How you deal with taxes can show you a great deal about whether your law practice is on track to create a life and business you truly want or where you can make some necessary shifts to get back on track.
You are either excited to be expecting (or have already received) a refund, stressed about paying or perhaps you are ignoring it altogether.
My personal tax story is instructive for you, no matter which category you fall into.
I’ll be sharing the details over the next few posts, so keep an eye out for my tax time series, if you would love to make this tax season the last time you stress about paying taxes or anything else in your law practice.
Most importantly, I’ll be sharing the story of how I ended up with an unexpected $100,000 tax bill and the lessons I learned that will save you big time.
Plus, what I did after I was audited that built me a $1,000,000+ business. Seriously, this is huge and applies in many areas of your life and law practice success.
Today though, I want to share exactly what numbers you need to look at each week and each month to save you loads of money at tax-time and make it 100% stress free for you next year.
Fall in love with the numbers of your law practice and create a life and law practice you love.
Looking at the numbers in my law practice was terrifying. I went to law school so that I wouldn’t have to deal with numbers, or so I thought.
Rather than paying attention to my numbers (which I didn’t really know how to do in the early years of my law practice), I decided I would just make more money so I didn’t have to focus on what I considered to be the unpleasant part of business.
Truth be told, I built a million dollar law practice because I didn’t realize that I could have been just as happy earning less, having less overhead, and working less hours.
Today, the lawyers we serve are able to make choices about the size of practice they want, not based on an arbitrary goal of building a million dollar business, but based on the life they want, the role they want to have in their law practice, and then using our time-blocking and metrics tracking systems to create exactly what they desire.
What I finally discovered (after some very expensive mistakes) is that the #1 key to creating a law practice you love is getting intimate with the numbers of your law practice. And, tax time becomes stress-free.
If I had known it could be this simple, I would have learned to love the numbers of my law practice and managing my practice would have been loads easier.
Here’s what you can begin doing now:
- Track the right metrics
First and foremost, teach your Client Services Director (or do it yourself) to track every inquiry for services, number of initial prospect appointments booked, number of appointments kept, number of appointments engaged into clients, and average fee.
Then, review those numbers weekly so you can laser in on exactly where you can make slight improvements that will have a huge impact on your bottom line with no additional overhead expense.
One big key to hitting your life goals in your law practice is to have absolute clarity on what a full practice looks like for you. How many new clients engaged each month at what average fee would equate to full for you, based on the life you desire to have?
Our lawyer members use a time-blocking calendar and cash flow forecasting system to manage their lives and businesses. I only wish I had created these things in the early years of my practice so I could have spent more time with my kids when they were young.
- Get a weekly financial report from your bookkeeper
In the early days, I had no idea how to work with a bookkeeper. I can see now that I never really had the right bookkeeper on board. Because I didn’t know what questions to ask or what I should be looking at regularly, I couldn’t train my bookkeeper to provide the reports I needed. And, sadly, most bookkeepers have no idea either.
Today, I have three companies and for each one, I get a weekly financial report that shows me exactly where we are weekly so I can make strategic decisions and never end up surprised without the cash flow to manage my accounts payable.
My weekly financial report includes total amount in the bank, total outstanding liabilities, expected big payments and expected receivables. Plus, I receive an updated cash flow report that tracks about 6 weeks out so I can see if we are in danger of not making payroll and have clarity about exactly how many new clients we need to bring in to cover all of our future expenses.
By looking at these numbers in a structured format each week, even when I am in a heavy growth period requiring a lot of investment, I can rest easy each night knowing I am on track, even when I’m going into debt to do it (as sometimes I do when in a big period of expansion).
- Set up a standing monthly financial meeting to review your profit and loss statement
Each month, before the 15th of the month, I have a standing meeting with my bookkeeping team to review my profit and loss statement, look for variances that can indicate a problem, and categorize expenses. This makes tax-time super easy. And, allows me to begin my tax planning for the following year in the late Fall while there is still time to strategize and save money on my taxes.
Had I been doing this back in 2006 (the first year I hit a million in revenue), I wouldn’t have ended up with a $100,000+ tax bill I couldn’t pay. More about that in my next post with lots of instructive lessons for your law practice.
When you use these systems to read the numbers of your law practice, you can relax knowing you are on track in your law practice, even if you are in a growth and investment stage of practice. And, if you are at the stage of your practice where you are raking in the cash, you can be sure you are allocating your income to maximize tax savings and hit your next levels of growth.
If you have any trouble reviewing the numbers of your business, we can help. I only wish I had someone to guide me through this before I understood it myself. And I hope this shortcuts years of expensive mistakes and stress for you.
Stay tuned for more tax-time strategies in this series, including how I handled that unexpected $100,000+ tax bill (lots of lessons for you here) and how I turned a terrifying tax audit into a million dollar business.
In the comment box below let me know what specific questions you have about how to read the numbers in your business to make tax time stress free for you from here on out.
Interested in learning how to put the new law business model to work in your business so you can serve families you love, love looking at your numbers each month, know you are making a difference in your clients’ lives and make a great living while you do it?