Episode #27 How Does Profit First Grow My Firm?

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Hi, how are you? So, for those following on video and not listening on the audio, you can see that I'm not in my office. And I'm in a hotel room. This week is ProfitCON week, which, in the Profit First Professionals world, is our annual conference. It's a couple of days, and it's always the last week of September. And Profit First Professionals is headquartered in New Jersey because that's where Mike lives. Everybody around the world, in Profit First, is invited to come and play with us. I'm in New Jersey for a couple of days for a conference, and it's an amazing conference. I am fortunate enough that I was able to come in a couple days early, and I'll stay a couple days later because my Profit First Professional, and they are truly my friends, I see and talk to these people almost every day, the whole year. So when we have a chance to show up in person at an event together, we're coming in a couple days early and staying a couple days late so that we can, you know, continue to see each other in person. It's so hard to say goodbye. 

But, ProfitCON hasn't started yet. This is still Monday morning, it starts tomorrow. But something happened last week that I wanted to share before I forget. I was invited to speak at an event that was about Profit First. Had an amazing time. Towards the end, we had Q&A session, and there was a, I don't know, it's kind of a combination question criticism, and I'm like oh my god that's a brilliant like comment question criticism I love it and so I thought yeah you know what I in my mind it's a foregone conclusion and but it's not so let's talk about it okay so here's what happened so we're talking about Profit First and the and I'm gonna paraphrase this but the effect of the comment/question was more of along the lines of okay I get it Profit First is teaching me how to manage my cash in my firm but it's not helping me grow my firm.

Absolutely true! I completely agree with that so here's the thing and then we were running late on time and this was at the end and I felt really bad that I didn't get to go into more detail so that's why I thought oh let me do this and hopefully this person hears this and it'll make more sense so the thing is if you have a business okay. 

Profit First is all about cash management - how when one dollar comes into your business how is it going to be spent. That's the first part of it. The second part is ensuring that your firm is making a profit because if your firm is not making a profit, it's not gonna survive. You may be able to last for a couple of years. But it's just not going to survive long-term unless you have a very gracious angel investor that will just feed you money. If you're not - if your firm's not profitable - you're not going to survive. The firm's not going to survive. That becomes those two things being profitable and managing your money to ensure your profitability. That is the foundation of growing your firm. 

Now, if you know anything about Mike Michalowicz, you'll know that he's written more than one book. And, in fact, Profit First wasn't his first book and Profit First was a concept that he talked about in an earlier book. He's actually talked about it in several books. I believe Toilet Paper Entrepreneur was the first book he talked about it and it was still kind of ruminating in his head and he's also talked about it in The Pumpkin Plan. Because it's so critical you need to make sure that you're profitable. You need to make sure you understand and have a handle on your cash because here's what's gonna happen. If you go to grow your firm and you do not have a handle on your cash think of how crazy things are now. Say your firm's at a $100,000 of annual revenue and you're pulling your hair out because you don't know where the money's coming from & you don't know where it's going too. You're not taking a paycheck as a firm owner. That's just going to continue to compound. It doesn't matter what your revenue is. 

If you cannot get a handle on it at $100,000 of revenue, it's going to be the foundation. To get everything in control is Profit First. The next step then is and in Mike's world in his book world would be Pumpkin Plan. Pumpkin Plan is the book about growing your business and it's not just growing your business. In the business world there's two concepts about growth. There's just typical growth which sometimes it's just dumb ass luck that your firm grows and I've been there. 

I mean, when I first opened my firm. I had clients coming to me all the time because I was just in the right place at the right time. I knew the right person, whatever dumb luck. It seriously was just dumb luck. I had a stretch of two years where my firm grew. It doubled in size every six months for like a two-year period. 

But I lost my shit because I did not have a handle on my cashflow and I did not have a handle whether my firm was even profitable because (hint) it wasn't. So, the first path, there's just growth, and a lot of businesses have growth, because they're in the right place at the right time at the right price that the market is willing to pay. They have growth. The problem with growth is that whatever your problems are at $50,000, stay with you. They're the same problems now amplified at $100,000, grow to $250,000, same problems, and now they're worse. They're bigger because there's higher dollar amounts involved. You are going to have the same problems at a half a million, gonna have the same problems at a million. It is extremely stressful to continue to handle problems with cash flow. 

So that's why Profit First with cash flow and not knowing whether you're profitable, okay? 

The second way to grow is to actually control it, meaning scale, which is why my firm is called Profit Scale Thrive because those are the three steps you need to get profitable. And then when you scale - now scale by definition is doing more with less effort - doesn't that sound great? What if you can double your revenue and not have to work double the hours to do it? 

That's what scale means. But, you can't scale if you're not profitable and you can't scale if you don't have a handle on your cash flow. Profit First is just the start.  

My firm's name Profit Scale Thrive get a handle on your profit. Now let's scale. Let's grow your firm. Let's grow your revenue as much as we can without adding equal parts of effort. 

To be able to take on the new work which means you're going to thrive. Your business is going to thrive. Personally, you're going to thrive. That's why my firm is called Profit Scale Thrive. 

So yes, Profit First in itself in a little nutshell it is one piece of getting the firm in the life that you want. Get a handle on that then see where your firm can take you because I'm telling you it's amazing. Where you can go from there? 

Let me know if you have any questions. Hopefully, this made sense and I'd love to hear some feedback.

Listener’s Question of the Week

It's listeners' question of the week, and I'm assuming you just finished listening to the first segment where I mentioned that I spoke in an event about Profit First last week, and there was a second question. I thought, oh, this would be perfect for this segment and for this episode. In effect, it was Profit First is great, but, and it's such a loaded word, right? “However” and “But” those are loaded words. And this is a fair, fair question. My firm bills on contingent basis. And I'm like, ooh, okay, I understand the question. I understand the situation. You can't manage cash if there's no cash coming in, right? So, and again, this was at the end of my speaking engagement, so I didn't have as much time as I wanted to address this.

And yes, in the legal industry, I'm sure you're familiar, there's all variety of areas of law to practice, and then within each area of practice there's the standard of how to bill and it boils down to hourly, which was just the basis in the beginning of the legal industry. 

And then you have flat fees, which work great for short term, quick, repeatable things you can put into a process, like incorporating a business, those are easy things to do flat fee because you know the effort. Just write me a check and we're done. 

And then the last is contingent billing. The problem with contingent billing, which I don't have to tell you, even if you don't bill on a contingent basis, this is the hardest firm to start, but it can be the most lucrative because you need to be amazingly awesome at doing your due diligence to accept a client that's going to be billed on a contingent basis.

You have to be set up right. You have to be able to have access to funding to fund the advanced costs because, and I don't have statistics on this, but I would think majority of contingent cases clients cannot pay for their advanced costs. Some can. Don't get me wrong. I get it. It all depends on a client’s situation. 

Each client's unique, which means now the firm needs to pay out of pocket for advanced costs and out of pocket for people - your staffing. Now, if your contingent case is something that's going to close in six weeks, that's manageable, right? But what if it's something that goes to court, It takes time, gets appealed, and it takes time. Two years and then you get through court and just because you won money doesn't show up in your bank account tomorrow. Now you have got to go through collection and get the money collected and to be able to receive your portion and it's a windfall when you get it.

And when this happens, I pray for you that you have Profit First in place because what if your contingent fee is $1,000,000, which is awesome for you, and maybe it only, only, you know, I put that in air quotes, it “only” costs you $800,000 in time and advanced costs. So you just made a net profit on one case of $200,000. But if you're contingent, I would love to see Profit First in place because now you can take that $200,000 and you can do so much more with it to be able to grow your business because it will fund that $200,000 can now fund the next case. So where I'm heading with this, what I wanted to say is just yes, contingent basis, timing of money coming into your firm is not controlled by Profit First. So you've got what happens in your business until money comes in your business and then Profit First kicks in money comes into your bank account.

Again, in the Mike Michalowicz’s world, he's got multiple books. And the reason he has multiple books is because each book addresses different aspects of owning a business. 

Profit First is this little piece because if you don't have a handle on your cash, you can't do anything else with your business. It's not going to sustain. 

But the thing that I wanted to point out about the contingent case is the movie, Erin Brockovich. So, if you remember, Julia Roberts started working, you know, Erin started working for Ed and then it got to a point where Ed wiped out his access to credit he had and his personal savings. And then they had to take on co-counsel. They had to have a separate firm join them because it was a bigger firm that had money. And as unfortunate as that was, by the time you got to the end of the movie, now you had this huge firm because they won and they won big.

So it's amazing to be able to bill contingent, but it is a very, very hard practice to develop, to grow and I've never worked with a firm that is a hundred percent contingent with billing. Typically how my clients are structured is one or two contingent cases and then everything else is flat fee or hourly. And then the contingent piece as you win, use that money to then grow and now you can start to expand the types of cases you're taking on that are going to be on a contingent basis. 

And it eventually may become a huge piece of the firm, but in the beginning it's just very hard so what I advise and I never, never, never advise clients take on debt. I don't like, personally,it's not that I have an aversion to debt. It's just, you know, obviously in a perfect world I'd love to be able to have the money set aside. Now don't take that, you know, I've got a mortgage, I've got a car payment. So it's not that I'm that adverse to debt, but you know, see what access to credit you have. If you have a line of credit you can get for your business that will help fund doing contingent billing cases and then but hopefully you have Profit First in place so that you know when the money comes in, when the case settles, you win and you collect the money goes to pay off the debt used to fund that case and you set aside money to fund the next contingent case. So let me know if all that made sense. Hopefully it does. But if not send me an email or if you have a different question about Profit First or about running your firm in general, you can send me an email to [email protected]. I look forward to hearing from you soon.

Inspirational Quote

This week’s inspirational quote is from Rhonda Hendricks, “Never be afraid to rock this world by living outside the box.”

Final Thoughts

So final thoughts for today. Hopefully between the two segments, both or one of them, I gave you a golden nugget of information that you can use in your firm today. 

The thing is, I know you're smart. You've been to school for a really long time. You passed the bar. So you're smart, you're intelligent, but all of that schooling, nobody taught you how to be a business owner. 

The minute you hung your shingle out to be your own firm it's a whole different ball game you now have to shift from practicing law to being a business owner who also practices law. The running the business has to come first. It's just a very, very tough shift to make. 

So again, hopefully something in today's episode will help you in your firm to be able to grow. 

If you have any questions about today's episode or feel free to comment. If you're watching on YouTube, you can comment below or send me an email to [email protected] and if you know someone who might need to hear this information please share this episode with them or if you're on YouTube, you can tag them below. 

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Did you enjoy this episode? Please consider leaving a review. 

And before I go, remember profit is something you intentionally plan for in the beginning. It is not a potential bonus at the end of the year. 

Thanks and have a great day.

Today, I want to talk about the importance of Profit First in growing your firm. I recently had some interesting discussions about how Profit First helps with cash management and profitability. I'll explain why these two factors are crucial for the growth of your business. 

By understanding and implementing Profit First, you'll have a solid foundation to scale your business and thrive.

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