#523: Financial Red Flags: Are You Hiring Too Soon?, with Bernadette Harris

Episode Notes

Transcript

Stephanie Everett (00:12): 

Hi, I am Stephanie Everett. 

  

Zack Glaser (00:13): 

And I’m Zack. And this is episode 523 of the Lawyerist Podcast, part of the Legal Talk Network. Today, Stephanie talks with Bernadette Harris about knowing when you’re financially ready to hire someone. 

  

Stephanie Everett (00:25): 

Hey, Zack, how’s it going? 

  

Zack Glaser (00:29): 

It’s good. It’s good. Still getting used to the videos here. So again, if anybody’s listening to this on Apple Podcasts or Spotify, we’re over at YouTube live. Well Live recordings. This Lawyerist is recorded before a live studio audience. 

  

Stephanie Everett (00:45): 

Oh, thank goodness. We’re not, we mess up enough without that, but people can go see us. They can go see us on video. Here’s a fun, Hey, here’s a good segue. They can see us both live in person in about two weeks in Austin, Texas at Clio’s Conference. Clioocon. 

  

Zack Glaser (01:06): 

Yeah, Clio, I don’t know what number of Clio this is, but this is, yeah, every year Clio puts on a conference that is, it is definitely obviously good for users of Clio, but at the same time it is still a tech conference at its core as well. So I think I get something out of it. And obviously as a non-practicing attorney, I don’t use Clio. It’s a good thing for people that aren’t using Clio or that are thinking about using Clio to go to as well. 

  

Stephanie Everett (01:41): 

Absolutely. We always have a great time there. We get to see lots of people and if you’re going, we’d love to see you and connect with you. But it’s a good conference. They have a business track, they have topics beyond just tech and beyond Clio users specifically. They always bring in fantastic keynote speakers. 

  

Zack Glaser (02:03): 

Yeah. James Clear this year, 

  

Stephanie Everett (02:05): 

Right? 

  

Zack Glaser (02:07): 

Yeah, that’s a big speaker for me. That’s pretty cool. 

  

Stephanie Everett (02:13): 

Yeah, I mean, you can even go and look at some of the past keynotes online. I mean, they’ve really bring in some amazing folks for those and it’s always fun and I’m excited. I haven’t been in Texas in a while. Maybe it will have started to cool off a little bit by then. We won’t melt. 

  

Zack Glaser (02:30): 

I hope so. But all of this is really going to be inside and for me, I get to go to Texas and taste an inferior barbecue being from Memphis. So that’s what I’m looking forward to. But also they’ve got the conference and I always enjoy bopping around at Clio after dark, and a lot of the vendors will have parties and things that you can go to. And I mean, you can kick the tires of a lot of these products at the expo booth 

  

Stephanie Everett (03:06): 

As well. Absolutely. Even if you’re not using Clio, there’s so many other tech vendors there and service providers that it’s super helpful to go and meet and see them. So for sure, if you’re thinking about going, we encourage you to go. We’d love to see you. It’s always a fun time. 

  

(03:23): 

I guess I should also plug the following day. I’m actually leaving Clio Tuesday night to go up to DC and on Wednesday of that week, I should have dates here in front of me. The DC Bar Association is doing their solo small firm conference, and I’m excited to speak at that event. I’m going to be talking about how to actually get started using a VA with real examples and lots of tasks. We’re not going to just talk about it in concept. In theory, we’re going to dig in and be like, here’s how you do it. So if you’re in the DC area, that’s another opportunity to come see us live and I’d love to have you there. So now that I have figured out when Clio is, it’s going to kick off. And there’s some pre-event that happened on Sunday, October 6th, but the main events are October 7th and eighth and Austin, Texas. And then that DC solo small firm conference is October 9th. So I mean, fall’s always busy. Lots of opportunities to get out, see people and see what’s happening. 

  

Zack Glaser (04:24): 

Yeah, I’m going from conference to conference as you are for about three weeks here. 

  

Stephanie Everett (04:30): 

Alright, well let’s hear my conversation with Bernadette. 

  

Bernadette Harris (04:34): 

Hi, I am Bernadette l Harris. I am the finance coach here at Lawyerist, and I also run an accounting firm where I’ve worked with small business owners helping them to have better relationships with their numbers. 

  

Stephanie Everett (04:46): 

Well, always a fan favorite to have Bernadette on the show, talking about everyone’s maybe favorite slash least favorite thing money, 

  

Bernadette Harris (04:56): 

Right? We like having it, but we don’t want to talk about it, right? 

  

Stephanie Everett (05:00): 

Yep, exactly. But today we thought we’d cover something that I know you and I both hear all the time, which is when am I ready financially to hire? And maybe just to even get started on that conversation, we should just dive in by saying, how do you even know if you’re ready to start having that conversation with yourself? What are some of the signs that you notice that a business is ready to start thinking about hiring? 

  

Bernadette Harris (05:30): 

Yeah, one of the things that I’ve noticed is that people either hire too late or too soon, and it’s a delicate dance of trying to find that median in the middle of knowing too soon is definitely, you don’t really have the revenue to support another person, maybe even not even an increased workload, but too late is when you’re swamped, you realize like, oh, I can’t do this on my own and I need to get some help. The problem with hiring too late is you are so busy you don’t have time to really onboard a person. So it’s really, really important to figure out that time and peace. And I know you probably see this too with the work that you’re doing with the lobsters, and I see it as well with the work that I’m doing with the Labster. So it’s really important to recognize when your workload is increasing and you feel like it’s a steady increase. Sometimes there are some things that happen. I know in some practice areas where you get a boom, I know with the state planning, a lot of people get a boom right after the holidays because people have seen their families and to realize that, oh, we need to get our stuff in order. So is it that little seasonal boom or is it something that you’ve done? Is your marketing really working and now you have this steady increase that’s coming in? 

  

Stephanie Everett (07:06): 

Yeah. 

  

Bernadette Harris (07:07): 

Have you seen that? 

  

Stephanie Everett (07:10): 

Yeah, for sure. I think people all of a sudden realize, I mean, I think it’s almost like they kind of wake up one day and they’re like, oh my gosh, I have all this work now what do I do? It doesn’t always feel predictable, which is what we would want in an ideal world. Oh, I’m getting a little bit busier. Oh, a little bit more busy. But it seems to kind of hit people in a big wave. 

  

Bernadette Harris (07:34): 

And so one of the things is really figuring out when do you get to the point where you start seeing that steady increase? And then there are also some of the laps that I’ve worked with. We’ve also had conversations about when do you get to the point where there are certain parts of your business that you don’t want to do anymore? And that’s something else to think about. And so when you get to the point where maybe you don’t want to go to court anymore, and so you want to hire someone who can actually do all the court work on these cases, those are also signs that it may be time to hire. 

  

Stephanie Everett (08:17): 

Yeah. I’m curious. I was actually talking, I’m going to set you up a little scenario here. We haven’t done this before, but I was on with a person yesterday. They have their own business and they’re doing some contract work, which is what we see a lot of people do right before they have their own clients coming in. They’re like, let me do some contract work, get cash coming in 

  

Bernadette Harris (08:38): 

To see if I really like this. 

  

Stephanie Everett (08:40): 

Yeah, exactly. And now they’re at a point where they really need to focus on building their business. They need to do their own marketing as you and I know they need to do all the things that you have to do to run a business. I think sometimes people think, I just want to be my own. And they don’t always realize, no, it takes a lot of work. There are a lot of things you need to do, and yet they have to do this contract work to keep bills paid and family fed, which is a real thing. And I was talking to them about all the different hats they were wearing, and they’re like, well, I’ve thought about hiring. I was like, could you even maybe get a virtual assistant, which we know is a nice kind of step stone to maybe not hiring a full-time person on W2 wages. It’s often a more affordable route, and they’re kind stuck. Yeah. And they’re just very stuck in which, what do I do first? I need to do the marketing to have more money coming in so I can afford the person, but I need to have the person to take some stuff off my plate to have the time to do the marketing. And I hear that conundrum a lot. 

  

Bernadette Harris (09:43): 

I do too. And one of the things that I tell people is write a list of everything that you’re doing, all the stuff that you’re doing, and then divide that list on, put on one side of the list all the things that only you can do. And then on the other side of the list are things that someone else can do, whether you have someone else to do it or not. And you just start working down the list of things that someone else can do. And eventually you’ll get to the things that only you can do. But I think that’s a great starting point when you’re looking at hiring, is making that list of the things that you only you can do and things that someone else can do. And it makes it a little bit easier for you to figure out maybe who that first hire is if it is a virtual assistant, or is it a full-time assistant or is it a paralegal or whatever the case may be. 

  

Stephanie Everett (10:42): 

Yeah, no, I I always tell people to do the exact same exercise. So you and I agree there. What do you do about the money conundrum though, when they’re like, ah, I’m not sure if I’m going to have the cash to pay this person, but I need to get the person in order to do the things I need to get more cash. 

  

Bernadette Harris (11:01): 

So one of the things that I do is tell them to look at how much time are you spending doing those things. So if let’s say it’s something that you can give to a virtual assistant, you are spending 10 hours a week doing things that you can give to a virtual assistant. When you look at the 10 hours a week that you’re spending doing these administrative tasks, that’s 10 hours that you’re not billing your clients, that you’re not generating income for your business. And so if you get someone else to come in and take those 10 hours a week off your plate, you can now do billable work with those 10 hours, which will support paying another person. So I think it’s a mindset shift of thinking about that expense versus investment kind of conversation. 

  

Stephanie Everett (11:57): 

And obviously in some instances, I mean we used the example of a va, but it could be that the person you need to bring on actually has the ability to also do productive billable work that you can then charge a client for. And then this person isn’t necessarily just a cost center, they’re a revenue source for you. 

  

Bernadette Harris (12:22): 

Exactly. Exactly. And I think that in both scenarios, even in a scenario where you have someone that is not, you’re not passing that cost on to the client, if you think about the time that it frees up for you to be able to do the things that are billable, they are in a sense generating income for you. And that’s the way I look at it. I have lots of people in my organization that are not necessarily billers, they’re not people that we actually pass costs on to the clients, but they generate income in other ways because they free me up to where I don’t have to worry about these things and I can focus on income producing activities. 

  

Stephanie Everett (13:10): 

Yeah. I’m curious on your thoughts. If we have someone, let’s pretend in this case maybe it’s going to be another lawyer or paralegal. So it’s a role that is traditionally billable. And again, we’re going to use the words billable here. That doesn’t necessarily mean billable hour. Everyone knows I’m on a mission to kill it. I don’t care how you actually invoice that work product. I hope it’s not through billable hours eventually, but let’s just call it billable time, billable work. And how do you have people help frame that up to think about how much revenue that person should be able to generate for the firm vis-a-vis their salary? I’ve heard formulas over the years and I’m just kind of curious if you also advise looking at that ratio so that we know what we should be able to get to. 

  

Bernadette Harris (14:05): 

Yeah, I’ve done that. I do this too, and I’m usually around like 40, 60, 60 is optimal, right? 40 is ideal. Somewhere in that percentage. So their salary should be about 40% of what they generate, but 60 is optimal. 60 is you really, really, really the other way around. 

  

Stephanie Everett (14:31): 

Okay. I was like a third. The easy numbers I think is if you’re paying someone all in a hundred thousand dollars and they’re generating $300,000 for you, that should be where we’re targeting. Do I have my math right? 

  

Bernadette Harris (14:47): 

Yeah. I essentially that’s like 66%. Yep. 

  

Stephanie Everett (14:50): 

Okay. Alright, good. That’s what I’ve heard too. And that’s always good to get my facts straight from you. Alright, so now we know ideally this person should help us generate income to the business in one way or the other. What do we need to think about before we actually put that job posting up and start hiring someone? What do we need to do to make the firm financially ready to support this person? 

  

Bernadette Harris (15:19): 

So in addition to having savings, you have to have some savings, whether that is cash in the bank or access to a line of credit, you need to have some type of a cushion to be able to support this person. The question that I always get is, how much should I save before I know that I can bring on this new person? And accountants and attorneys, our favorite answer is it depends, right? But it depends. I think that three to six months is a good gauge. Generally speaking. I think there are also some factors that you have to take into consideration. So you want to consider your practice area. So are you in a practice area where you bill your clients and they pay you in 30 days or less? If that is the case, then you turn over cash in 30 days. And so it’s reasonable to think that your cashflow is pretty steady. 

  

(16:29): 

But if you’re in a practice area where your income is kind of up and down, you’re all over the place. Maybe it’s a practice area where estate planning, where a client may pay a big retainer at the beginning and then it takes a while before you can build down on that retainer or personal injury where you have to wait on contingency type work, those things. So you have to factor in those things. So something that I always say is it goes back to knowing your numbers and knowing your business because you have to know how cash cyClios through your business before you can really put a nail, a hammer to the nail to say, we need three months, we need six months, we need nine. 

  

Stephanie Everett (17:20): 

No, that’s helpful. And if anyone got lost in that answer, I want to call this out specifically, get a line of credit, get it now before you don’t need it isn’t right. That’s always the rule and I 

  

Bernadette Harris (17:33): 

Think that’s the best time to get it. And that’s really the only time you can get it when you don’t need it. If you need it, the banks are kind of looking at you Funny. 

  

Stephanie Everett (17:45): 

Yeah, it’s sad. And I think it still shocks, I think business owners, law firm owners that I work with, it’s almost like they’re nervous to get one. Like, oh, it’s not known to them. And I’m like, no, just get it. Even if you don’t tap it, I mean it’s available to you. It’s just like having that cushion if you need it. It’s there. Like you said, get it before you need it. And I mean I think for my husband’s business, we get charged like a hundred dollars a year or something crazy to just have it access to it. I’m like, why wouldn’t we just have it sitting there? 

  

Bernadette Harris (18:17): 

Yeah. It is the best source of financing your business if you use it. So because you don’t pay any interest on it if you don’t use it. Unlike a business loan. So if you got a business loan, you get this large chunk of money that gets deposited in your account and you’re paying interest on that full balance and you’re making monthly payments, so whatever. But with a line of credit, you don’t pay anything until you actually use it. And again, a line of credit is intended for short-term cash crunches. And so if you have that short-term cash crunch, as soon as the cash comes in, you pay it off and the interest is not that much. So it is one of the best sources of financing your business. 

  

Stephanie Everett (19:09): 

Absolutely. Alright, so we got our savings set aside, or we have our line of credit and what else should we be thinking about in terms of employee? We should figure out how much this person’s going to cost us. And I think the natural inclination is their salary. So of course you’re going to start with that, but what else do we need to be thinking about? 

  

Bernadette Harris (19:32): 

So it’s more than just the salary because recognizing that there are some taxes that you’re going to have to pay, so you got to pay half of their social security, half their Medicare, depending on the state that you’re in. You’re going to have to pay unemployment taxes, either state or federal or both. And if you’re offering benefits, 

  

(19:53): 

Then you’ll have to pay the additional benefits. And I think that most people are pretty familiar with those costs. I think there are some other costs associated with bringing on a new person that people don’t think about. So you have to think about the additional overhead costs that you’re going to have. And even if your firm is virtual, you don’t have to worry about a physical location and getting them a desk and all of that. But will you be buying new computers? Will you have to get a new software is a service, so you have to pay for every seat that you have on the software. So how much is it going to cost you to add them to your practice management software or your research software or whatever, Adobe, whatever the different softwares are that you’re going to be using. What are those additional costs? 

  

(20:46): 

And so you have to think about what are those costs. Those are also costs that you have to factor in when you’re looking at that savings number. And then I also think that you should think about what is it going to cost you to recruit this person? Because hiring is different now. And so are you going to hire a firm to do some of the pre recruiting for you, like screening, going through resumes, doing initial interviews, are you going to pay for ads to get this person? So there are some recruitment costs and then there are also some onboarding costs because if you onboard this person the right way, that’s going to be some downtime as far as, and so you have to factor in those costs as well as I call ’em ramping up costs. It’s going to be a minute before this person is going to be able to generate income for your firm. So these are all costs that you want to take into consideration when you’re looking to hire. 

  

Stephanie Everett (21:55): 

For sure. And what’s a, 

  

Bernadette Harris (21:57): 

Just scare them into hiring, not hiring people. I hope we didn’t, 

  

Stephanie Everett (22:04): 

I mean it’s good to know upfront what you’re getting yourself into, but I think we’ve had enough guests on who say it was really scary to make that hire and I wish I had done it sooner because I think, I know we said some people pull the trigger and hire too early, but I bet if we had a survey, our folks, most people wait and they do it too late. 

  

Bernadette Harris (22:24): 

Too late, too late. I agree. I definitely agree because and too late is worse because again, you’re swamped. You don’t have the time to properly onboard. You’re throwing people out. And 

  

Stephanie Everett (22:39): 

I think too, it’s too late. You often make bad decisions, you’re feeling that crunch. And so you might hire someone even if you’re like, I don’t think this is the right person, but busy, but I really need a body. I need somebody. And we didn’t really talk about this yet, but the cost of turnover, the cost of a bad hire, that’s real money too that we lose. 

  

Bernadette Harris (23:03): 

Yeah, definitely. Definitely the bad hire. Yeah. And that’s the reason why it’s so important to figure out that point of somewhere in the middle, somewhere between too early and too late. 

  

Stephanie Everett (23:24): 

And for some of these things, if you’re in our lab community, we even have a spreadsheet now that you can plug all these things in, we can help you figure out the exact costs with the taxes on all these things. So I think that’s helpful. And then we can help you. You need to think about, like you said, that ramp up time. And then we kind of segue really quickly into managing this person because you need to come in, you need to have good expectations as to what you expect from them, realistic ones, and really good check-in points because you can make a mistake and it is costly, but what do you expect this person to be able to do at 30 days, 60 days, 90 days? And 

  

Bernadette Harris (24:09): 

How do you communicate that to them? 

  

Stephanie Everett (24:10): 

Yes. Yes. Because you want to be super Clioar and if it’s not working out, you want to be able to adjust, get them either get them what they need so that maybe it was you that messed up, don’t assume it was them. I know lots of attorneys aren’t great at onboarding or training or delegating 

  

Bernadette Harris (24:26): 

Business owners in general. Yeah. 

  

Stephanie Everett (24:28): 

Yes, we work on that. But then so if it got off to a rocky start, that’s okay, but we want to shift quickly and be able to get them. And so I’m curious too what your thoughts are on that ramp up time. How long should it take them to get to a point where they are? And I guess it is an, it depends, but we want to get them quickly to a point where they’re producing good, valuable work that we’re not writing off that we can build to a client so that they start paying for themselves. 

  

Bernadette Harris (24:58): 

And one of the things that I do when I’m coaching through this process, because of course we want to make sure that the numbers piece makes sense, but it is also important that the business owner is very Clioar on what those expectations are. Like you said, what should they be able to do at 30 days? What should they be able to do at 60 days? What should they be able to do at 90 days? And how will you communicate these expectations to the employee and how do you gauge it? How do you grade the paper? What’s the key? And so it is so important to make sure that, I think it’s more important for the business owner to be sure of what that is and just as important for them to communicate it to the new hire. Because a lot of times they don’t even know. So it’s like, I don’t know if this person is working out, they don’t, haven’t created those things. And it’s very important to create those things before you hire someone. 

  

Stephanie Everett (26:01): 

Yeah, we started putting those first 90 day expectations in the job posting. Like, Hey, in the first 90 days, this is what you’re going to come in and do. One, by the way, I think that’s sets our job postings apart because people are like, wow, this company has it together. They actually know what they expect, but it allows us to start that conversation and make sure we are being really Clioar about what we need and when and why. And of course there’s going to be ramp up time where they need to learn things, but this kind of gets into onboarding now, but the quicker you can also give them real projects and work because that’s going to help. And it’s just more interesting for them. Nobody wants to sit around and just watch videos or learn things for weeks and weeks and weeks, but you want to give them a healthy mix balance of both. I think. 

  

Bernadette Harris (26:58): 

And it sounds like this is an HR conversation, but we’re still having a finance conversation because when you have the metrics, when you have your expectations written out, that is how you get your number of how much you need to have saved. Because if you know that it’s going to take you 90 days to teach this person everything they need to know about the way you do X, y, Z, then you know that they’re not going to start billing until 90 days from now. So now you need to at least have four months of savings of their salary saved because they’re not going to be generating income in that time period. And so that is how this onboarding plan matches your finance plan because the two are very much in tandem. 

  

Stephanie Everett (27:52): 

The other piece, as you were saying that I also thought about, I think sometimes we lawyers forget about the idea of cashflow and lockup. So even if you hire someone on day one, and let’s say they have billable work to do, you might not invoice for that month one work they come in and do. You’re not invoicing it until month two for a lot of you guys. Sorry to call you out, but you’re not even collecting it until months three, four or five. I mean, we need to fix that. That’s a whole nother conversation. Exactly. So there’s also some lag time between when that person’s going to be productive and when you’re going to get the cash into your business to pay for that. 

  

Bernadette Harris (28:35): 

Exactly. In that same example that you just mentioned, which is real life, right? That’s the reality of it. In that same example, if you know that your onboarding plan is it is going to take 90 days for them to start doing billable work, like you said, the billable work starts at 90 days. You collect it maybe at one 20 day one 20. Yeah. 

  

Stephanie Everett (29:02): 

Well, yeah. And I mean if you’re listening to that freaks you out, my advice would be like, let’s create a better onboarding plan so we can get them in and get those. There’s always small projects they can get working on before. 

  

Bernadette Harris (29:15): 

Exactly. 

  

Stephanie Everett (29:15): 

They don’t need to know everything. And I know you guys are sitting here thinking, oh, but I’m going to do it faster, better, all the things. Yes, you always will and you should do it anyway. 

  

Bernadette Harris (29:27): 

Yeah. Yeah. 

  

Stephanie Everett (29:29): 

Alright. 

  

Bernadette Harris (29:30): 

Absolutely. 

  

Stephanie Everett (29:31): 

Anything else you can think of? I mean, I think this has been great. I hope people are excited, ready to get a line of credit, ready to hire. 

  

Bernadette Harris (29:40): 

Yep. Creates your plan along with your finance plan. So we need to know what the salary is, but we also need to know how are we going to get this person up to speed when we’re doing that? And I think that, again, we kind of hammered this one in, but you want to make sure that you recognize that hiring is an investment in your business if you do it the right way. When you do it the right way, you are investing in the future growth of your firm. 

  

Stephanie Everett (30:12): 

Absolutely. I love it. Bernadette, always so great to have you and have you come in and drop all this good finance wisdom on us. Bernadette’s been on the show a bunch, so if you haven’t listened to her episodes yet, I’m just going to tell you right now, go back. I don’t have the numbers offhand, but maybe we’ll put ’em in the show notes to make it super easy. But you need to go back and listen to all of them because this is an area that trips us up too often and it just shouldn’t. It’s not that hard guys. 

  

Bernadette Harris (30:40): 

It doesn’t have to. It doesn’t have to. No. 

  

Stephanie Everett (30:42): 

And she makes it easy and it’s fun. Let’s make some money. 

  

Bernadette Harris (30:47): 

Right, right. 

 

 

 

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