Latest / Wealthy Woman Lawyer Podcast, Helping you create a profitable, sustainable law firm you love / Episode 336 | The Founder Tax: What Your Firm Is Quietly Costing You

Transcript

Episode 336 | The Founder Tax: What Your Firm Is Quietly Costing You · Wealthy Woman Lawyer Podcast, Helping you create a profitable, sustainable law firm you love

• 0:01
  Intro: Welcome to the Wealthy Woman Lawyer Podcast. What if you could hang out with successful women lawyers, ask them about growing their firms, managing resources like time, team, and systems, mastering money issues, and more? Then take an insight or two to help you build a wealth generating law firm. Each week, your host, Devina Frederick, takes an in-depth look at how to think like a CEO, attract clients who you love to serve and will pay you on time, and create a profitable, sustainable firm you love. Devina is founder and CEO of Wealthy Woman Lawyer, and her goal is to give you the information you need to scale your law firm business from 6 to 7 figures in gross annual revenue so you can fully fund and still have time to enjoy the lifestyle of your dreams.
• 0:47
  Now here's Davina.
• 1:01
  Davina: There's a tax most women law firm owners pay every single month and don't even see on their balance sheet. It doesn't show up in your books. Your CPA can't find it. Your bookkeeper has never flagged it. It doesn't come with a quarterly notice or a payment due date.
• 1:16
  But it's real. It's constant. And if you don't know what it is, it's already taking more from you than you can afford. I call it the founder tax. And today, I'm gonna show you exactly what you're paying.
• 1:28
  Welcome back to the Wealthy Woman Lawyer Podcast. I'm your host, attorney Devina Frederick. And every week, we have honest conversations about what it takes to build a profitable, sustainable law firm you love, one that doesn't burn you out in the process. Today's conversation is one I've been wanting to have for a long time because it names something most law firm owners feel but never quite articulate. There's a sentence rolling around in the back of your mind that goes something like, I'm working harder than ever, but is it worth it?
• 2:01
  Today, we're going to give that feeling a name. We're going to look at where it comes from. We're going to talk honestly about what it's costing you. And I'm going to share two stories with you, two real women I've worked with through Wealthy Woman Lawyer, because the founder tax doesn't look the same in every firm. It hides in different corners.
• 2:23
  And until you can spot which corner it's hiding in for you, you can't do a thing about it. By the end of our time together, you'll know exactly what your founder tax is and what your next move is. Let's go. Let me start here. When you build a law firm that requires you to be present for it to function, you have created a job.
• 2:44
  A high paying one maybe, a prestigious one certainly, but a job. Every job comes with a cost, not the cost of doing the work. We all pay that. I mean, the cost of being the only one who can do the work. That's the founder tax.
• 2:57
  It's the difference between what your firm produces with you in it and what your firm could produce if it didn't need you personally to produce anything. Most women lawyers I talk to think they own a business when what they actually own is a stressful, well paying job. The difference between those two things is everything. The founder tax isn't a sign that you're doing something wrong. It's a sign that you built the firm the way you were taught to build it.
• 3:26
  Hard work, personal excellence, being the one your clients can count on. Every habit that got you here is ironically the same habit that's now keeping you stuck at a certain revenue level, working your guts out. That's why this tax is so hard to spot. It looks like virtue. It feels like loyalty, and it costs you constantly.
• 3:47
  Let me illustrate with a story about a client of mine. We'll call her Cece. When I first met Cece, she was the only lawyer in her law firm. She had two staffers, a right hand paralegal and a part time virtual assistant. She was making about $20,000 to $30,000 a month, depending on whether she was traveling that month.
• 4:06
  By most measures, she was successful. 6 figures comfortably, reputation in her market, clients who loved her. But here's what was really happening. Even when Cece was out of the office on a trip, she was still handling client consultations. Still in frequent touch with her staff, she knew she had to be because if she wasn't, the firm would run out of work in the coming months.
• 4:29
  It didn't really bother her. She was used to it. Her family was used to her being on her phone or her laptop at all hours. That was just the deal. Her firm's revenue was capped, completely capped, based on the number of hours Cece worked.
• 4:44
  She made enough to be comfortable, but not enough to realize some of her bigger dreams. And in the back of her mind, she had this vague hope that those dreams would magically work out someday, even though she wasn't actually planning for them financially. Here's how I describe what Cece had built, and she didn't love hearing it at first. She had created a nice little job for herself. A job that worked as long as she never got too sick, too old, or too tired to work.
• 5:11
  That's the founder tax. Cece was paying it every single month, and she was paying it in three different forms, which is exactly what I want to walk you through next. The three forms the founder tax takes. This tax shows up in three places. Most owners only see one of them clearly.
• 5:29
  The other two are quietly draining you. I want you to listen to all three, and I want you to notice which one resonates with you the most because that's the one taking the biggest cut from you right now. First, it's sucking up your time. You already know this one. You're working evenings.
• 5:47
  You're working weekends. You took a vacation last year and answered emails on the beach. Cece was on her phone in the back of Ubers in foreign cities. But here's what most women miss. The time isn't the real loss.
• 6:00
  The time is the symptom. The real loss is what that time would have produced if you'd spent it on something only the CEO can do. Strategy, vision, high level relationships, business development at the level that moves a firm forward in a significant way, the conversations and the thinking that compound. Every hour you spend doing $50 an hour work in your $500 an hour firm is an hour your firm doesn't grow. That's not a productivity problem.
• 6:29
  That's a structural one. And here's the part that sneaks up on you, the time tax compounds, not financially, personally. Every weekend you don't fully unplug, every dinner where your laptop is open, every trip where your family is used to you being half there. That's not just lost hours. That's relational interest accruing on a debt you didn't know you signed up for.
• 6:51
  Cece told me looking back that her family had stopped expecting her to be fully present. They'd adjusted around her. That's what the undiagnosed founder tax does. It rewires the people who love you to expect less of you. Second, it's capping your revenue.
• 7:10
  Here's a question I want you to sit with. If your firm grew 50% next year, could you handle it? Most owners hesitate, and that hesitation is the answer. If the only way to grow is for you to work more, then your revenue ceiling is whatever you can personally produce in a twenty four hour day. That's not a business model.
• 7:30
  That's a cap dressed up as success. This is why so many talented, hardworking women lawyers hover within the same revenue band year after year. It's not a lack of effort. It's not a lack of skill. It's the firm's architecture.
• 7:46
  They built something that physically cannot grow past them, and then wondered why it doesn't. This is the form CeCe saw most clearly once we started working together. She watched colleagues she admired do things with their firms that she couldn't figure out how to replicate, And she wondered if she was missing something they had. She wasn't missing anything. She was just running into the ceiling that's built into every solo shaped firm.
• 8:12
  The math doesn't care how good you are. If the firm needs you to function, the firm caps where you cap. Third, it's shaping your future, and not in a good way. The founder tax isn't just costing you today. It's costing you a decade from now because the firm that requires you to function is also the firm you can't sell, can't step away from, can't hand over a successor, can't leverage into anything bigger.
• 8:40
  It's the firm that ends when you do. Stop for a minute and absorb that thought. Then consider this. The women who build firms that outlast them, the ones whose practices become assets, not just paychecks, they made one structural decision early on. They decided their firm would not be them.
• 8:59
  Everything else followed from that one decision. Here's what makes this third form of the tax so insidious. You don't feel it day to day. The time tax you feel every weekend, the revenue tax you feel every quarterly review, but the future tax, it only shows up when you finally try to step back and discover there's nothing there to step back from. By then, the bill is enormous.
• 9:24
  Meet Jay. Because the tax doesn't always look the same, I want to tell you about another client. We'll call her Jay. Jay had been stuck at about $600,000 in revenue for years, never quite able to scale over the 7 figure mark. Not only was she frustrated, so was her spouse.
• 9:42
  He knew she was capable of so much more, but for some reason, she couldn't get there. Now here's what makes Jay's story different from CeCe's. On paper, Jay had already done what CeCe was trying to do. Jay had hired. She had a lawyer working with her.
• 9:57
  She had support staff. She wasn't a solo on paper. So why was she stuck? When we started talking through everything she was doing and just as importantly who she was being inside her firm, here's what we found. Even though Jay had built a team, she was still functioning as though she were a true solo.
• 10:15
  There was a huge disconnect between Jay and her people. She was in court most of the time and rarely talked with them. And the reason she rarely talked with them wasn't laziness. It was fear. She was so afraid of being perceived as a micromanager that she had gone almost entirely hands off.
• 10:33
  She expected her team to do their jobs without her guidance or her input. Listen carefully to this because it's where so many women get stuck. Jay had paid the cost of hiring without ever paying the cost of leading. She had a team in name. She didn't have a team in function.
• 10:51
  And the founder tax found her anyway. It just wore a different costume. For Cece, the tax showed up as a cap solo practice. For Jay, it showed up as an underled team that produced a fraction of what it could have. Same tax, different disguise, both quietly draining real money, real time, and real possibility.
• 11:13
  Why this tax goes unnoticed? Here's the trap. The founder tax feels like dedication. It feels like work ethic. It feels like the very things that made you successful in the first place.
• 11:25
  I'm the one who cares the most. I'm the only one who can do it right. My clients hired me. They expect me. If I step back, things will fall apart.
• 11:35
  Every one of those sentences feels true, and every one of them is also a bill you're paying. The most dangerous costs in business are the ones that look like virtues. That's why this tax is so hard to confront. Confronting it requires you to admit that the very behaviors you've been praised for, the all hours availability, the personal handling of every important matter, the refusal to let anything are the same behaviors keeping the ceiling exactly where it is? I've never met a woman lawyer who lacked work ethic.
• 12:08
  I've met many who had such a strong work ethic that they used it to build a firm that consumed them. Work ethic without the right structure isn't a virtue it's an expensive habit. A short, honest self assessment. I want to do something with you for a minute. I want you to pause and answer these four questions.
• 12:27
  If you are driving and listening to this, you can just answer in your head. These aren't tactical questions, they're diagnostic. They tell you which form of the founder tax is taking the biggest bite out of you right now. Here we go. Question one, if you took two full weeks off, truly off, no email, no calls, no just checking in, would your firm be in better shape, the same shape, or worse shape when you got back?
• 12:50
  Be honest. Question two, if your revenue had to grow 50% next year, would the path involve you working more hours, or would it involve something other than your hours? If it involves your hours, the cap is real. Question three: If a serious buyer offered to acquire your firm tomorrow, what would they be buying? Would they be buying an asset that runs without you, or would they be buying you dressed up as a law firm?
• 13:17
  Question four, if you were completely removed from your firm for one year, would your team know how to lead each other, or would the firm quietly grind to a halt because the only person capable of leading is you? Which one of these resonated the most with you, which made your stomach tighten a little? Because that's where your founder tax is highest. That's where the leak is biggest, and that's the place to start when you decide you're ready to start. What changed for CeCe?
• 13:47
  Let me bring this back to CeCe because I want you to hear what's possible on the other side of seeing this clearly. After CeCe reached out to Wealthy Woman Lawyer, we started talking through the possibilities. Fast forward two years, her law firm now brings in almost half $1,000,000 per quarter, almost twice what she was making in an entire year as a solo. She now has a team, including other skilled, experienced attorneys who keep everything running smoothly when she's out of the office. She's developed real systems.
• 14:18
  She's incorporated AI in smart, deliberate ways. And she's evolved as a law firm leader and a CEO, which has freed up enormous amounts of her personal time. Time she now spends with her friends and family traveling the world without working. What did she say about the journey? Her words, It wasn't even that hard, just a little uncomfortable at times.
• 14:41
  Read that again. The transformation that took her from a capped solo to the CEO of a multimillion dollar wealth generating law firm. The woman who lived it described it as a little uncomfortable at times. That's what I want you to hear. The things standing between you and a fundamentally different firm isn't a heroic leap.
• 15:01
  It's a willingness to be a little uncomfortable while you build something that doesn't require you to carry it on your back. And Jay, she's also the owner of a multi million dollar wealth generating law firm, and she can now leave work early most days to spend time with her young daughter. Her husband is super proud that she's finally stepped into her potential, and her team feels more connected and loyal to her than ever. The reframe. So here's the question I wanna leave you with.
• 15:31
  If you took an honest look at your firm right now, the hours you're putting in, the revenue you're leaving on the table, the asset you're not building, what would the founder tax total for you this year, not just in dollars on a spreadsheet, in life, in freedom, in the version of yourself you don't have time to be because you're busy being everywhere your firm needs you. And that number is bigger than you think. And the longer you wait to address it, the more it compounds. The good news, it's not a permanent feature of your firm. CeCe proved that.
• 16:02
  Jay is proving it. Dozens of women in our community are proving it right now. It's not a permanent feature of your firm. It's a design choice. And design choices can be changed.
• 16:12
  If this episode is hitting a nerve, if you're recognizing yourself in CC or in J, or in some combination of both, I'm hosting a live training designed for exactly this moment in your business. It's called the Wealthy Five Secrets to Create the Profits, Impact, and Flexibility You Desire. In this free training, I share the growth journey most law firm owners experience so you can pinpoint exactly where you are on your journey. I also share with you the exact framework I taught Cici, Jay, and hundreds of other women law firm owners so they could scale their law firm businesses to multiple 7 figures while reclaiming more of their personal time. I'll be presenting live on March 14 from 10:30 to 11:30 mountain time, and there is a very special bonus for those who attend live.
• 17:02
  So go now and register to save your spot. You can save your seat at Wealthy Woman Lawyer dot com slash webinar. The link is in the show notes. Don't wait. Seats are limited, and this isn't something I typically run on repeat.
• 17:17
  Thank you for spending this time with me today. If this episode resonated, if it gave you something to think about, something to question, something to act on, share it with another woman law firm owner who needs to hear it. Until next week, remember, a job provides a paycheck, but a wealth generating law firm business provides freedom. This is Devina Frederick, and you've been listening to the Wealthy Woman Lawyer Podcast.
• 17:42
  Intro: If you're ready to create more of what you truly desire in your business and your life, then you'll want to visit us at wealthywomanlawyer.com to learn more about how we help our clients create wealth generating law firms with ease.