Latest / Wealthy Woman Lawyer Podcast, Helping you create a profitable, sustainable law firm you love / 227: BEST OF 2023 | Danielle Hendon | Taking Control of Your Finances with a Fractional CFO

Transcript

227: BEST OF 2023 | 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

• 0:00
  Intro: Happy holidays. We hope you have scheduled some time this month with your friends and family to rest, relax, and be together. Devina is taking a brief hiatus from recording new episodes of the Wealthy Woman Lawyer Podcast. We hope you enjoy our best of 2023 lineup of the most popular episodes of 2023, and we'll be back in January with more episodes of the number one podcast for women in law in The US. Welcome to the Wealthy Woman Lawyer Podcast.
• 0:27
  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 time to enjoy the lifestyle of your dreams. Now here's Devina.
• 1:15
  Davina: Hi everyone, and welcome to the Wealthy Woman Lawyer Podcast. I am so glad you're here. I'm your host, Devina 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 CFO LLC.
• 1:31
  She has more than a decade experience in corporate finance and accounting. And then she decided to go out and take that knowledge and help 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 going to talk lots of financial things today. For those of you who struggle with financial 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.
• 2:05
  You're definitely going to want to tune into this. You might want to listen to it. If you're walking, if you're driving, you might want to listen to it again when you're someplace that you could take notes, because I'm sure you're going to learn some things today. So welcome Danielle. I'm so glad you're here.
• 2:18
  Danielle: I am so happy to be here. Thank you so much for having me, Devina.
• 2:22
  Davina: Wonderful. So tell me about your journey from corporate. Did you always know you wanted to be a CPA? Was this something that you had as a little kid? You had your little calculator.
• 2:33
  Danielle: I don't know that anybody could honestly say they always dreamed of being a CPA. If they did, they are few and far between. I actually went to college starting out as a music major. And I had an English professor that made us write 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.
• 2:57
  Davina: Very few musicians live the high lifestyle.
• 3:00
  Danielle: Right. And so I had some friends that were in the accounting major section of things, I tried out a couple of classes and I really enjoyed it. So I went and got 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. And honestly, I loved what I did, but I started a family and I quickly realized that eighty hour work weeks and a newborn don't go very well together.
• 3:29
  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
• 3:37
  Davina: a lot
• 3:38
  Danielle: of my experience was. 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 end being the low, we went through bankruptcy. And on the other side of bankruptcy, the company was owned by financial bankers that just started slicing and dicing.
• 3:56
  And then the pandemic hit. 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 going to 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.
• 4:18
  And I got to know the teachers and the friends and the coaches and the kid. Like, I didn't want to give that up. 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.
• 4:42
  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 helped the team through that, 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 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. I tell people all the time I used to work to increase share price or shareholder value, because that's what they say in corporate.
• 5:24
  And now I get to work to increase livelihoods and legacies. And that just feels really cool.
• 5:30
  Davina: That's wonderful. That sounds like the story of a lot of the women law firm owner clients that I have and people that I've 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. Then to give that up just didn't seem like the best option. A lot of law firms, laptop, lifestyle, lawyer things were born out of this pandemic, I think for a lot of people. Of course, no matter how you start, we encourage you to grow and get more people on your team to help you.
• 6:07
  You still preserve that kind of time. Because that doing it solo can very quickly turn back into workaholic mom.
• 6:15
  Danielle: When the kids go to bed and the laptop opens back up. Yeah, exactly.
• 6:20
  Davina: We encourage our clients to start growing a whole business so that they can still preserve that time for them and actually have more resources and help. But I'm glad you're here today because we have a lot to talk about because this is an area, finances are an area that I think a lot of small business owners struggle with. Even with our law firm owner clients, they are highly educated, highly intelligent, and they are really great lawyers. But they often put the pressure on themselves to know how to also be a really great marketer and a really great financial CFO and a really great systems person and all this. And what they don't realize is all of those are their own unique professions.
• 7:04
  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. 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 me help with managing the book so that I can advise you and you can make good decisions as a business owner. That's the CEO, not the CFO, right?
• 7:28
  Is that kind of the role you play?
• 7:30
  Danielle: 100%. And I like to say, I'm kind of the anti CPA, I am never going to be the person that comes in 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.
• 7:44
  Davina: So I want to dig into financials, and I want to talk about financials so that for those out there, you may feel like they're embarrassed because they don't speak financial language, or they feel like they should know more. I want to share a little bit today so they can start feeling empowered and they have a little bit more knowledge. So why don't you tell me some of the key financial reports that woman law firm owners 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.
• 8:14
  Danielle: So I'll start with frequency. And that's gonna a lot of accounting answers always going to be it depends, but I'll give you some of the why it depends and what it depends on. So your frequency is going to depend on how big you are, how much activity is running through your financials, that's going to help you decide how frequently you want to look at them. You don't need to be in your financials every week. If you've got five or six clients you're helping, that's just not a good use of your time.
• 8:40
  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 a 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. 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 yeah, whichever management software you want to use, but you need to get in and you need to know a couple of different numbers. I'll throw out the one that everybody knows everybody knows their revenue.
• 9:20
  And revenue is a great number to know. But 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 want to look at revenue, you want to be looking at your profit margin. So when you take revenue, minus your cost of goods sold, which for attorneys is your associates time, your paralegal's time, your partner's time, you want to have all of that time, whether it's billable or flat fee based, if you're 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, because at the end of the day, and we were talking earlier kind of if you have let's take an estate planner that's building out a will for somebody and they're going to charge $2,000 for that will a lot of estate planners are trying to move to this flat fee services environment.
• 10:22
  You need to know how much time and money is going into building that will and what actually is profit left in your pocket at the end of the day. And this is not overall profit, you 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, because there's so many moving parts, you have so many people involved in a firm, and they get their hands on one service for one client, you really want to be able to keep track of that.
• 11:01
  Davina: Yeah, so tell us what report we'd find that on.
• 11:04
  Danielle: That is going be on your profit and loss statement. So again, and loss statement. I'm just going use QuickBooks, because that's where most people are. Yeah, you're going to put your profit and loss out of QuickBooks, you're going to see revenue right at the top, that's the number 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 going to be how much are you paying all your people at the end of that is gonna say profit, we want to know what is that profit that you're getting after revenue and cost of goods sold.
• 11:32
  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, you're going to have marketing expenses, you're going to have licensing fees, you're going to have permits, and potentially rent, you're going to have cell phone and internet and website domain, all of those things are going to hit your operating expense. And then at the very bottom after everything's paid is a little section called other income and expenses. A lot of times this is where credit card points that you cash out things that aren't necessarily driven by your key business will end up in that section.
• 12:14
  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 if everybody's paying their bills, and you're paying your bills. That's the number that should be left to hit your cash. So
• 12:28
  Davina: I want to hit just some of the top reports and kind of what they mean for people. I think that's often the confusing part for people. And you would be surprised 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 really grow and expand by hiring people. So if you're making $50,000 a year in gross revenue, you're not going to be able to hire people to help you in the way you are if you're making 500 in gross revenue or 1,000,000 in gross revenue.
• 12:57
  So, and the reason oftentimes people coaches, for instance, my focus on revenue instead of profit is because there's a lot of strategy in profit as well. There's tax strategy involved in profit. You may not want to show a certain amount of profit because you don't want go over a certain tax threshold. There's all kinds of things that are involved in that. So that's why if you hear people talking about revenue, there's a reason for that, but it is not the full picture in a financial analysis.
• 13:24
  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. What is so confusing? Why do I have to look at this? So tell us about the balance sheet and what that should be telling us.
• 13:36
  Danielle: Yeah, so balance sheet comes second to cash flow 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, 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.
• 14:05
  And then your liabilities are all the people you owe, including yourself sometimes. So the liabilities are going to be payables to your employees, payables to your vendors, any debt that you've taken on so payable to a bank, those are all And I know most business owners, me included work off using credit cards, because let's rack up those points while we can, right. And that's going to show in your liabilities, because it's going to 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 going to sit in that liability section.
• 14:41
  So your balance sheet is assets, liabilities, and then this one gets a little tricky, and equity. 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, 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, or they've taken on distribute, they've paid themselves from debt. Let's be honest, everybody's got to start somewhere.
• 15:22
  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.
• 15:33
  Intro: If you
• 15:33
  Danielle: are in a position where you need to go talk to a bank, they're going to want to see your balance sheet, they want to know that you are worth more than you owe as a business if they're going to give you more money.
• 15:44
  Davina: Excellent information, I think for people to have that and understand just conceptually what that means when they're looking at their balance sheet, because that's really about the value of your business, right? And if you have a lot more debt, 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 going to be upside down. And so people often think in terms of I could sell this one day. 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. It's not just borrowing money, but also potentially we get ready to sell it.
• 16:20
  What value does it have to somebody else? Cash flow 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 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 as much as I can because we're struggling.
• 16:44
  So tell us where we can find that information and how we should look at it.
• 16:48
  Danielle: So I'm going to be honest, there are many accountants and CPAs out there that don't truly understand a cash flow statement. We don't like the format of them any better than business owners do. So actually, my clients, we don't use a traditional cash flow statement. We take a cash flow 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 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, that was sales that was cost of goods sold that was, and we build that out with actuals, and then you forecast it forward using your budget.
• 17:39
  How much are we budgeting in sales? And how much of those budgeted sales normally sit in receivables. Because especially with lawyers, know there can be some really big lag sometimes between when you invoice somebody and get paid. Alternately, you may have cash coming in the door that needs to go sit in your trust account, and isn't going to hit your operating account just yet. And we want to make sure you're tracking that in a cash flow forecast.
• 18:06
  So what is the sales coming in the door that is truly yours and earned? What is the cost of that? 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. And then you say, Okay, that's my start for what are we going to think about next month.
• 18:24
  So let's say you've got $20,000 in the bank account at the December, and you've wanted to start forecasting for January, 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?
• 18:43
  What are your monthly operating expenses? Make sure you add in any of those one offs when you're traveling and conferences, and those need to hit there too, just like they would your budget. And then what number do you expect to see at the end of the day, you can literally take a budget and roll it into a cash flow. So you can make sure that number doesn't go negative, because we both know at the end of the day, cash is king. And that is what makes or breaks the business.
• 19:07
  Davina: Right. And we can be too eager to see profits and take profits out of a business that really needs to have some cash sitting there for those months where something unpredictable happens.
• 19:20
  Danielle: Well, not just profit, but so many 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, it doesn't show what we're making to pay off debt. It doesn't show what you're putting aside for emergency savings, because 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.
• 19:43
  Davina: Right, right, right. Any other key reports that we need to know about that we need to be thinking about?
• 19:50
  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. 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 going to help you make the best decisions you can for next month.
• 20:21
  Davina: I would put highlights around what you just said, because 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 doing an analysis on a monthly basis and saying, what was my budget for the month and where did we go over under? Because we may need to make an adjustment and prepare for that and know that. So for instance, if you're spending a certain amount of money, you budget a certain amount of money for marketing and 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 because that's just waste. Oftentimes there's waste.
• 21:10
  It's not even letting go. It's like a lot of people jumped right to, I got to fire somebody or I got to stop paying this bill or that.
• 21:16
  Danielle: Not productive employees. That should be the last step.
• 21:20
  Davina: So you look at things like where is there waste? You're not so much the necessary things that we need. And the other flip side of that is you may look at marketing and marketing budget and go, I got a lot of room in a marketing budget and I'm not utilizing it. I need to be because if I use it, it's going to help grow and get more money coming in, more revenue coming in. And so it goes both ways.
• 21:41
  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 doing things perfectly, where they spend most of their time is in that expense thing going, thinking automatically, I've got to fire somebody or I've got to completely stop this marketing initiative that I'm doing that's working. But I don't want to spend that amount of money on it. And so is this something that you've encountered with some of your clients? Know I've seen it with my client.
• 22:12
  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 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 them down, 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. The other group I like to call personal perks.
• 22:40
  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. 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?
• 23:02
  And so in that effort, I was sitting with one of my attorney clients, and we were looking at her expenses, and she was certain she had cut everything she could. And we got to her CLE, and her continuing education. And I told her, I don't know for sure. But being a CPA, if it's anything like mine, I know you can go get continuing education for like $200 to satisfy the unit requirements if you had to. She's like, Yeah, but this taught me this.
• 23:31
  And this taught me that. And I said, Okay, so at that point, it's an investment in your business. Did you implement it? Did you have time to implement the things you were taught? Are you saving time because you went there?
• 23:43
  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.
• 23:50
  Davina: That is one of the big temptations when you're at a learning all the things. You're a learner. I mean, you already are somebody who enjoys learning or who wouldn't have gone to law school and put yourself through that. And so you're wanting to learn new things and you're always questioning, should I add a practice area? That sounds so interesting.
• 24:05
  Maybe that's more interesting than my practice area. I'll go take that CLE. I can not. They're not cheap. Actually am coming up on my minor due May, every three years to do it and then expand it a little bit where I am.
• 24:22
  You got to have so many techs, so many professional, and so it's increased the number. 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 probably a lot of things you can learn in Florida. We're fortunate because we have some resources where there are free CLEs that you can take. And then there are some that are low cost packages or whatever.
• 24:42
  And 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, an aviation, aviation law or something, if you can get it for less. But I do think it's a matter of priorities. So if you're trying to develop a new practice area, you might go and say, I need to get educated in this practice area so that I can really do a great job in it. And so if you're being very intentional about it with the intention, like you said of implementing, then that is a smart, maybe a smart decision for you. But if you're doing it just because you're curious, exploring then maybe there are less expensive ways to do that.
• 25:24
  One of the things is books. I never people don't think about books, but any of these, Lexis and Westlaw, you can actually go buy books. And sometimes the books are expensive, but they may not be as expensive as
• 25:33
  Danielle: the course or whatever. Right?
• 25:37
  Intro: If you're a fan of the Wealthy Woman Lawyer Podcast, I invite you to join us in the Wealthy Woman Lawyer League as well. In the Wealthy Woman Lawyer League, we share with you our complete framework for scaling a law firm business to high 6 or 7 figures so you can fully fund the lifestyle of your dreams and still have ample time to enjoy it. No more working yourself into the ground for success. In this exclusive for women law firm owners only community, you'll enjoy coaching in an intimate group setting, all the training materials, tools, tips you need to grow your law firm without overwork or overwhelm and a supportive league of other women lawyers on a similar journey. For more information and to join the league, go to go.wealthywomanlawyer.com/lawyerleague.
• 26:20
  The link is in the show notes. We hope to see you in the league.
• 26:27
  Davina: I do want to 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 and that may be an appropriate sort of thing. But one of the things I'm always telling my clients is that invoicing clients is outward facing. It's client facing, but running your law firm, what goes on back here, billing is billing and looking at your billables and looking at how much time it takes you and what the hourly rate of your attorney is and making sure that that flat fee covers that and gives you profit.
• 27:12
  So it covers the attorney, it covers the other overhead expenses, and it covers any other staff members and it leaves you with a profit. So you have to make sure that flat fee is big enough to cover that. Oftentimes the mistake that I see people make, of all, when I bring up billing or I say, what do you charge per hour? I charge flat fees. It's like, right.
• 27:33
  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. If that's the way you came with your flat fee, then you really need to do a deeper analysis. Because for a law firm, that is really the fuel in the engine is that 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.
• 28:04
  Danielle: Coming from the CPA back, I've been there done that. But even if you're flat feet, everybody's got to 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 personalities of clients, those are going to change how much time somebody spends on something. And I'll take the one we said estate planners are usually flat fee, which is great. But you might be an estate planner that uses a paralegal and some admins to do a lot of the work.
• 28:49
  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, all of that can affect it. And even with my clients that 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, how much time do you expect your associate to spend? And how much are you paying your associate? How much time do you expect your paralegal to spend?
• 29:19
  And how much are you paying your paralegal? And once you have that set, how are we going to go back and look at it? And I can tell you, I've worked with clients where it takes us months to get everybody tracking their time in such a way that we can report back and say, Alright, this matters closed. This is how much got billed on it, internally, how much we as a business paid paralegals, associates, admins, and 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, If you're going to 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. Right, it may be an employee problem where you have to have a conversation about what the expectations are.
• 30:13
  But a lot of times it's more in the systems than it is in the people.
• 30:16
  Davina: Yeah. And they're also, you know, clients matter too. Right? So, you know, I think people who charge flat fees regularly say, well, you know, it all balances out at the end. But I think that if you're not actually, you're telling yourself a story, if you're not actually going back and analyzing what you with twenty years experience can do, people say, well, I got twenty years experience.
• 30:37
  I'm making a ton of money because I'm doing this in an hour and turning it out. And so it's like in $2,000 an hour. Well, with teams, so we start looking at it and if you now have an associate, a paralegal and an admin, what you were doing, 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. There's a woman I know who's wonderful at charging flat fees.
• 31:04
  She charges really large flat fees. And I see a lot of people wanting to emulate her and want to charge flat fees, but then they're charging really low flat fees as they think that this is all people will pay, that 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, to yourself, you don't have to say it to them, but you say to yourself, I've done the math.
• 31:35
  I know what it takes to not only cover the expense of doing this, but also make it profitable. 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've done the math and we know what it takes to get.
• 31:52
  Danielle: You know, have to, that's the number you have to charge to make this beneficial. And so much of it also comes back to the consistency of your client base and the services. 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 that in a box?
• 32:09
  Davina: A litigator who does that, but she charges flat fees and she breaks things up into phases, which I think is a strategy. So you're not like stuck in trial without being able to assign a separate sort of fee to that. But I'll share with you that I had a client 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 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 slap area and she says, okay, I'm going to go to billable for this. So I'll get a retainer, I'll bill against it.
• 32:50
  I'm going to go billable in this. She on average value per matter, which she was flat fee was 3,500. When she switched to billable, it was 7,500. Imagine the huge change in your business with that kind of job. One of the challenges that she had is that flat fee business she had already taken so many that now they had to just like walking through quicksand, having to do the work and they know she now consciously knows she's losing money.
• 33:21
  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. She wasn't nearly charging what it was worth. And that's an undervaluing thing. You're looking around at people and you're going, well, I don't think people will pay this. And so you're kind of undervaluing yourself.
• 33:44
  You're not really giving yourself enough credit. There's a lot that goes into that. 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, a quarter million dollars in a year.
• 34:06
  Danielle: A huge amount of money.
• 34:07
  Davina: And so imagine if she could take that home. So she's been on a course correction and now that's starting to pay off. But that's the thing that people I think miss when they are saying, just want to be easy. I just want to charge a flat fee. I just want to do this.
• 34:23
  I don't want to track my time. I don't want to look at my books. And sometimes they hide behind their CPA. They'll say, I can't do this. My CPA won't let me.
• 34:32
  To me, I'm like, then you need a new CPA because a CPA should not be making financial decisions. You need to be making financial decisions in your business, but a good CPA can give you great advice and help you understand your numbers so you can make the good decisions and feel good about those decisions that you're making.
• 34:49
  Danielle: And 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. 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 and making that that can be tracked for you. So you don't have to.
• 35:18
  Davina: And also, I want to 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 financials, you can have confidence and trust in that information.
• 35:37
  And then accountants are the ones who are like lawyers, we're the strategists. Accountants are the strategist, lawyers are the strategist. The paralegals are there that may be drafting, but it is a lawyer who comes up with the strategy about how we're going to handle like, hey, so and the way we're going to do this to get the outcome we desire. That's the role of a CFO. Someone who is a fractional CFO, Chief Financial Officer is going to be able to help you with that kind of strategy based on what the bookkeeper is doing.
• 36:09
  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. All of these people come together, but definitely bookkeeper and CPA are a must. I was asking you about that. I forgot what I was asking you about.
• 36:27
  I was telling you a story about this client. So she made this change. Have you seen that kind of thing with your clients? 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.
• 36:44
  Danielle: 100%. It's more about transparency and visibility, like that is the key to all of it to have the information to make the best decisions. And that's exactly what a good CFO is going do, we're going to come alongside you and make sure you have that information. I'm learning so many different legal practice 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.
• 37:09
  And this is how much you made for this.
• 37:11
  Davina: People don't think about how much they paid that you're having to pay. We're not talking just personal injury lawyers who are having to front costs, but we're talking about every lawyer out there has to pay their employees, their equipment, their ink, their paper, everything that you have to pay to get a job done. And you're wanting to make a profit, just don't want to get breakeven.
• 37:35
  Danielle: All of us want more time and more money. 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. And if you're going to 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 because it takes time to get people up and running.
• 37:54
  It takes money to get people up and running. And you've got to be able to front load that costs while you're filling their capacity.
• 38:02
  Davina: 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 angel investors and all this kind of thing, because those of us certainly who went through the .com era saw all of that and the outcome of all that. But that's we hear a lot of stories about 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're lucky to get banks to give us a line of credit, and you have to be able to have something to show them to get a line of credit.
• 38:37
  So 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 on to some of that money for the business so that you can make those investments as you need them. What would be the number one advice that you would have for a woman law firm owner who is wanting to get better at learning how to make decisions based on their financials and really understand that?
• 39:06
  Danielle: Look at them. 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. It doesn't have to be scary at all. In fact, it can be really exciting.
• 39:17
  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 can be really exciting, and motivating and empowering. But it's all about how you think about it.
• 39:34
  And it's getting in the habit of looking at it.
• 39:37
  Davina: Right. That's wonderful advice. And you will just like you learn 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 honestly, that's the accountants, fractional CFOs are the people that they're not there to judge you about what you did and didn't do there to help.
• 40:05
  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
• 40:13
  Danielle: you don't understand them if they 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 going to 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, then you may need to look for somebody else. I promise you the approachable accountants, the ones that know how to talk English, were out there.
• 40:37
  Davina: It's just like lawyers, we have our own little language. And sometimes we get caught up in that when we're trying to explain things to people, we don't even realize we're doing it. And when our clients ask us, what does that mean? Or can you explain that? Then we realize we've been speaking in jargon.
• 40:52
  Before we sign off today, I do want to touch a little bit on two things, taxes and 2023. So these are kind of laser questions. So one is for 2023, a lot of people are worried about financial uncertainty. They're worried about recession, the cost of exits through the roof. I mean, there's a lot of discussion about not being able to afford housing and all kinds of things.
• 41:15
  So one of the advantages that business owners have is that the sky's the limit, really. 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. But what would you tell people in 2023 that they should be thinking about with regard to their business?
• 41:35
  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, 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. That's wonderful advice.
• 42:07
  Really knowing your numbers, I'll be honest, I don't even keep track of all the recession numbers. Because what matters most is my clients numbers, my numbers. Those are the numbers that are going to decide whether or not we make it through, we thrive, we survive, we have to make decisions. Those are based on your numbers.
• 42:25
  Davina: 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. Once had someone tell me a long time ago, you need to make more offers, make more offers. 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. That to me is what protects you in recession is learning how to ask for the business and just really serve people in a way that helps them.
• 42:53
  The other thing is I just want to mention taxes really quickly because I have seen some cases where solo lawyers will take money out of their business and not think about taxes. If they're not yet set up like as an S Corp, they're not paying themselves a salary. They're just taking dividends out of the business and then boom, they get a big tax bill. And there are two things that I've seen and one is particularly worse than the other, and that is they don't file. They don't file at all.
• 43:21
  So two or three years go by, they don't file because they don't want to think about it. They're avoiding it. They don't have the money to pay it. So just doing it. I want your advice on that.
• 43:31
  And the other thing is that they file, but then they don't have the money to pay it. And so they just ignore the notices instead of reaching out to the IRS. So what would your thoughts be around that?
• 43:44
  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. But when it comes to not filing, first of all, that huge red flag, because the income is showing up the IRS knows there was money. So not filing is never a good idea.
• 44:14
  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. And it can rack up pretty quickly. So you don't want to raise the red flags, you don't want to 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. The next step I do is with clients in that cash flow forecast, because like I said, taxes are not going to hit your business budget, but they do need to be in your cash flow forecast.
• 44:49
  And we put them out of sight out of mind, I always recommend opening a completely separate bank account from your operating account. And that's where we're going to put our taxes and our profit so that that money doesn't even mesh. And you know, this is what we can use to make the business go. And that needs to stay.
• 45:06
  Davina: Yeah. Yeah. Thanks so much, Danielle, for being here. I've really enjoyed our conversation. I know we could probably do a part two or part three of this, but you shared so much I've talked numbers
• 45:16
  Danielle: all day. I know. Well,
• 45:18
  Davina: so that to me is just amazing in and of itself. The only reason I love numbers is I love to see those dollar signs add up. So that's my thing. Thank you so much for being here. Tell us how people can connect with you if they want to reach out to you and talk with you further.
• 45:33
  Danielle: LinkedIn is probably my social media of choice. So I go just by myself, Danielle Hendon, LinkedIn, and I have not yet set up the Four Corners CFO. It's in progress. And if you want to go to my website, it's the number 4cornerscfo.com. And there's plenty of ways to contact me on there as well.
• 45:50
  Davina: Wonderful, wonderful. Thank you so much for being here. I've really enjoyed it.
• 45:54
  Danielle: Me too. Thank you so much for having me, Devina.
• 45:59
  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.