Un-Billable Hour

Law Firm Accounting: Empowerment by the Numbers

Before you read the word “numbers” and cover your ears, consider this your reminder that accounting doesn’t have to be intimidating. On this episode of The Un-Billable Hour, host Christopher Anderson talks to Micky Deming, the director of business development at Kahuna Accounting. Together they explain the common misconceptions attorneys have about bookkeeping and how these can be detrimental to legal businesses at large. In reality, dedicating time and effort to accounting can build your confidence, save you time, and help you make wise business decisions. Plus, it can potentially save you money. Maybe numbers aren’t as intimidating as they seem.

Micky Deming is the director of business development at Kahuna Accounting where he has seen first-hand hundreds of attorneys who have taken their financials from a place of anxiety to a place of clarity.

Special thanks to our sponsor, Answer1.

View transcript

The Un-Billable Hour

Law Firm Accounting: Empowerment by the Numbers

01/31/2017

[Music]

Intro: Managing your law practice can be challenging. Marketing, time management, attracting clients, and all the things besides the cases that you need to do that aren’t billable. Welcome to this edition of ‘The Un-Billable Hour’, the Law Practice Advisory Podcast. This is where you will get the information you need from expert guests and host Christopher Anderson, here on Legal Talk Network.

[Music]

Christopher Anderson: Welcome to ‘The Un-Billable Hour’, the Law Practice Advisory Podcast helping attorneys achieve more success. We are glad you can listen today on the Legal Talk Network.

I am your host, Christopher Anderson, and I am an attorney with a singular passion for helping other lawyers be more successful with their law firm businesses. My team at How to Manage a Small Law Firm and I work directly with lawyers across the country to help them achieve success as they define it.

In ‘The Un-Billable Hour’ each month we explore an area important to growing revenues, giving you back more of your time and/or improving your professional satisfaction in one of the key areas of your business.

As an attorney who has built and managed my own law firms in Georgia and New York City, I now get to work with hundreds of law firm owners to help them grow professionally and personally. I start with the fundamental premise that a law firm business exists primarily to provide you the financial, personal and professional needs of its owner.

In this program I have a chance to speak to you, as I do in presentations across the country, about what it takes to build and operate your law firm like the business that it is. I have a chance to introduce you to a new guest each month to talk about how to make that business work for you instead of the other way around.

Now before we get started today I do want to say a thank you to our sponsor, Answer1. Answer1 is a leading virtual receptionist and answering services provider for lawyers. You can find out more by giving them a call at 800-answer1, or online at  HYPERLINK “http://www.answer1.com” www.answer1.com. And today’s episode of ‘The Un-Billable Hour’ is, “Empowerment by the Numbers”.

In a recent episode, we discussed some key questions and strategies around marketing. You’ve also heard my guests discussing the necessity of real, clear, understandable goals for the law firm business owner. What is their business supposed to be doing for them?

Today, we discuss the bridge between marketing and your goals. We bring forth the topic that many lawyers avoid, and quite honestly some get too involved in, the very enticing and always sexy topic of accounting.

Goal-setting helps you to become really clear about where you are going and informs your marketing effort on what needs to be done to get there. And none of it really matters if you can’t, don’t or won’t measure your progress along the way. Indeed knowing your numbers can be particularly empowering, and I am thrilled to welcome Micky Deming, the Director of Business Development at Kahuna Accounting.

Micky’s work is taking attorneys and their numbers from a place of anxiety to a place of clarity. He is a fellow podcaster and a well-respected thought leader. We will be talking with Micky today about how getting clarity on your numbers is empowering for law firm business owners and for you.

So let’s get started with “Empowerment by the Numbers”.

Micky, welcome to ‘The Un-Billable Hour’.

Micky Deming: Thanks a lot, Chris. It’s great to be here. Great to be talking to you.

Christopher Anderson: That’s absolutely my pleasure. So first of all my introduction was really brief as it usually is. Could you just explain a little bit more than I did, which would be at all, how did you get into the business of helping law firms, with getting clarity around their numbers, how did you get started with this?

Micky Deming: Sure, yeah. It was brief but it was a great introduction. Actually so, we are Kahuna Accounting, located in Central Illinois which is the least Kahuna place on the planet, and so you know that our story is a little bit different.

Our founder, unlike most accounting firms, our founder is not an accountant. He’s an entrepreneur and he is not what you would call a numbers person. He ended up as he was growing a business, hiring a CFO, an accountant, a bookkeeper to help him get clarity on the numbers.

And so, when he sold his business a few years ago, he decided to keep that accounting staff and thought could I help provide that same level of clarity around the numbers for other entrepreneurs as I received for myself? So he kept the accounting team and about that same time, cloud technology had really advanced the point where you could — the idea of doing accounting virtually was not even conceived of 20 years ago.

Christopher Anderson: Yeah.

(00:04:47)

Micky Deming: And so, in 2013, we launched Kahuna Accounting with the mission of simplifying accounting for entrepreneurs all over the country, and about a year end we just started getting a lot of calls from the small and solo firm lawyers. And it was something that we just kind of stumbled into and it turned into a great fit on both sides and something we really committed to as we started hearing it more-and-more.

And so since a few years ago, we’ve really focused on law firms and now we work with businesses all over the country and about half of which are small and solo firm lawyers.

Christopher Anderson: Fantastic. I am not surprised, quite honestly, I mean, it’s interesting, you think that having an episode on numbers or sometimes I give talks out there on accounting or on using your numbers in a law firm. You think that would like – you’d have no butts in the seats, you’d have people running for the exits, but honestly, I understand why people ran to your solution because I found the opposite in those talks too; they come, they still find the topic of accounting to be intimidating and overwhelming.

And so, let me just start there with you, if you don’t mind, why do you think — you said more than half your clients are law firms, why do you think that we particularly as attorneys struggle with this really essential part of our business?

Micky Deming: I think it’s an interesting topic. I think about it a lot. I read a quote recently from Scott Adams, who is the — the guy who created Dilbert, the comic strip, and he said that business should and entrepreneurs and individuals should prioritize accounting more, but what he said is, there is a mode of boredom surrounding the industry and that mode basically keeps people out and keeps people at a distance.

And it’s funny because in introduction, you said that always sexy topic of accounting and I feel like anytime I’m doing a talk or an interview like this, I won’t have to like apologize upfront that we’re going to be getting into accounting. And I do, I think that comes back to what you’re talking about, it is intimidating, it is overwhelming, and for a lot of people, it’s a mental shift that has to be made.

And I think that’s what we’re going to get into today that it’s a mindset around accounting and that motive boredom that most of complexity that throws a lot of people off. And I think for attorneys, specifically there are a lot of misconceptions about the role of accounting for the firm as a whole and for the business, and those misconceptions and that mindset challenge creates a lot of problems and it causes people to get off to a bad start and really never get a handle on it and we see that every day, and it really comes down to the mental approach to accounting and getting through some of those misconceptions.

Christopher Anderson: Yeah, and you mentioned “mindset”, and I certainly agree with you about the misconceptions and about the overwhelmingness of it, but I think one of the things also, and I’d like to kind of weave this through if we can about why it’s overwhelming is at the end of the day, having really great grasp of your numbers is being confronted with the truth.

The numbers as they say, don’t lie, and it’s impossible; particularly if you’re in a business that’s struggling a little bit or you’re still trying to get traction, it sometimes enticing to hide from the truth that the numbers tell you, but the truth if I don’t mind using the cliché will set you free in that and once you know the truth you can make good decisions.

But so — let’s go to the overwhelmingness; at the end of the day, Micky, we are attorneys, might this audience, the people who are listening these are attorneys, these are attorney law firm owners. We know what accounting is, how can we say that there are misconceptions? I mean, we work with businesses all the time, their family lawyers are always working with the family books, criminal lawyers are doing white collar, I mean, we are all exposed to accounting, but yet you say there are misconceptions. What’s going on with that?

Micky Deming: Right. Yeah, great question. And I want to come back to what you’re saying about the truth, I think that’s a really important topic. The misconception is a great place to start because if you don’t get past those you’ll never even start to see what your numbers are telling you.

So I can really break down into three but spend most of our time on two because one misconception that attorneys have that’s pretty broad and I think the audience that you have here, aren’t going to struggle with it as much but I do see it and that’s the misconception that attorneys don’t really see themselves as a business sometimes’ that they are just professionals doing a service, that they will be paid for.

And so that is a huge misconception because when you set out in your small firm, you are an entrepreneur or you are a business, and I think you cover that a lot so I won’t get into it much.

The other two though I think are a lot more prevalent and they’re just as important. One is the most common and it’s that attorneys see accounting as a necessary evil. So they know it has to be done, they know it’s important, but the extent to which it’s important is that, it’s something I just have to do. I have to do to stay compliant, I have to do it because the bar requires me to report on my trust accounting and I have to do it because I have to do taxes, and if I didn’t have to do it, I wouldn’t.

(00:10:04)

So this is necessary evil that I have to do it, I have to get through it just so I can stay compliant and stay out of trouble. And that is a huge misconception because like you’re saying with goals, with the truth of numbers, there is a lot more to accounting than that, and that misconception of it being a necessary evil is a major, major problem.

The third one, and I know you probably hear this quite a bit, is this misconception that I can’t get into accounting because I am not a numbers person. I am just not — I am not into that, I am not into math and numbers, so I can’t really get into accounting. I have tried to get into it, but I just can’t. It doesn’t make sense to me, I don’t get it. That’s a big misconception too, because like I said with our own business, our founder would not call himself a numbers person but he has surrounded himself with right tools, right teams, to be able to get the numbers that he needs.

Christopher Anderson: And that’s the thing, I mean, you just said the magic word as far as I am concerned is “tools”, right? One of the things that strikes me when you’re talking about this and as I am listening to you is seeing it as a necessary evil, because I see the behavior that it creates. When we see it as a necessary evil, when we see it as something we have to do for compliance, here is what I see law firm owners doing, business owners doing.

First of all a lot of them like think that they can do their own bookkeeping and then prepare their own accounts; big mistake; but, because it’s compliance, they are doing it like after hours at the end of the day, on the weekend, and like they are making their data entry as quickly and painfully as possible, and just to get it all in there, to get the book straight so that they can provide the reports that the IRS, that the state government, that the IOLTA Board so that the lawyer is compliant, and then they are done. They are doing it for those entities, they are doing it for the government, they are doing it for their accountant, they are doing it for the Bar, they are not doing it for themselves. It’s an evil because it’s something they have to produce for someone else, and they are not using it — and again, to come back to your magic word, they are not using it as a “tool”. They are not then bringing that hard work that they just did back into the business to give them truth, to give them information, and that’s I think a huge loss.

I mean, I hope that we are shining a light on that here by talking about like, boy, you are putting in all the work when you do that. You are not getting any of the benefit. You basically got it completely backwards. You need someone else to do the work so that you can get the benefit of the tool.

Micky Deming: Yes, 100%.

Christopher Anderson: Yeah, and you also mentioned the concept, the statement that a lot of lawyers make that, I can’t get into it because I am just not a numbers person, and you gave a great example of your CEO. I mean, your CEO not a numbers person is running a bloody accounting firm. I hear it all the time. And I am talking to lawyers, I am sitting across the table or I am sitting in a conference room, or I am sitting wherever talking to lawyers about this stuff and I hear that and I am like, hold on, didn’t you just have a seven-figure settlement that you negotiated, or didn’t you just like negotiate a mega million-dollar contract or construction contract, or didn’t you just do this huge family law arrangement where all the assets were divided in the quadro and everything else. I am like you people “we”, “we” are working with numbers all the time. Lawyers are numbers people.

And the truth is that we are numbers people when it matters in our minds, when we think it matters. Why do numbers really matter — the question I would like you to like really address is, okay, we understand that it matters in a settlement, we understand that it matters in litigation, why do numbers really matter in the business?

Micky Deming: Yeah.

Christopher Anderson: You said that one misconception is that it’s a necessary evil, tell us like what about it can be part of the growth of achieving goals in their businesses?

Micky Deming: Right. Now that’s a perfect question because it reminds me when I was a kid and my mom would get frustrated because I could memorize all the batting averages for a baseball team but then get these on different things, and so it goes back to that, like if we care about something and it matters, we will prioritize it, and if it’s a necessary evil, we won’t.

And I think I will let lawyers off the hook for a second, because I don’t think enough financial professionals, and I don’t think in law school there is much teaching about practical implications of what knowing your numbers mean.

I think it is kind of viewed that way and when you understand how it matters, how it impacts, what you are actually trying to accomplish, we can naturally prioritize because we know that it matters.

So we break it down into really three layers, like each one has more value, but these three layers all have direct impact on cash flow and on where your business stands. So the first layer is filling the cracks, and that’s basically just getting your bookkeeping together to a point where everything is being tracked and everything is being managed.

So a few very specific examples of why this matters, we had a — this is very recently, we had a call with a newer client who after one review of a P&L realized that they could be saving about $30,000 a year in merchant fees.

(00:15:06)

We had another call with an attorney early on, who we actually physically — this is rare for us, we physically went into their office and they were showing us, they were like, no, my stuff is all together, I know what I am doing. Here is these file folders and how I do my invoicing, and how I work through this. And as they are going through and flipping through these papers, we are like, oh, wait a second; oh, this is an invoice for $4,000, that was from nine months ago, that has never been paid.

And so these things — and it’s unbelievable how few attorneys have everything perfectly filled up and when you do it’s not even like, oh, you know, your numbers are more, it’s like, you know, you have more cash in your bank when you do this. And 99% of the attorneys that come to us, this is the problem they are having, is they will have a practice management tool that they use for invoicing, they will have an accounting software that they are using for accounting, and then they will have, of course, their bank account. And they will say that all three of them are saying different things about what’s going on with their financial situation. And so, step one is filling the cracks, so you can catch those mistakes, catch those errors and be confident in where you are.

Christopher Anderson: Right.

Micky Deming: The second layer to that so where it gets a little bit more exciting, is where you get into real-time information. So some attorneys do have things filled up but they are not getting their reports until one month or two months or a lot of times a year later. And so how are you going to make good decisions, how are you going to be proactive. If you are receiving your financial report and you are receiving them in March of 2017 for your — how you did it 2016.

Okay, great, now I know what I did, but what can I do, what can I change, how do I make decisions based on that information? And so, what we teach attorneys is to, step one, fill the cracks, but step two is, get a system in place where you are getting a real-time information, and so you know what clients are profitable, what expenses are having an impact or not, so you can make decisions and make actual improvements on what you’re doing.

Then the third layer to that, and then we will come back into depth on all of these, but the third layer in where it gets even more advanced, is what you talked about in the introduction and it’s having accountability for your goal. And so I know something you teach on these podcasts, I mean, you are helping people to understand — and we should all have concrete goals. We should be trying to do something whether that’s grow to a certain level, hit certain targets, take a certain amount out of the business for yourself, all of those goals that you may have can be tied to numbers. They really have to come down to a P&L, like how much money is coming in, how much is going out, what are your margins. What can you comfortably take out, when can you comfortably hire, and what needs to be in place to make that hire, and so your numbers provide an accountability for that goal.

I think a lot of people set goals and it’s more of a hope, like this is my goal, I hope that I’m here by the end of the year, I am going to work really hard with my firm and if I get there I will be happy, if I don’t, I will be said. Whereas you can actually say this is my goal, and now I am going to build a target every month that I have to hit to make sure I’m on that goal, and when the end of the year comes you are going to know whether you hit it or not, you can make adjustments throughout the year.

So that’s really the next level to it, but all those things are doable, and I think when you approach it coming that way it becomes a little bit — a little bit more exciting.  I don’t know about sexy, but it’s a little bit more exciting when you can do that.

Christopher Anderson: Well, yeah, I mean, what I think I am hearing from you is that — and I know this to be true that lawyers, law firms, quite honestly small business owners, are used to using accounting, the reports that you talk about, looking at their P&L, looking at their balance sheet, looking at various other reports. They are looking at it like how did we do. We said we were going to do this. Now at the end of the year, a year later, how did we do? And it’s like, driving down the road with your eyes closed for 14 hours, and then opening your eyes and go like, ha, are we anywhere near where we said we were going to?

As a pilot I can tell you — that’s I think some pilots do that, right? It’s just sort of like set the autopilot and then look down two hours later and say, are we close? But it’s not a way to run a business anymore than it is a way to run an airplane, right? You need to be checking your wait points, you need to be checking am I — okay, after 10 minutes I should be over this town, am I over this town? After 10 more minutes I should be over this river, am I over this river? It’s the same thing and what you are saying is it needs to be a tool used to be driving decisions today. I am going to grow my business by this much, I predict I will need to hire an associate in March. Okay, January, I hit my goal, February, I hit my goal, March, okay, hiring an associate. You should be forward-looking and not just how did we do when you can’t do anything about it.

(00:20:11)

Micky Deming: Exactly, yep.

Christopher Anderson: So you said that it all goes back to your goals. Your goals, set the numbers you think you’re going to have, every goal becomes a number. I’m going to grow by this much, I want to pay myself this much, I want to hire this many people, it all comes down to numbers and so accounting becomes, I think the way you’re describing it, sort of a predictor, a way of I guess keeping score if you can’t say it another way, of where you are in the progress that you had said that you are going to have.

It all makes sense. What you’re saying makes sense to me. I think that’s a great takeaway, but what I’m often hearing is that lawyers are focused on so many priorities, this is all great, this is okay, wow, yeh, we need numbers, numbers will help us make decisions, but you know what, I’m a lawyer, my actual job is lawyering, my actual job is going to court and winning cases, my actual job is negotiating contracts, my actual job is mergers and acquisitions, my actual job is helping people get divorced without ruining their lives, my actual job is helping people plan their estates so that their families don’t lose all their money to taxes and to other things that they could have avoided. How do I find time to prioritize this accounting?

Micky Deming: Right that is the big question and actually I will agree with you that as an attorney your number one priority is to be a great attorney and the only thing may be secondary to that is making sure you find great clients to be a great attorney for. I think those are absolutely the top priorities. I guess my point in that would be to say that in order to prioritize being a great attorney, you need to prioritize making sure you are sustainable as a business and that you can find more great clients to serve and without solid numbers there’s really no way to know that.

So the most common question that we get — so we open it up, we say what questions do you have, what questions do you have about your firm, about your numbers about, this or that, the most common question is super in doubt, it’s what it is. Am I okay, that’s what it is, am I okay, is this all going okay? And I think can you be a great attorney if that question is lingering in the back of your mind, or if you are struggling to sleep because you don’t know if your trust account is underfunded. Those types of questions will inhibit your ability to be a great attorney and we’ve seen that.

And so when it comes down to time, it goes back where we were before and when you understand how important this is, how much you should prioritize it, you will find a way to make time. And I think it’s not only — does what we’re talking about, it allows you to hit your goals and allows you to have a scorecard, but it also makes you a better attorney because it frees up some time, gives you peace of mind and you really can’t put any price on that, because that’s worth a lot in this your overall approach to everything you’re doing.

Christopher Anderson: Clearly and so what we’re going to do is we’re going to take a break right now. When we come back I want to talk about that concept of how it can actually – if the concern is I don’t have time, how can it actually help us find more time and we’ll talk a little bit more about the mindset and the benefits of good accounting, like yeah let’s bring this around to okay, I’m buying in, what do I get when I do it right? But first we’re going to break in here, a word from our sponsor and then we’ll be back in just a moment.

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[Music]

Christopher Anderson: And we are back with ‘The Un-Billable Hour’. Our guest is Micky Deming and we’ve been talking about accounting but particularly we have been talking really about using numbers, using the metrics that come out of accounting as a tool to empower lawyers to have a better law firm that serves their goals, that helps them meet the reasons that they set forth to have a business in the first place. And when we went to the break, we were just now talking about finding time to get the accounting done and understanding the benefits that come from it.

So Micky what I’d like to do is go to there right now and say you said that it could give back some time, so let’s say for instance right now that an attorney buys into this has a change in mindset about accounting, understands that the numbers are a tool but they’re not a numbers person. For whatever that means, what is what is the difference between being a numbers person and using the accounting, using the numbers that you get as a tool in your business, do you have to be a numbers person to do that?

(00:25:14)

Micky Deming: Right, no that’s a great point and I like what you said earlier, because you said law firms have this challenge and also small business owners and so I want to be clear that we’re not throwing lawyers under the bus here. This is definitely a pervasive challenge where that modes of modem surrounding accounting throws a lot of people off and it does happen with law firms, with all kinds of small businesses, but you’re right, so you’re not a numbers person.

The way I look at that and I think it’s timely as of this recording there are some people who may listen to this later but as of this recording it is almost as the Super Bowl, it’s coming up a few weeks away and I don’t think Tom Brady, he may not be a numbers person but throughout the course of the game he is very, very, very aware of the scoreboard and how much time is left on the clock and what the down is, and how many yards to go, and what’s the actual score of the game is?

And when he knows those things, it impacts the decision-making. He’s not just going to aimlessly run the same play in a specific situation that he would if they were different and I think our business is the same way and so when you’re not a numbers person you still need to know that scoreboard. And like we were saying before, how am I doing in real time this month and versus last month and how it’s projecting towards my goals.

Now, what you said before and I’m would say as well is, one of the biggest mistakes a lawyer can make is to be their own bookkeeper and that is something that you may have the skills to be able to do that, but it’s still a terrible, terrible use of time and so if you are attempting that, whether you are or are not a numbers person, that can cause major problems, number one; because of just the sheer use of time and number two, because I think like as this title of the podcast is ‘The Un-Billable Hour’ that’s not what you need to be doing.

And so finding someone, finding a team, finding some way to get these numbers presented to you and explained to you in a way that makes sense should be the top priority. And so you don’t have to be a numbers person, you don’t want to be entering data are doing math but you should be able to set goals and then receive the reports you need to tell you how you’re doing that will act as that scoreboard that will impact your decision making.

Christopher Anderson: Yeah, I mean it makes me think about like, oh, officer I was doing what, 85 in a 55, well, you see the problem is I’m not a numbers person so it’s okay right? And he is like, no. One of the things I talk about a lot is like, listen, you’ve got — whether you are sole, the single shareholder of a law firm or you’ve got partners you’ve got stakeholders, you got a family who you are taking time away from them.

You’re taking time away from your spouse, you’re taking time away from your children, you’re taking time away from your significant other or whoever else you have in your life that depends on you and would like more of you, you borrow, you take time from them and the implicit promise is that you bring them back something, you bring them back some value and you state what that value is or at least should be really clear on what that value is.

And then you need to know whether you hit it or not or whether you need to do something different, do something more, more marketing, more sales, more learning, more whatever it is to hit that number. And I really love your point about not doing your own bookkeeping and I think for the reasons that you stated and also just for the concept of not getting too close to the numbers at that stage because you start to get subjective about it. You start to get emotional about it, whereas when someone else does the numbers and brings them to you, you can look at them a lot more dispassionately and with a lot more objectivity so that you can make better decisions. I really love the way that you set that up.

So what we were talking about before, you gave the three levels about sealing up the cracks, making sure that you’re tracking all the time, making more forward-looking decisions, but if you don’t mind, let’s spend the last little bit of time that we have talking about how that actually benefits.

Let’s drive it home, okay we’ve talked about why, it’s important, the why is important, we’ve talked about how the three levels and how you get it done, we’ve talked about mindset. So now let’s talk about what do we get? We do this, what is the benefit, how do we know that this is something we want to spend our time on? What are the effects you’ve seen?

Micky Deming: Yeah that’s great and that’s probably the most important piece of this, because if we don’t understand what this does, why would we prioritize it? And so I can break that in some broad categories, but they’re the ones that we are thinking about constantly and that lawyers have been thinking about constantly.

(00:30:01)

The first one I talked about a bit ago and it’s just pure and simple its confidence. So those people that are asking am I okay or just wondering am I okay and like you’re saying, well the truth will set you free knowing, the truth is necessary for you to have true confidence in your firm and we all know what that’s like to operate without confidence it’s not that fun, because you’re always second-guessing, you’re always questioning and you can’t just truly be comfortable in your own skin well your accounting is the same way.

If you’re just guessing or you’re just waiting until 15 months later to find out how you did there’s no true way to have confidence and so when you have a system in place for financials, yeah it might be painful at first to face the truth, but that’s the only way to possibly have some type of confidence over what’s going on and when you have filled the cracks that we talked about before you also have this level of confidence that a lot of people don’t have that everything is being accounted for and that’s kind of nice to know that you’re getting what you’re deserve that you aren’t just missing anything which can be a lingering question at the back of people’s minds and so that confidence is worth a lot.

Another thing is very simply is saving time like you’re saying and we see this a lot spending time on weekends, spending time at late hours going through all these different systems that aren’t working together can be a huge waste of time. So when you have a system that works and is efficient it’s very practical that you are going to save time which I think we all, it’s something we all want to have.

Another benefit that we see a lot and we touched on this a bit is the decision-making component. So when you have real-time information when you are looking forward you can make better decisions. So if I’m debating on hiring associates like you were talking about before what am I using to make that decision, am I just kind of guessing or am I just going because of businesses isn’t picking up so I should probably hire or am I making a real practical decision based on facts that I can be again confident and then do it in a way that makes sense.

Then the fourth benefit and that’s what I guess probably should hit home the most is something I talked about the very beginning, it’s just pure and simple you have more money in the bank, you have more cash, because I can’t tell you how many times we’ve seen expenses that are going unchecked, invoices that are not being collected, the poor accounting system is not only giving you a lack of information it’s giving you a lack of cash, because there’s people are missing stuff all the time and are unaware of what’s going on and so when you have a good accounting system in place when you’re not letting invoices sit in your office for too long and you’re not letting expenses be not reviewed, you’re going to probably have more money.

And so all of that I think tied together into just a awareness and confidence in the viability of the firm which will make you a better attorney which will give you confidence of having sustainability and give you a bigger picture focus rather than always and I know you talked about this before about being in the business versus on the business. When you don’t know what’s going on you’re going to always be in the business and trying to plug up these holes whereas when you have a system in place you can actually zoom out and work on the business, look at a P&L and know what’s going on.

Christopher T. Anderson: Yeah, I mean, it’s even worse is not, you know what it’s worse. It’s not just that lawyers including me are spending time plugging up the holes. What they actually get to doing is, you know what I don’t even know what the holes are so I’m just going to keep pouring water in the bucket.

Obviously the solution to keep my bucket full is to pour more water in the bucket faster and faster and faster that’ll keep everything afloat and what you’re talking about here, you said sealing up the cracks I think it’s a great metaphor, is sealing those holes and understanding where they are which then means you don’t have to pour as much water which means you can actually focus more.

It’s a virtuous cycle focus more on your business which does save you time. It saves you time from not taking that case, you know you shouldn’t have taken, but you weren’t confident about your numbers that you were going to hit, your revenue that you needed to keep the lights on this month. It’s about saving time about like you said not doing your bookkeeping at night.

Imagine someone who hired a bookkeeper and the bookkeeper came to him and said this is great you’re hiring me to do your books and I’m going to do your books, but tell you what I’m going to do, you see on the side I make pizzas and so I’m going to make pizzas all day I go to work at like 8 in the morning and I usually leave the office around 7:30-8 and then I’m going to have dinner with my wife and kids.

(00:35:09)

And then I’m going to do your books at night until I fall asleep on the computer and maybe my hand bangs out a few extra numbers and maybe it doesn’t. Is that okay with you? Can I be your bookkeeper and obviously we’d all say like no, you can’t be my bookkeeper but yeah this is what we lawyers do all the time, guilty as charged, I understand it but there is a better way. And then like you said, with understanding that the money coming in I mean it’s all about having the power to make better decisions.

And one thing I just wanted to touch on real quick was like what if like we talked about not being a numbers person there are people like once you have good numbers, if you’re really still struggling to see what they mean, do these numbers tell me I can hire or not hire, you can use like a CFO or someone to help you interpret the numbers around something like that, right?

Micky Deming: Yeah and that is there are different varying levels to knowing the numbers and I think part of it in saying and what we said that, you should not be your own bookkeeper is not only because having a bookkeeper will help you seal up the cracks but also even if they’re not a CFO level ability there, you can do that absolutely, you can get an expert that will be able to tell you exactly what your P&L means, exactly what that looks like going forward, that can be a little bit advanced.

But even with a basic P&L, you can talk to your bookkeeper who knows what’s going on and just have a simple conversation of like what does this mean to me. What does this actually mean in terms of what I can take out and what type of impact who a hire have and most accounting software will allow you to kind of extrapolate over adding a new revenue item or a new expense item.

And you can in a sense be your own CFO, just by seeing that, you want to be a numbers person, you can just ask the right questions of the person working in your financial system and at least, be more informed as you look ahead rather than just flipping a coin and making that decision.

Christopher Anderson: It makes sense. So as we wrap up in the last few minutes so we’ve got let’s talk next steps. Let’s presume that because my listeners listen to every word that we say on this show and do everything that we tell them to do that they’re all completely on board right now with getting right with their numbers, but I know they’re thinking this sounds great but I’ve got a total mess right now.

What are some foundational steps that they can take to start to get back on track? I would believe that you would say it’s never too late but how can they start getting back on track and getting right with their numbers?

Micky Deming: Yeah and that is the question and so the first point there is how does this go wrong. Like with everything we’ve talked about, you realize okay this is something I want to prioritize, why don’t more attorneys are doing it?

I think what happens is most don’t prioritize it from day one. I can’t say that I am blaming an attorney for not prioritizing this from day one because when you’re first starting there are a million things to think about and you still have to be a great attorney on top of all of that and so accounting is almost always going to be left to the back burner and I can relate to that.

But the problem is when you get off to a bad start, you’re behind the eight ball right from the beginning and you’re always playing catch-up. And so, most people we talked to that’s their situation, is this is a mess, what do I do to get out of this mess? And so you really can break this down into steps.

The very first thing that I would say you need to prioritize and this is not going to get you anywhere near the level what we were just talking about but will really help, is make sure you’re getting your bills out. And I would think that most attorneys would prioritize that but it’s surprising I am going to say to hear that that’s a struggle.

Christopher Anderson: Yeah it sounds like a ridiculous thing to say but it isn’t and some of our listeners are going oh come on, but let me tell you guys, 40-50% of you aren’t doing this.

Micky Deming: Yeah, make sure those are out. And then the second step is make sure you’re relentlessly tracking your client funds. So the trust accounting thing is big and that’s something you don’t want to have to find out the hard way, track that, track your 39:15, track where those funds are.

The third thing you can do is get an accounting software that’s going to pull your bank transactions and your credit card transactions. So most modern accounting will do this. We use Xero, a lot of people use QuickBooks Online, both of those will pull all of your bank transactions and all your credit card transactions.

Christopher Anderson: And just for people who aren’t familiar, that Xero is X-E-R-O, right?

Micky Deming: Right correct, yeah Xero. What we’ve seen work best is where an attorney will have a practice management software that they’re using for their time keeping, their billing, their client related expenses and where you will keep your client balances there. But that in itself is not an accounting system so use that to track your clients, track your matters, get your invoices out.

(00:40:03)

But then to have a secondary system that is for accounting, where you get financial reports, where you get the business as a whole or you also track here — ultimately also track your operating account. Having those two systems separate, we’ve seen work really well because the accounting system acts as a second set of eyes for your trust account activity and to give you the reporting as a whole.

And the software is getting to the point where it’s getting a lot easier. So you can integrate a lot of times your practice management system with your accounting system and like I said before, the accounting will pull your bank transactions and your credit card transactions. And a lot of times people will ask like what software should I use and that’s again a question that I’ll push back and say you as an attorney, should not be the one answering that question.

Who’s the one doing your work? Who is your bookkeeper going to be? If it’s you then you’re already I think asking the wrong question. So whoever is going to be doing that bookkeeping, let them use whatever system they’re comfortable with, that’s going to be able to pull information from your practice management and pull information from the bank accounts then they’ll know how to get you the reports that are needed.

But those are basically the steps; just get your bills out, track your client funds and then get an accounting software that’s going to communicate with your bank and your practice management.

Christopher Anderson: Fantastic. And as you stated before I mean these steps will help you to be more confident about your numbers, to help you grow if that’s what your goal is to help hold you accountable to your business and your business most of all accountable to you so that you have a law firm business that grows for you. Micky, thanks so much for your time today. I think this has been ridiculously informative for the audience. I really appreciate you being on the show.

Micky Deming: Thanks a lot Chris. It was a lot of fun. I think we can make accounting fun if we keep working like this.

Christopher Anderson: I agree, I mean you know what, I’m excited about it, so thanks again.

So that wraps up this edition of ‘The Un-Billable Hour’, the Law Practice Advisory Podcast. Our guest today has been Micky Deming and you can learn more about him at Kahuna Accounting at  HYPERLINK “http://www.kahunaaccounting.com” www.kahunaaccounting.com. The Twitter feed is @Kahuna4Business and at LinkedIn at Kahuna-Accounting.

This is Christopher Anderson and I look forward to seeing you next month with another great guest, as we learn more about topics that help us build the law firm business that works for you.

Remember, you can subscribe to all the editions of this podcast at  HYPERLINK “http://www.legaltalknetwork.com” legaltalknetwork.com or on iTunes.

Thanks for joining us and we will see you again soon.

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Thanks for listening to ‘The Un-Billable Hour’, the Law Practice Advisory Podcast. Join us again for the next edition, right here with Legal Talk Network.