A lot of law firm owners struggle with the shame and guilt that come with not knowing the numbers behind their business. Profit/loss statements? Revenue targets? Profit margins? I can feel many of you tensing up just reading about it. And that’s often because, as law firm owners, we’re expected to be the same badass in business as we are in law.
But the reality is that finance is an entire industry. So really, the only shame in ignorance is choosing to retain it.
If your numbers are a mystery to you, today is the day we start your journey to learning more about what you don’t know. I was so thrilled to welcome Melissa Houston as a recent guest on the Crushing Chaos with Law Firm Mentor podcast, where we had an amazing conversation about financial goals and mindset.
Melissa has both the expertise of being a CPA and the talent of being a coach. And what I love about combining those two synergies is how it can transform your approach to your numbers – in both action and mindset.
Remember: Your goal is to have a “job” for your money. Your money should be working for you, not you running from it. So how can you get to that point? We asked Melissa the questions you need the answers to…
Q: What is better: Profit or Revenue? Why?
A: Profit is far more important than revenue. Revenue means nothing if you are spending everything that is coming in. There are many business owners out there who are not aware of whether they’re operating at a profit or loss. Without profit, your business will go under.
Q: What does strategic financial growth look like?
A: When you are growing your business quickly, you need to ensure that you’ve got key financial foundations in place. This means monitoring what matters. You need to be monitoring your cash level and debt levels. You need to be monitoring the expenses that are going out the door, ensuring that revenue coming in exceeds your expenses. The goal is to have that profit coming in month after month so that you can reinvest that profit into your business.
Q: How can lawyers overcome resistance to learning more about a sophisticated area of knowledge like finance?
A: Resistance is easier to overcome when you know WHY you want to know more about your finances: So that you can make sound business decisions. When you understand your numbers, you understand how the decisions that you’re making affect your profit line. If you’re making decisions without this information, it’s like you’re driving a car with your eyes closed.
Q: What unique ability does a business owner have to create wealth relative to someone who simply has a job?
A: Being a business owner means that you have way more control over the wealth that you’re creating in your personal life. You can reinvest your profits for growth, or you can consider investment opportunities – because you never want cash sitting there idly. As business owners, you also have tax strategies and tax incentives that are not available for employees of companies. The more your business is worth, the wealthier you are as an individual because you own the business.
Q: How do you balance the desire for creating more wealth with the immediate heartstring goal of helping others?
Remember that these things go hand in hand. Wealth can be a very positive thing. There are so many opportunities when you’re building wealth within your business to affect positive change in the lives of those around you. Whether it’s instant gratification through donating money or building a not-for-profit, it’s all about getting crystal clear on your goals and making financial decisions to support those goals. It takes time, patience, money, and willingness to constantly reinvest.
Q: How do you shift the mindset of “cash equals play day” or “cash equals excess that I have to get rid of” because our subconscious programming says to live within your needs?
A: Everybody comes to the table with a money mindset issue. Even if you’re making a ton of money, there’s usually some sort of issue there. When you get clear on what it is that you want to achieve in your life, you have direction. If you don’t have financial goals planned out for yourself, you get in situations where you’re making a whole lot of money and you don’t know what to do with it. You never gave your money a “job”. So, you spend it. You’re not reinvesting your money, you’re not building your wealth, you’re not building your net worth. But if you know what you want, you’ll make better decisions to achieve it.
Responsibility Over Resistance
Remember, as the CEO of your business, you have a responsibility to check in with the financial health of your business. The more aggressive you get about your goals, the more remarkable things you can accomplish in a relatively short time. Even if you hire people to help you and advise you, checking out of your finances is not an option as you grow into the business and CEO you want to be.