Think Strategy. Making the Most of Your Firm for You and Your Team

Episode Notes

Transcript

Announcer:

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 Unbillable Hour, the Law Practice Advisory podcast. This is where you’ll get the information you need from expert guests and host Christopher Anderson here on Legal Talk Network.

Christopher T. Anderson:

Welcome to The Un-Billable Hour. I am your host, Christopher Anderson, and today’s episode is about you. When I say you, it is really about how to make sure your law firm business is serving you, which is kind of the quintessential nature of this program. But in this case, we’re talking about serving you financially and helping you build a future for yourself and those that look to you for their future. You’ll remember that in the main triangle of what it is to build a law firm business. We’ve all got to acquire new clients. We call it acquisition, produce the results that we promised those clients, we call that production and achieve the business and professional results for the owner. That’s you because you’re in the center of the triangle driving it all for better or worse. And so we’re going to talk about you. We don’t get enough chance to talk about you today. We’re going to do it. And my guest today is M.C. Laubscher and he’s the founder of Producers Wealth. M.C. Laubscher is a business owner and investor, a podcaster and the bestselling author of Get Wealthy for Sure. And as I mentioned, he’s the founder of Producers Wealth, a firm with a mission to elevate the financial wellbeing of business owners and their families. M.C., welcome to the show.

M.C. Laubscher:

Thank you so much for having me. I’ve been looking forward to our conversation.

Christopher T. Anderson:

Yeah, me too. It It’s going to be a good one. I’ve reviewed a lot of your stuff and I think it’s going to be very helpful for our listeners as we get started, as usual or as is often the case. My introductions are a little brief and a little sparse because I want you to help me explain to the listeners how you came to focus on helping professionals think positively about their finances.

M.C. Laubscher:

So I’m originally from South Africa, so it starts on a different continent, my story, but Grub, during very, very interesting time during the country’s history, which taught me a lot, it was actually a gift. There was a lot of uncertainty as the country was transitioning from one form of a government to another form of a government. So a lot of uncertainty, a lot of chaos, and also a lot of people were very, very well, there was an unknown floating around, right? People didn’t know what was going to happen the next day or the next week or the next month and so forth. Little did I know that that experience would come into really handy for me on my journey as an entrepreneur and just as an investor. So I came to the US in 2001. I played in a sports league up until 2007. Now I studied and have a degree in history and economics eventually did my MBA in finance.

I was always interested in business finance and just learning as much as I can about it. And while I was playing sports, that’s what I got into. And as I was playing and pursuing a career in sports, one of the things that I wanted to do was start to build something to retire to when that part of my life ended. And that’s how I came across incredible books. One of the books I’ll share is Robert Kiyosaki’s Rich Dad, poor Dad. That expanded just the way of how you look at the world and how you think about money, how you think about wealth, how you think about business. And I took action as a young man, started buying real estate and just like in the book I attendance that I put in my real estate and rented to collected the rent and paid all the bills in at the end of the month, you had some cashflow.

So that’s where it started. And then I also started up several businesses, learned a lot about starting businesses, growing businesses, and so forth. And one of the most important things that really struck me was that sometimes as a business owner, we get so tied up into the daily workings of the business, the day-to-day, and we put our heads down and we keep grinding and we get some pretty good results, but we rarely take a step back and just step outside of our business looking from the outside in. And once you start doing that, you start to see a lot of things that you can do, small little tweaks, especially when it comes to, if you look at it through a financial lens, that can make massive, massive changes. So I started to first have that epiphany myself and realize the importance of how finance, cashflow management and so forth, the importance of that within your business, running it, growing it, and scaling it. And there’s different strategies of how to do that. And I started sharing my experiences with other business owners and other investors and everybody I was able to help a lot of folks make small little tweaks that make massive, massive ripples in their business.

Christopher T. Anderson:

It’s interesting that you put it that way. I mean, I think in this show, and particularly we do that, we step outside the business from a lot of perspectives. We step outside the business to look at marketing from the potential customer’s perspective. We look at our sales motion from the new customer’s perspective. We look at the production work from the team’s perspective and do try to get, we call it working on the business. But I think you’re right that the business owner puts themselves last a lot of time in those thinkings and how to fix the business, how to tweak the business. And I think what I’m hearing you say is it’s important to step outside and look how the business is performing because you can make small changes that will make a big difference for the owner.

M.C. Laubscher:

Absolutely. For the owner and the business, as you mentioned from a marketing standpoint, you have to go out and find your ideal clients, and then from a sales process standpoint, you have to convert them into paying clients and then you have a full through your operations just on what you have sold them on. But through all of that, there’s finance through all of us. So managing cashflow during all three of those phases become very, very important. And doing small little things here and there can make a massive massive difference in the life of the business and then also in the personal life of the business owner. I’ve seen it happen over and over and have lived it myself. So I’m passionate about sharing strategies of exactly how they can do that and actually where people get stuck in their business.

Christopher T. Anderson:

So let’s start to talk about that because, and I think we’ll start from the negative. So law firm owners, the typical life cycle of a law firm is somebody either was working in a bigger firm or someone graduated law school or someone came from public work and gets the idea either by themselves or they’re going to go in with somebody. We’re going to start a law firm. And in many ways it is like any other small business, and in some ways it’s very different. But then they start to make mistakes because one thing lawyers in general get absolutely zero education is running a business, even though we’re all expected to actually do that. So what are some of the big mistakes you see law practice owners making when it comes to managing their money, their cashflow, the things that you’ve been talking about?

M.C. Laubscher:

So when lawyers leave a large law firm and they go out on their own and they build their own practice, just like any other business owner, they start from scratch. And maybe you have some clients and you have some network connections and so forth, but you’re starting from scratch. And when it comes to resources, unless you come from a wealthy family or you have some capital at hand, you’re usually all in. You have to be, there’s no other way. So all of your resources, your time, your energy and your capital are aligned in this new endeavor. And in the beginning of it, when you look at your financial statement, you look like a broke person because you’re all in. You’re all in. So it’s very hard to at that stage sit down advisors because again, they look at you as a broke person because on the financial statement you are because you are all in, and then all of a sudden you keep your head down, you just keep going because you believe in this and you work and work and work. And after hours, pain, suffering, blood, sweat, and tears, you probably can relate to this. If you’re listening to this, the business works, you’re actually surviving and now you’re becoming profitable and the business is growing, and then all of a sudden you get a nice bump and boom, you’re off to the races. And at this stage, by the way, a lot of the people that didn’t see all the blood, sweat and tears in the time behind the scenes, they’re looking at you going like, oh, they must’ve gotten lucky, right?

Christopher T. Anderson:

Yeah. Overnight success,

M.C. Laubscher:

Overnight success, overnight success. But at that stage now you are successful and you become very attractive as a client for a lot of advisors. So you have financial advisors and tax advisors and bankers and so forth sitting down with you. And one of the first things that they usually share with you at that stage and said, look, you have done fantastic in your business. You’ve grown this, this has taken off, but let’s take some capital outside of your business and diversify it. So give some to me and I’ll put it in some stocks, bonds, mutual funds, ETFs, exchange traded funds, and we’ll diversify it outside of your business. And that sounds very attractive at that time. And that’s the advice that financial advice that you’re going to get. But at that stage, what happened is that the money that you’ve been using the capital to reinvest in the business to grow, it is now leaving the business.

It gets worse. It’s being put in other people’s businesses. So instead of providing liquidity and capital to grow and continue to grow your law practice, it’s now going to other businesses like Apple, which I use Apple products, I love Apple. Tim Cook is great and a big fan of Steve Jobs, but they don’t need me to provide liquidity for their business, my own business, my own law practice needs that. So that’s one of the biggest mistakes because at that stage, the challenge becomes and is always, there’s always a need for liquid capital and access to capital. And then at that stage, law practice owners fall into a trap where you have to go to a bank constantly and negotiate from a price of weakness

Christopher T. Anderson:

And what the advisors are coming to the law firm owners, or they come to me and they say exactly that your eggs are all in one basket. You really do need to get more diversified. And what I think I’m hearing you say is you also should bet on yourself. And one of the things I think I’d like you to speak to this is what return do you expect from Apple? What return do you expect from a reit? What return do you expect if you want to invest in real estate, what do you expect on your capital both as a return and then not having the cost of other people’s capital in your business? Is that where kind of the rubber meets the road with the suggestion that you’re making?

M.C. Laubscher:

Absolutely. And there’s another massive challenge that law practice owners face. So the first thing now, money that used to come back into the business that have been reinvested in the business and now it’s leaving the business to provide liquidity for other people’s businesses, now you’re beholden to the banks, and of course you have to run your law practice. And every single law practice owner knows that there are seasons, I call it seasons of cashflow. So the summer season of cashflow is what I refer to as the highest revenue month. And if you’re listening to this as a business owner, you just know that right off the top of your head, I can tell you may every single year, that’s usually my highest revenue month in my business. Now, the reverse of the summer cashflow season with the highest revenue month where access to capital is not that tough is the winter.

That’s your lowest revenue month. And that’s usually, again, people can name that just as they can name the highest. Mine is August. So May is mahas, August is my lowest. So you have fixed overheads and you have to run a business and have payroll and so forth during all of these seasons. Very easy to do when revenue is very high, very hard to do when there’s not a lot of revenue coming on or coming into the business during slow season. So just to bring it all together. So summer is your highest revenue, then things start to slow down a little bit. It goes into the fall, which then goes into the winter, your lowest revenue months, and then the spring starts. Now during spring, you also need access to capital because at that stage there’s a lot of new marketing campaigns that maybe you’re putting together or you’re bringing on other partners, other lawyers, stuff.

You’re investing in new technology like ai. That’s what a lot of people are doing right now in their spring cash flow season. So you need access to capital then too. So throughout those four seasons you do, and that becomes very, very important that cashflow management. So that’s another massive challenge. And to answer your question when it comes to returns, then I understand the challenges that you have. You’re diversifying out of your business too soon. There will be a time and a place for that, and there’s correct ways of doing that. You’ve got to manage your cashflow as a business owner, a law practice owner, but where’s your biggest return? And again, we always look outside of ourselves and our own businesses, and I can tell you the biggest return that you will ever get ever is in yourself and in your own business. There’s no greater return than investing in your own business out there.

But we always look at that. We look at oh percent average returns in the stock market, and I’m like, we’re not in the game of average here. We don’t want an average life, average health, average marriage, average relationship with our children and family and average business when we reinvest that capital in our own business. I mean, the returns will just, it’s incredible what you can do. We had a client, for example, I’ll share this with you in the coaching business, invested a hundred thousand dollars selling coaching packages that a hundred thousand dollars that they reinvested into their own business generated 1.25 million of revenue. There’s no return on that, a hundred thousand dollars that he’s going to get anywhere else like that in his own business, but yet we always look outside. Apple’s not paying thousand percent dividend. No. And even when you hire an employee, right? Usually when you hire an employee, you’re looking at two to three times of the return that you’re paying that employee. So if you’re paying someone a hundred thousand dollars, you want 200 to $300,000 of production usually. So already look at those types of returns are just incredible that you’re getting a hundred to 200% returns just in that example. So that’s not 8% average return in the stock market,

Christopher T. Anderson:

Not at all. You know who else wants to return? The people who pay for this show, we’re going to give them a chance to give a message, and then we’re going to come back and talk about cashflow, how they position cashflow for their management, particularly, I think this is going to be a good part of the conversation is becoming their own source of financing. Because in law firms, unlike almost any other business, getting outside capital is particularly, we can’t take on any equity partners. So it’s a little bit more challenging, but we’ll tackle that after this word. We are back with M.C. Laubscher, the founder of Producers Wealth and author of Get Wealthy for sure. And we’ve been talking about a mistake that law firm owners make, which is to look for outside to listen to the, it’s not the wrong advice, but to just listen to advice that is given for other types of businesses and other types of people to diversify and instead of betting on themselves. So we talk about that. What I wanted to do now with M.C. was talk about cashflow, and particularly about cashflow in this, we’ve talked about how they start from scratch and we may just be starting to show profitability, but that there are seasons and there are also unexpected costs. What can law firm practice owners do to position themselves in their cashflow management to make sure that they can finance not just the operations, but growth and scale

M.C. Laubscher:

When you’re looking at different places to put your capital as a business owner, as a law firm, business owner, there’s a couple of buckets that come to mind. Vehicles. So the first thing is banks, everybody knows of banks and banks are there to warehouse your money, your capital end. Now, banks at this stage is we all need a bank. I would recommend that this is not a place where you can warehouse the majority of your capital. You do need it, obviously, and we recommend around three to six months of expenses just to manage the cashflow and expenses of the business. But this is not where you’re going to warehouse. The majority of your capital banks are pretty shaky right now. After Silicon Valley Bank went down, there were several other banks that went down. So a lot of banks are a little bit, I would say risky right now.

And yes, there’s FDIC insurance on certain accounts, but the FDIC has admitted that they only have 2% of cash of all the deposits that they’re covering. So if you’re looking for some certainty and predictability, that’s probably not the number one place, but we live in a world where that’s going to be part of your cashflow management system. The second place people look at as bonds. Now, the reason why banks are in so much trouble is because of bonds. We’ve had massive spikes in the bond market, and this is where banks position a lot of their capital, which means that the value of the bonds that they were investing in was cut in half if your interest rates basically double. So that’s why they got into trouble bonds at this stage, when you buy a bond or position capital in a bond, you look at counterparty risk and the counterparty risk is not very attractive right now, meaning the person that issued the bond, what is the ability of that entity of making good on that bond? They’re all bankrupt, whether it’s federal, state, local, provincial governments, they are all basically in financial trouble. And then of course, you have interest rate risk. Then the third bucket that you look at is qualified plans. Now, again, my view is that there’s no wrong products or it’s not that it’s a terrible vehicle, it’s there to produce a different outcome. When you put capital into, in a qualified plan like a 401k or an IRA or Roth IRA, you’re trying to achieve something different than warehousing capital to reinvest it in your business, right?

Christopher T. Anderson:

Right.

M.C. Laubscher:

You can’t touch it in there so you can reinvest it back into your own business. So that takes that off the table. And when you look at other vehicles, then in our get wealthy for sure strategy, we look at the asset clause of life insurance, and I call it an asset clause because there is, in the life insurance world, there’s mutual life insurance carriers. They’re not listed on the stock exchanges. They are outside of the stock exchange environment. So they manage their companies on behalf of their shareholders, which are their policy holders and

Policies. With these mutual life insurance carriers can be structured specifically for a supercharged savings vehicle. So you can, for example, take a dividend paying whole life insurance policy with a mutual life insurance carrier and fund that policy with a majority of your premiums are going towards the savings of this. And this is an asset which you could take directly to the bank and they will give you a guaranteed line of credit against that asset loss. You also have, you can establish a line of credit against the value, the savings in your life insurance policy directly from the insurance carrier. Now, why would this be an attractive place to position capital? Well, the money that you’re putting in there is guaranteed. It’s guaranteed to grow contractually, you would receive dividends that’s not guaranteed, but these companies have paid ’em for 170, 180 years. It’s kind of crazy and it’s all tax free.

All of the money inside there’s growing tax free. You can then access the money through a policy loan. You don’t directly tap into it, which means that the money keeps growing uninterrupted and compound inside of that policy tax free. You get to access a tax free through the line of credit, and of course you can add other rider such as Disability rider on there that in case if you, the business owner becomes disabled, the policy gets paid up and you have a death benefit. So when people ask business owners, look what happens to you, your family and your business, when you become disabled or you pass away, you can answer that question. So this has become a very, very attractive place to position capital because the money that’s in there is tax free. You have guaranteed access to it, and it has all these other things that you can do.

And if you look at what happens with family offices, which is just, these are private wealth management firms for very affluent families, usually they have a hundred million dollars and up of a net worth where they position capital is in these policies. And then they use this as part of a cashflow management system to supply liquidity financing for their operating businesses. So it’s a great place to position capital and access capital when you need it to hire employees, grow your business, and then having a lot of other things that it does for you in place to form a contingency plan and part of a contingency plan for you, the law practice owner and your family.

Christopher T. Anderson:

Great. So what I’d like to do, I think that’s a very interesting, like you said, not a lot of financial advisors come to law firm owners or small business owners. With this as a plan, well, you just described regarding the family office and all that, I think it’s already definitely gotten my interest and probably interest to the listeners. What I want to do is come back right after this break and then I’ll talk about how we can relate that to these smaller, not a hundred million dollar law firm and what the strategy can be for them. So for that last segment, we’ll be right back after a word from our sponsors. We’re back with M.C. Laubscher. M.C. is the founder of Producers Wealth, the author of Get Wealthy for Sure. And we’ve been talking about financial strategies about where to put the capital for your business other than traditional what M.C. referred to as average investments. He’s been talking about strategies that involve insurance products to really keep it safe, keep it accessible, and give you good returns. But like I mentioned before we went to break, you explained that very wealthy businesses, very wealthy people, family offices use this strategy. Can you help us relate it to the listeners here who have smaller law firms who might be slightly under a hundred million dollars, but it might be $1 million businesses, 2 million, 10 million. How can this strategy work for them?

M.C. Laubscher:

You don’t have to be a Rockefeller to do what the Rockefellers do. So it’s a lesson that I learned from one of my mentors early mentors 20 years ago where he did come from a very affluent family and he was explaining to me he was a third, fourth generation, a family member in this family business where they use the capital of the family, position it in these policies, and then they would buy real estate with it. And I looked at this and said, this is great. How do I do this? Well, if you have a business and your revenue is $500,000 a year or a million dollars a year, this is a perfect strategy. You can 10, 15, 20, up to 25% if you want to be aggressive and fund these policies. And what it’ll do is immediately you’ll have a death benefit available and you’ll have cash 30 days from when you fund these policies access to it.

So you could set up a credit line 30 days from after you fund the policies. Now, if you’re funding a policy and let’s just use a number of a hundred thousand dollars, you’ll have 75 to 80% of that go straight to the savings vehicle right away. At any given point in time when you need money again to just pay for a marketing campaign, let’s just say you want to run a Facebook or Instagram, LinkedIn, a YouTube marketing campaign, you can access it through a policy loan fund that, and then obviously the marketing campaign will deliver sales for you. And as you’re generating revenue and you’re having profitable months, you can then repay that line of credit just as you would put money back into a bank by paying it down. And you can do this over and over and over if you are a law practice owner and you’re starting and you’re thinking, okay, my goal is to start this, to grow this and to really scale this practice so that one day, 15, 20, 25 years, 30 years from now, I have an asset that I can sell either to a buyer or to my children family.

And during that sale, I’ll get some money upfront and maybe seller or finance the rest of it. That’s a fantastic strategy. If you add this strategy with you, you’re going to walk away with a life insurance policy with millions of dollars in it and then sell the business, walk away with some money upfront and seller financing. You can also use this policy as a business owner to draw tax free income for retirement. So what I always say to folks is, again, just stepping away from it, you’re doing great already. One small tweak of where you position your money for your business can make a massive difference, and in this case, millions of dollars tax free that they get to walk away with for retirement.

Christopher T. Anderson:

And you’re saying that what phase of the business, at what revenue levels can people consider these kinds of strategies?

M.C. Laubscher:

Yeah, if you’re doing $500,000 in revenue, this is a no-brainer. If you’re doing a million dollars of revenue, this is a no-brainer positioning capital in there for your business. So you can start, I started 15 years ago doing this personally, and you start where you are at and then you build it up. And as your business grows, you have the ability to add more of these policies. And also this, by the way, is a great strategy of hiring top talent for your practice and keeping them. We have clients that one of the benefits that they offer for these A players is said, look, if you stay with us for 10 years and we hit our goals, which this is our goal this year, this will be our goal the following year and so forth, we hit those targets and you stay with us for 10 years, we’re going to put away money for you every single year in this policy, which we have control over, we fund it.

And if you stay with us for 10 years, you’ll walk away with the money in the policy tax free, which again could be several millions of dollars. So there’s a lot of different strategies for law practice owners to think about where to warehouse your capital, how to use this as a super chart savings account to grow and scale your business, use it as far as part of a cashflow management system, and then again, protecting you the number one asset of your law practice and then also bringing in other top talent and maintaining and keeping them. So there’s a lot of different strategies that you can combine here utilizing this and the money is where you can access it in any given point in time to invest it where you get your biggest return, which is in your practice.

Christopher T. Anderson:

I mean, it all sounds really, really interesting, and at the end, we’ll give away for people to contact you to find out more. But let me just ask you one follow-up question before we reach the end of the segment. Law firms, small businesses in general need their financials, their books to be presentable for other reasons other than financing, cash, cashflow. They need to show for leases, they need to show for potential buyers. They need to show for that. So how does this look on the books? Does this still bankable to on a law firm’s books?

M.C. Laubscher:

It’s an asset and banks love this asset. We have several business owners that, for example, you can fund a buy sell agreement with partners

With these policies and own policies on each other. We’re working with two business owners right now where they could take both of these policies to the bank and the bank would give them a life insurance line of credit. They call it a LI Lock secured by it because it’s an asset. So no, it’s very, very bankable. It’s on your financial statement as an asset. This is an asset that the banks love because banks know that this type of collateral, they’ll always have access to, and they’ll always be made whole. If you think about real estate, if you have real estate as collateral as a bank and somebody doesn’t pay their mortgage, for example, they end up with the real estate, which they then have to sell at a discount life insurance. They’ll get the whole amount that which is owed because again, you have your cash value, which is the savings as the collateral part, and then there’s a death benefit. So they actually have two pieces of collateral. So it’s a very bankable asset.

Christopher T. Anderson:

That is totally fascinating. And we’re unfortunately at the end of time, so I want to just remind everybody. We’re talking with M.C. Laubscher, he’s the founder of Producers Wealth and the author of Get Wealthy for Sure. And unfortunately right now, we have reached the end and need to wrap up this edition of the Unbillable Hour. So thank you to our listeners for listening. M.C., if they want to, we covered a lot in a little bit of time if they want to learn more about this, how should people be able to get in touch with you?

M.C. Laubscher:

I appreciate that. I put a whole page together for your listeners at Producers

Christopher T. Anderson:

Oh, wonderful.

M.C. Laubscher:

Producers wealth.com/unbillable hour, so producers wealth.com/unbillable hour. And what you’ll find on the page is I share a lot of examples of the strategies that we talked about. I actually have entire presentation if folks are interested to look at. I’m also giving away a copy of my bestselling book, get Wealthy For Sure. So a paperback copy. They can request a paperback copy, only pay for shipping and handling, and we’ll ship it out to them. And there’s a link if anybody wants to schedule a strategy session and learn more to see how they can actually utilize this and implement and execute some of the strategies that I shared. Again, it’s producers wealth.com/unbillable hour.

Christopher T. Anderson:

Perfect. I think that’s going to be great. Thank you so much, M.C.. Love having you on the show.

M.C. Laubscher:

Thank you so much for having me.

Christopher T. Anderson:

You bet. And of course, this is Christopher T Anderson, and I look forward to being with all of 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. Please remember, you may also interact with the Unbillable hour every third Thursday at three at the community table where you can ask us questions about the shows, about what you’ve learned about anything to do with managing your law firm, and you can come live, be on the show, live every third Thursday at three, and if for some reason you can’t make it, you can always just drop us a line here at The Un-Billable Hour on the Legal Talk network.com website and drop us a question and we’ll be able to answer it on the community table. Also, you can subscribe to all the additions of this podcast at legaltalknetwork.com or on iTunes. Thanks so much for joining us. We will speak again soon.

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