davina: Right, right. And we can be too eager to see profits and take profits out of a, out of a business that really needs to have some cash sitting there for those months where something unpredictable happens. Danielle: Not just profit, but so many I, I have business owners that are like, oh, I've got a budget and we may have a budget, but your budget doesn't show debt. Danielle: It doesn't show what we're making to pay off debt. It doesn't show what you're putting aside for emergency savings. 'cause that's really important right now. It doesn't show your tax savings that are set aside to pay that tax bill. That will inevitably come due and it doesn't say what you're putting aside for profit distributions. Davina: Right, right, right. Any other key [00:20:00] reports that we need to know about that we need to be thinking about? Danielle: So it's not a report out of QuickBooks, but every business needs a budget, and I recommend that budget be built based on your profit and loss statement. And you go same accounts that show on your profit and loss, and month by month, build it out for the whole year. Danielle: And don't just set it and forget it. Build the budget for January. Compare it to the actuals for January and ask yourself why things came in over or under, because that why is gonna help you make the best decisions you can for next month. Davina: I think that's, I wanna highlight, I wanna put highlights around what you just said because that, I think that in depth, looking at your, this is what we're talking about when we're talking about looking, diving in and looking at your financials, is we're talking about. Davina: Doing an analysis on a monthly basis and saying, what, [00:21:00] what was my budget for the month and where did we go over or under, because we may need to make an adjustment. Mm-hmm. And prepare for that and know that, right. So for instance, if you're spending, um, a certain amount of money, you budget a certain amount of money for marketing and you are. Davina: You're overspending on it. You could take a look and say, well, do I have some things in here, like some softwares that are marketing softwares that I no longer use and they're just sitting there automatically so I could take those out. 'cause that's just waste, right? We're looking at waste. Oftentimes there's waste. Davina: It's not even like letting go of like a lot of people jumped right to, I gotta fire somebody, or I gotta. You know, stop paying this bill or that you're not Danielle: productive Davina: employees. That should be the last Danielle: step, right? Davina: Right. And so you look at things like where is there waste here? Not so much, you know, the necessary things that we need. Davina: And the other flip side of that is you may look at marketing, a marketing budget and go, you know, I got a lot of room in a marketing budget and I'm not utilizing it and I need to be, [00:22:00] because if I use. Use it, it's gonna help grow and get more money coming in, more revenue coming in, right? Mm-hmm. And so it goes both ways and I, I think a lot of times people out of fear-based money stories or fear around not understanding money or whatever, being afraid of messing up, not don doing things perfect perfectly. Davina: The where they spend most of their time is in that expense thing going. What do I get? You know, what do I stop it? It got bloated and I need to get, and, and thinking automatically I've gotta fire somebody or I've gotta, um, you know, completely stop this marketing initiative that I'm doing that's working, but I don't wanna spend that amount of money on it. Davina: And so is this something that you've encountered with some of your clients? I know, I've seen it with, you know, my clients and, and, mm-hmm. Danielle: 100%. One of my favorite stories to tell is a client I was working with in part of building a good budget is knowing your expenses before you build the [00:23:00] budget. So we go through what I call an expense analysis, and we look at all the expenses for the year and kind of break 'em down. Danielle: I bucket everything and what I call. Required expenses, your licensing fees, your continuing education, the things we, you have to have to run your business. Um, the other group I like to call personal perks, they are the things we all know are tax deductible and can be run through our business, but they add value to you, the business owner, not to the business itself. Danielle: And then everything else in the business is an investment. And we sit down and we ask, what is the return on this investment in time? Money or both, and what are we tracking or how often do we need to track to make sure it's doing that? And so in that effort, I was sitting with one of my attorney clients and we were looking at her expenses and she, she was certain she had cut everything she could and we got to her CLE and her continuing education and I told her. Danielle: I don't know for sure, but being a [00:24:00] CPA, if it's anything like mine, I know you can go get continuing education for like 200 bucks to satisfy the unit requirements if you had to. She's like, yeah, but this taught me this and this taught me that. And I said, okay. So at that point, it's an investment in your business. Danielle: Did you implement it? Did you have time to implement the things you were taught? And is it giving you a return? Are you saving time because you went there? Are you saving money because you went there? And those are the questions you need to be asking the next time you sign up for one of these, Davina: right? Davina: 'cause that is one of the big temptations when you're. When you're an attorney, you learn all the, you're a learner, you're a learner. I mean, you already are somebody who enjoys learning or you wouldn't have gone to law school and put yourself through that. And so you're, and you're wanting to learn new things and you're always questioning, should I add a practice area? Davina: Should I, that sounds so interesting. Maybe that's more interesting than my practice area. I'll go take that CLE and, uh, so I can, that is [00:25:00] danger. Not, they're not cheap. They're not cheap. I actually am, uh, coming up on my. Minor due May of this year. My every three years you have to do it. Yeah. And they've expanded a little bit where I am. Davina: You gotta have so many techs, so many professional, and so it, it's increased the number and it is, it is tempting to go find those things that you're interested in and spend the thousands of dollars. But also you have to think there's probably a lot of things you can learn in Florida, we're fortunate because we have some resources where there are free CLEs mm-hmm. Davina: That you can take. And then there are some that are low cost packages or whatever. You might learn some things that you'll never use, but it also just, you know, it's enjoyable from the standpoint of just learning something. Maybe an aviation, you know, aviation law or something if you need, get it for less. Davina: But I do think it's a matter of priorities. So if you're trying to develop a new practice area, you might say, I, so you have, you might go and say, I need to get educated in this [00:26:00] practice area so that I can really. You know, do a great job in it. Danielle: Mm-hmm. Davina: And so if you're being very intentional about it with the intention, like you said, of implementing Danielle: mm-hmm. Davina: Then that is a smart, maybe a smart decision for you. Yeah. But if you're doing it just because you're, you know, curious, uh, then, you know, exploring, then maybe there are less expensive ways to do that. One of the things is books. You know, I never, people don't think about books. Any of these, Lexi and Westlaw, you can actually go buy books and sometimes the books are expensive but they may not be as expensive as the course or whatever, right? Danielle: Mm-hmm. Davina: Um, I wanna talk about, I do wanna talk about flat fees because you and I had this conversation before we started and I was like, dang it, we should have turned on the recorder. So I want to talk about flat fees because I think there are certain practice areas that are traditionally flat fee, like you're talking about estate planning, a lot of estate planning lawyers charge flat fees. Davina: Um. That may be an appropriate sort of thing, but one of the things I'm always telling my [00:27:00] clients is that invoicing clients is outward facing. It's client facing. Danielle: Mm-hmm. Davina: But running your law firm, what goes on back here, billing is, is billing and looking at your billables and looking at how much time it takes you and how, what the hourly rate of your attorney is, and making sure that that flat fee. Davina: Covers that and, and gives you profit. So it covers the attorney, it covers the over other overhead expenses and it covers, you know, any other staff members and it leaves you with a profit, right? So you have to make sure that flat fee is big enough to cover that. And oftentimes the mistake that I see people make, they, first of all, when I bring up billing, they or I say, what do you charge per hour? Davina: I charge flat fees. But if you haven't based that flat fee on something other than, I think this is what the market will bear, because I talked with two girlfriends over drinks one night, and that's what they told me. [00:28:00] If you, if that's the way you came with your flat fee, then you really need to do a deeper analysis. Danielle: Yep. Davina: Because that is really, for a law firm that is really the fuel in the engine is that. Billing, billing those hours and making sure that you're charging. So even if you have a flat fee model that's client facing, you still need to know what's going on. And so that people are like, oh, time tracking. So I know, Danielle: trust me, I know I coming from the the CPA back, I've been there, done that. Danielle: But even if you're flat feet, you, everybody's gotta be tracking time. Even if you were perfect at doing market research, you had all the friends in the same area and you asked them what they were charging and everybody was honest. They don't have your employees. They don't have the exact same people doing the work as you do and different experience, different backgrounds, different personalities, different [00:29:00] personalities of clients. Danielle: Those are gonna change how much time somebody spends on something even. And I'll take the what we said. The estate planners are usually flat fee, which is great, but you might be an estate planner that uses. A paralegal and some, some admins to do a lot of the work. Or you might be an estate planner that has an associate that does a lot of the work, or you might be an estate planner that works with particularly difficult clients. Danielle: All of that can affect it. And even with my clients that, uh, again, taking an estate planner, we sit down and once you map out what the expectation is, so let's say you're billing $2,000 for this complex will. How much time do you expect your associate to spend and how much are you paying your associate? Danielle: How much time do you expect your paralegal to spend and how much are you paying your paralegal? Once you have that set, how are we gonna go back and look at it? And I can tell you I've worked with [00:30:00] clients where it takes us months to get everybody tracking their time in such a way that we can report back and say, all right, this matters closed. Danielle: This is how much got billed on it internally, how much we as a business paid paralegals, associates, admins. This is how much we got paid. Our expectation, if it doesn't line up with the actuals, and I'm not saying there's anything wrong with anyone's employees, it might be an intake problem. We may need to change the intake so that we can add on a fee. Danielle: If you're gonna be flat fee for something that took more time, you may have a training problem. It may be that they didn't fully understand the software to use it as fast as you thought they could. It may be an employee problem where you have to have a conversation about what the expectations are, but a lot of times it's more in the systems than it is in the people. Davina: Yeah. And they're also, you know, clients matter too, right. So, you know, I think people who charge flat fees [00:31:00] regularly say, well, you know, it all balances out of the end. But I think that, I still think if you're not actually, you're telling yourself a story if you're not actually going back and analyzing. Davina: The, you know, what you with two 20 years experience can do a lot of flat PP people say, well, you know, I've got 20 years experience. I'm making a ton of money 'cause I'm doing this in an hour and turning it out. And so I'm, it, it's like in $2,000 an hour. Danielle: Mm-hmm. Davina: Well, people with teams though, we start looking at it and, and if you now have an associate and a paralegal and an admin, you were doing what you were doing. Davina: You have to analyze that and say, are they producing the way that I was producing when it was just me doing this? So as you grow, you have to start really looking at that. You and I were talk, I I, there's a, a woman I know who's wonderful at charging flat fees. She charges really large flat fees and I see a, a lot of people wanting to emulate her and want to charge flat [00:32:00] fees, but then they're charging really low flat fees. Davina: Hmm. 'cause they think that. This is all people will pay, but it sounds too expensive to them. They haven't worked on their own money story around what they're charging and what helps your money story is when you actually analyze it. And then when a client says to you, that's expensive, you say, you know to yourself, you don't have to say it to them, but do you say to yourself, I've done the math, I know what it takes. Davina: To not only cover the expense of doing this, but also make it profitable. Mm-hmm. And so then you're just really solid in what you're saying to the person. And you can feel free to say, if this doesn't work for you, I understand, but this is what we charge because we, we've done the math and we know what it takes. Davina: To get, you Danielle: know, you have to, that's the number you have to charge to make this beneficial. Right. And so much of it also comes back to the consistency of your client base and the services. If you've got, if you're, I could not imagine a litigator trying to go flat fee. I mean, it's all over the place. Can you imagine trying to put [00:33:00] that in a box? Davina: Yeah. I, I, I do know of a, a litigator who does that. She charges really? She charges, I. And she breaks things up into phases, which I think is a strategy to, yeah, so you're not like stuck in trial without being able to assign a separate sort of feed of that. But I will share with you, I, I, I think I started sharing this story with you earlier, but I'll share with you that I had a client, um, who was, who was working, she was charging hourly and kind of one area, but there was one area of her practice that she was charging flat fees, thinking that it was the. Davina: Norm that people would not pay more than this in this practice area. And she decided after we looked at some of her numbers in another practice area and it was going so well, she took a look at this slappy area and she says, okay, I'm gonna go to billable for this. So I'll get a retainer. I'll bill against it. Davina: I'm gonna go billable in this. And she, [00:34:00] on average, her average value per matter. When she was flat, fee was 3,500. When she switched to billable, it was 7,500. Danielle: Wow. Davina: A huge, huge. So imagine the huge change in your business with that kind of jump. And one of the challenges that she had is that that flat fee business, she had already taken so many that now they had to just like going, it's like walking through quicksand. Davina: They're having to get out from under all these, you know, they're having to do the work. They know, she now consciously knows she's losing money. And I think she told me like it was over a quarter million dollars that she realized she had left on the table because she had taken flat fee cases for so long that were not nearly covering what needed to be covered for them. Davina: They weren't nearly, she wasn't nearly charging what it was worth. And that's an undervaluing thing, um, because you're, you're looking around at people and you're going, well, I don't think people will pay this. So you're kind of undervaluing yourself. You're not really giving yourself enough [00:35:00] credit for, and you, you know, there's a lot that goes into that. Davina: And then there's also just not knowing and understanding how to do the math, which is where we can rely on professionals to help us do the math and understand that and what we're leaving on the table. Because that makes a huge difference in a business. I mean, quarter million dollars in a year, that's a huge difference. Davina: That's a lot of money. Yeah. And so imagine if she could take that home. So, um, she's been on a course correction and, and now that's starting to pay off. Right. But that's the thing that people I think miss when they are saying, I just want it to be easy. I just wanna charge a flat fee. I just wanna do this. Davina: I don't wanna track my time. I don't wanna, I don't wanna look at my books. I just want my, and, and sometimes they hide behind their CPA. They'll say, I can't do this. My CPA won't let me. And I, to me, I'm like. Then you need a new CPA. Because A CPA should not be making financial decisions. [00:36:00] You need to be making financial decisions in your business. Davina: But a good CPA can give you great advice and, and help you understand your numbers so you can make the good decisions and feel good about those decisions that you're making. Danielle: I think a lot of times as you were talking, what came to mind is people get a little afraid of the trust accounting, and if you charge a flat fee, you know, you can immediately pull that flat fee out. Danielle: Whereas if you charge a retainer and you're having to charge against that retainer, it feels like more to keep up with that. There are so many phenomenal bookkeepers that focus almost solely on attorneys, and they're really good at trust accounting. Yeah. And making sure that that can be tracked for you. Danielle: Yeah. So you don't have to. Davina: And, and also I wanna make the distinction, I've talked about this before, but a bookkeeper is different from an accountant. What they do is different. So you need both. You need a bookkeeper who's sitting there entering that data for you and making sure things are categorized correctly so that when you look at [00:37:00] financials, you, you can have confidence and trust in that information. Davina: And then accountants are the ones who are like lawyers. We're the strategists. You know, accountants are the strategists, lawyers are the strategists. The paralegals are there that may be drafting, but it is a lawyer who comes up with the strategy about how we're gonna handle a case and how, and the way we're gonna do this to get the outcome we desire. Davina: So that's the role of A-A-C-F-O-A-A. Someone who is a, uh, fractional CFO Chief Financial Officer is gonna be able to help you with that kind of strategy based on. What the bookkeeper is doing. So I want people to understand the distinction there. There are several people you need on your financial team, including a banker, a financial advisor, somebody to advise you about retirement and insurance, or all of these people come together. Davina: But, uh, definitely bookkeeper and CPA are a must. Um, and we were talking about, so I, I was asking you about that. [00:38:00] Um. I forgot what I was asking you about and all of that. I was telling you a story about this client and where, so that she made this change. Have you seen that kind of thing with your clients? Davina: Have you been able to help them create a flat fee model to make life easier, but do it in a way where they're still making the money that they would be making if they were charging hourly? Danielle: 100%. And it's not so much. It's more about transparency and visibility like that is, that's the key to all of it, to have the information to make the best decisions. Danielle: And that's exactly what a good CFO is gonna do. We're gonna come alongside you and make sure you have that information and find ways to, I'm learning so many different legal practice SY systems and software, so we can get that information out and get it to you in a way where we can say, look, this matter closed, this is how much you paid for this. Danielle: And this is how much you made for this. So that Davina: as those [00:39:00] people don't think about, yeah, people don't think about how much they paid that you're having to pay, even if you're, we're not talking just personal injury lawyers who're having to front costs, but we're talking about every lawyer out there has to pay their employees, their equipment, their ink, their paper, their, everything that you, that you have to pay to get a job done. Danielle: Mm-hmm. Davina: And you're wanting to make a profit. You just don't wanna get breakeven. And I think a lot of people think of that Danielle: make a big enough profit to grow. Like you said, all of us want more time and more money that that's why any of us went in business. And the only path to that, for those of us that are professional services, is to grow and hire. Danielle: And if you're gonna grow and hire, you have to have the money to do it. And that takes. Not just profit for you to pull on, but profit for you to put back in the business. 'cause it takes time to get people up and running. It takes money to get people up and running and you've gotta be able to front load that cost while you are filling their capacity. Davina: Yeah. And. [00:40:00] There are, there are different types of business models too. I think a lot of people are familiar in the tech world of funding and venture capital and, you know, angel investors and all this kind of thing, because those of us certainly who went through the.com era saw all of that and, and the outcome of all of that. Davina: But that's, we hear a lot of stories about, but in the services industries, like being lawyers and being accountants and stuff like that. We're not getting any angels coming in to save us. You know, we, our way here, get bank. We're lucky to get banks to give us a line of credit, you know, and that, and you have to be able to have something to show them, to get a, a line of credit. Davina: So, you know, I think it's a, it's a different kind of business model. And so where does the money come from? It comes from you and it comes from your smart decisions and how you make the money and making sure that you're. Hanging onto some of that money for the business so that you can make those investments as you need them. Davina: What would be the number one sort of advice that you would have [00:41:00] for a woman law firm owner who is wanting to get better at sort of learning how to make decisions based on their financials and really understand that? Danielle: Look at them. That. I mean, that would be my number. What so many of us, and you've talked about the money story, so many of us put our head in the sand and think it'll all be okay, and it's not as scary as it sounds. Danielle: It doesn't have to be scary at all. In fact, it can be really exciting. One of my favorite steps with clients is to get to that point where we're budgeting and we budget for the whole year and we go, look, if we stay on track, that's our number. That's what we get to play with. And it, it can be really exciting and motivating and empowering, but it's all about how you think about it and it's getting in the habit of looking at it. Davina: Right. That's wonderful advice. I think that's that. And you will just like you [00:42:00] learned how to speak the language of law, you can learn how to the terms and the terminology and. Learn how to speak about money. And the more you do it, the more comfortable you'll be and the more you talk to, and, and honestly, that's, uh, accountants, fractional CFOs are the people that you know, they're not there to judge you about what you did and didn't do. Davina: They're there to help. That's the role that they play, just like bookkeepers. They're there to help and that is their job is to help you. Understand that if Danielle: you don't understand them, if they, I, I, trust me, when I know they've talked a different language, sometimes ask, and if they can't answer, I'm sorry, but I'm gonna say you should probably find a different one if they cannot explain it to you in a way that makes sense that you can understand and use. Danielle: Then you may need to look for somebody else. I promise you. The approachable accountants, the ones that know how to talk English, we're out [00:43:00] there. Davina: It's just like lawyers, you know? We have our own little language and sometimes we get caught up in that. Uh, when we're trying to explain things to people, we don't even realize we're doing it. Davina: So it's it. When our clients ask us, what does that mean? Or Can you explain that? Then we realize we've been speaking in jargon. Before we sign off today, I do wanna touch a little bit on, on two things, taxes and 2023. So these are kind of laser questions. So one is, is for 2023, you know, a lot of people are worried about financial uncertainty and they're worried about recession. Davina: You know, the cost of eggs is through the roof. I mean, there's a lot of discussion about, uh, you know, not being able to afford housing and all kinds of things. So one of the advantages that business owners have is that. Sky's the limit really on what we, it we're kind of our limiting beliefs are the thing that holds us back from making the amount of money that we need to be successful in the world and to live in this world that's increasingly expensive. Davina: But what would you tell people [00:44:00] in 2023 that they should be thinking about with regard to their business? Danielle: So my number one tip on that is the whole world could be going through a recession and your business could be booming. You have to know your numbers. You need to be able to identify when your numbers are going down. Danielle: The whole world could be doing great, but if your numbers are going down, you need to be able to make adjustments and time is money. The faster you can identify when you need those adjustments, the faster you can jump in and make changes, the more opportunity you will have to take advantage of. Davina: That's wonderful advice. Danielle: Really knowing your numbers? No. No matter what the, I'll be honest, I don't even keep track of all the recession numbers because what matters most is my client's numbers. My numbers, those are the numbers that are gonna decide whether or not we make it through. We thrive, we survive, we have to make decisions. Danielle: Those are based on your numbers. [00:45:00] Davina: Well, and when you see the number, when you see numbers that you don't like, you need to learn to start selling too. You need to learn to start. Making more offers. I once had someone tell me a long time ago, you need to make more offers. Make more offers. If you're not, if you're not reaching out to people that you can serve and offering to help them and letting people know what you do and you're there to help serve. Davina: That to me is what protects you in recession, is learning how to ask for the business and just really serve people. Mm-hmm. In a way that helps them. Right. The other thing is, I just wanna talk, mention taxes really quickly 'cause I, I have seen some cases where, um. Solo lawyers will take money outta their business and not think about taxes. Davina: And if they're not yet set up, like as an ex S corp, they're not paying themselves a salary, they're just taking dividends outta the business. And then boom, they get a big tax bill. And there are two things that I've seen, and one is particularly, uh, you know, [00:46:00] worse than the other, and that is they don't file. Davina: If they don't file at all, and so two or three years go by, they don't file because they don't want to think about it. They're avoiding it. Mm-hmm. They don't have the money to pay it. So just doing it, I want your advice on that. And the other thing is that they file, but then they don't have the money to pay it, and so they just kind of ignore the notices instead of reaching out to the IRS. Davina: So what would your thoughts be around that? Danielle: So from a CFO perspective, and I will start by saying I don't actually prepare people's taxes. I don't get into the like really nitty gritty of taxes. I know enough about taxes to help my clients ask the right questions when talking to their tax preparers. And see, I know a lot of attorneys like to use other attorneys for taxes, so just enough to ask the right questions there. Danielle: But when it comes to not filing, first of all, that huge red flag because the income is showing up, the IRS knows you. There was money. So not filing is never a good idea. [00:47:00] Um, and my backup to that is there are always payment plans. The IRS is more than willing to work with you to get your money, but if you continue to kick the ball, they're going to want more money from you. Danielle: And it can rack up pretty quickly. So you don't wanna raise the red flags. You don't wanna end up with all the penalties. You can make that filing and then come up with a payment plan that makes sense for you and your business. And then what the other, the next step I do is with clients in that cashflow forecast. Danielle: 'cause like I said, taxes are not gonna hit your business budget. They do need to be in your cashflow forecast and we put them at a site outta mind. I always recommend opening a completely separate bank account from your operating account, and that's where we're gonna put our taxes and our profit so that, that the money doesn't even mesh. Danielle: And you know, this is what we can use to make the business go and that needs to stay. Davina: Yeah. Yeah. Thanks so much, Danielle, [00:48:00] for being here. I've really enjoyed our conversation. I know we could probably do a part two or a part three of this, but, um, you shared so much today. I can talk numbers Danielle: all day. Davina: I know. Davina: Well, so, uh, that to me is just amazing in and of itself. Uh, the only reason I love numbers is I love to see those dollar signs add up. So that's my, that's my thing. Uh, I thank you so much for being here. Tell us how people can connect with you if they wanna reach out to you and talk with you further. Danielle: LinkedIn is probably my social media of choice, so I go just by myself, Danielle Hendon, on LinkedIn. Um, I have not yet set up the four corner CFO. It's in progress and if you wanna go to my website, it's the number four corners cfo.com and there's plenty of ways to contact me on there as well. Davina: Wonderful, wonderful. Davina: Thank you so much for being here. I've really enjoyed it. Danielle: Me too. Thank you so much for having me. Davina.