Avoid These Mistakes Immediately for Your Law Firm’s Growth: A Comprehensive Guide

January 29, 2024

Today, we’re talking about the definitive guide for the essential personnel you need at every juncture of your law firm’s growth. This isn’t just about your key legal staff like the administrative team, the paralegal, or the associates. Nope, we’re talking about the behind-the-scenes specialists who push you forward in your business. Let’s face it, lawyers are awesome at law, but running a law firm requires a little more finesse in the business department. That’s where these professionals come in, and I want to help you discern when to bring them onboard. 

When should you hire an accountant in your law firm and what should you look for in the accountant? 

First on your hiring radar should be an accountant. No sooner have you hung your shingle than you should seek the assistance of an accountant, preferably in the planning stage, to help you navigate the financial legalities. Sounds intimidating, right? Sadly, many attorneys attempt to handle taxes on their own and end up owing back or underestimating payments. The strain of tax trouble is the last thing you need as a business owner. 

However, it’s crucial that you consider the needs of your law firm when selecting an accountant. You’re just starting out, therefore you likely don’t need a major accounting firm like KPMG. An efficient one-person accountingoperation will do just fine. Often we feel the urge to hire the biggest and the best. For now, an oversized firm could overwhelm you. Focus on your specific needs, which boil down to answering tax-related queries, tax planning, and tax preparation, all distinct yet interconnected services. My accountant buddies will attest to that.

I’d recommend an accountant who can offer significant tax planning assistance. Granted, you might have to dig a little deeper into your pockets, but the goal here is to invest in your future by paying less to Uncle Sam later. I have more faith in you paying a reliable accountant than a faceless IRS agent. A good accountant can structure your financial affairs accordingly, so you can take advantage of tax benefits (like student loan payments and real estate home ownership) and keep your taxes to a minimum. However, hiring an accountant isn’t all roses and rainbows. Ensure they are available, responsive, and fully comprehend your needs.

Communication is key. Regrettably, I’ve had experiences with both large and small firms, including solo operators, who’ve come up short in the communication department. Make sure your accountant is willing and capable of fielding your concerns. Your accountant is on your side – and as they say, there’s no escaping death or taxes. When you make money, you owe taxes. A strategically hired accountant can help you minimize your tax obligations and ensure you enjoy all the advantages of tax planning.

However, bear in mind that these benefits aren’t free – they come at a price. Your accountant should be communicative, offering a steady hand at tax planning and preparation and understanding your growing firm’s needs. Also, ensure that their communication preferences align with yours. Be it through phone calls or emails, ensure they can provide the answers you need within a reasonable response time. Clearly communicate your expectations early on to avoid disappointments down the line. Hiring these professionals at the right time can make a significant difference in your law firm’s trajectory. It’s not about having the largest team, but having the right experts in your corner at the right time.

When should you hire a bookkeeper in your law firm and what should you look for in the bookkeeper? 

So, you might be curious about when it’s right to bring a bookkeeper into your law firm. My advice for you is to hire a bookkeeper as soon as you establish your firm, similar to an accountant. 

No need for you to set up QuickBooks or Xero, or whatever platform you’re choosing, and spend time figuring out categorizations and reconciling your own accounts. It may seem that you’re saving a few hundred bucks doing it yourself, but here’s the catch: Accounting is not your area of expertise. Entrusting your books to professionals right from the start, regardless of your initial monthly income, aids you in comprehending the financial data in your business accurately. They help you in identifying where the money is going in or out, thereby making your life considerably easier. 

Nowadays, bookkeepers’ charges range from around $300 to $3000. But, if you’re just starting out, you don’t need the most expensive bookkeeper. A simple, competent professional will suffice. However, as your firm grows, make sure your bookkeeper is capable of scaling with you. Don’t get into the rut of sticking with the same solo bookkeeper as your team expands to 5, 7 or even 10. You might eventually need a team of accountants and bookkeepers instead of just one. And it’s perfectly fine if you outgrow the experts as they must align with your firm’s growth. Maintaining clean books is not just good practice, it’s an ethical requirement by the state Bar Association. So, delegate this task! 

Please don’t get trapped in the cycle of managing your own books, instead lean on the expertise of bookkeepers. They are abundant out there and finding a good fit for you is crucial. Your interaction level, responsiveness and level of accountability you expect from them – assess these details carefully before deciding. And remember, loyalty should not extend to inefficiency. If they start dropping the ball, let them go. Choose from the plethora of professionals who could be the right fit for you.

Some bookkeepers lose dedication and attention to detail as they expand and take up more clients. In such cases, let them go and seek better professionals. Your books should arrive at your desk, every month, no later than the 15th. It’s crucial to your financial check-ins and decisions. For instance, for the month of January, your books should be with you, all done and dusted, by February 15th. This is important because, you need to plan your expenditures and revenue generation based on insights from the previous month, making timely delivery of your books crucial.

When should you hire another associate in your law firm and what should you think about before hiring the associate? 

Considering bringing on a law firm associate next? Hold on, I want to ensure you’re adequately prepared. To get started, consider revisiting my prior Episode where I discussed the 3 essential queries you need to ask yourself before hiring an associate. My general advice, however, prescribes that an associate should only be added if your revenue surpasses the $250,000 mark. I understand the desire to delegate tasks that you may not find appealing once reaching $150,000 to $200,000, but think about it. If you are finding the work undesirable and decide to pass it onto another, bear in mind that you’re now responsible for their payroll in addition to your own. 

Now, you might be wondering – where will I get new clients from to make sure this new associate has enough work? You’ll likely find yourself working with less-than-ideal clients that demand an extreme amount from you. Unsettling as these circumstances often are – trust me, I’ve been there – they heap on unnecessary stress that you can better utilize elsewhere. Aspire to reach at least $250,000 in revenue before considering this decision. Yes, profitability is crucial and I meticulously break down the numbers in my book, which I recommend you consider purchasing here.

When should you hire a coach or consultant in your law firm and what to look for before you hire the coach or consultant as a lawyer? 

Alright, let’s continue with our discussion on hiring at your law firm. It might seem reasonable to consider recruiting a coach – someone who could provide guidance on matters like setting pricing, dealing with challenging clients or handling the stresses of being both a lawyer and a business owner.  

However, it’s crucial to note that a coach should ideally be brought onboard when your firm is generating at least $100,000. Coaches have a wide range of expertise and consequently vary greatly with their fees. Although there are coaches available at all price points, it doesn’t mean you will receive value proportionate to their fees. 

In recent years, the coaching industry has significantly grown, albeit without any regulation. Coaching is not a profession bound by a code similar to the bar exam or character and fitness assessment. We must consider this when making a hiring decision. Always ensure the professional has the necessary certification and experience. A coach’s communication style should align with yours, from the method of communication they deploy – phone calls, emails, or Zoom – to the frequency of conversations between sessions. 

The benefits of a coach can be compared to those of a therapist; a person who listens, understands, and provides advice. Even so, it’s essential to shield yourself from coaches without proper credentials or lack value for money. Begin with a clear goal of the expected results from the coaching, and it’s recommended to hire a coach only when hitting a $100,000 mark. Engaging a coach too early might impose unnecessary financial strain.

In today’s digital age, there is a plethora of resources available online like podcasts and YouTube channels, which can provide insights at no cost. A committed coaching engagement will require time and won’t offer instant results. This understanding is pivotal when considering coaching.

Shifting the gears, you might consider a law firm consultant next. Consider hiring a consultant when your law firm is generating six-figure revenues or higher. Within the earlier years, there might be limited activities a consultant could contribute to. The initial years of owning a law practice can be challenging. A consultant, like having a personal trainer or dietitian, can provide guidance, but you have to execute and experience it by yourself.

When your revenues surpass $100,000, don’t jump to hire the most expensive consultant. Consultants should be hired not because we can, but rather when we intend to experience significant growth. If you are content with your firm’s current size and operational style, hold off hiring a consultant for now. Continued evaluation and financial decision-making can help figure out the optimal time to recruit a consultant who can streamline your operations or assist with setting your prices.

Understanding when to hire and the role this professional will play in your firm while considering your firm’s financial health is key. There is no one-size-fits-all solution for hiring at a law firm – the needs vary according to the state of the practice. So, keep this in mind as your firm grows and evolves.

When should you hire a CFO in your law firm and what should you think about before hiring a CFO? 

It is wise to consider hiring a chief financial officer for your law firm when your gross revenues have reached or surpassed $1,000,000. Hitting this milestone typically means you’re dealing with heavy expenses, and an expert hand can guide you through fiscal responsibilities efficiently. Instead of merely identifying areas of high spending, a CFO will take initiative to rectify the problem, like dealing with the credit card company directly or implementing a cost-effective solution to save significant amounts annually. They will evaluate whether your employee payments and benefits are balanced and help introduce partner profit-sharing plans, if necessary. Remember, hiring a CFO doesn’t necessarily mean full-time, a part time, or fractional CFO can suffice. 

Should your revenue fall under the $500,000 to $850,000 bracket, a consultant or a highly involved accountant could be a valuable addition to your team. A fractional CFO would also be a viable alternative at this level. However, reaching the $1,000,000 mark arguably warrants a dedicated CFO on your team, ready to assist with crucial financial decisions and to provide strict accountability. If your revenue is as high as half a million and you lack an accountant, take immediate steps to correct this. Or if you exceed $300,000 in revenue, and you’re still managing your own books, it’s high time you consider a professional for the job.

Salary aside, successful growth in law firms implies an ever-expanding team size and financial stability borne from hiring experts more proficient in certain areas – like tax planning and strategy. Recognizing when you’re ready to hire a consultant, coach or a CFO depends on your readiness to stop seeking answers from Google or friends and instead seeking an expert who can comprehensively analyze your finances. Avoid hiring if you still rely heavily on these sources. Doing so increases the chances of conflicting information, which could lead to doubt in the abilities of the expert you’ve hired. Keep these considerations in mind as you hire for your law firm.