How Your Business Can Fund Your Dreams

As a law firm owner, you’ve taken huge risks and put in blood, sweat, and tears to lift your firm off the ground. You’ve considered how to run your firm in a way that feels healthy and aligned, and you’re ensuring your clients and team are served at the highest level possible. But have you ever stopped to put a number on what success means to you? Have you figured out how all this work you’ve put in can lead to more time and money freedom for you?

Most people never get clear on what it would take for them to realize their dreams because they’re too afraid to play around with different versions of their future. They indulge in excuses or just aren’t willing to do the math. However, when you put a pin in the map and get clear about what you want to shoot for, lining yourself up with your dreams isn’t all that complicated.

Join Melissa on this episode as she offers her guide for calculating how your business can fund your dreams. You’ll hear how you can make jumps in profit without putting in extra work, what playing around with your future numbers looks like, and a mental exercise to get you in the practice of mapping out your dreams. 

‍If you’re a law firm owner, Mastery Group is the way for you to work with Melissa. This program consists of quarterly strategic planning facilitated with guidance and community every step of the way. Click here to learn more!

What You’ll Discover:

• 3 considerations you must work with to figure out how your business can fund your dreams.

• How to make incremental improvements to your profit margin.

• Why non-revenue-growth years can be very strategic for your firm.

• What happens when you allow yourself to picture different versions of your future.

• A mental exercise you can play around with to line yourself up with what you want.

Featured on the Show:

• Create space, mindset, and concrete plans for growth. Start here: Velocity Work Monday Map.

• Join Mastery Group

• Join the waitlist for our next Monday Map Accelerator, a 5-day virtual deep-dive event.

• Schedule a consult call with us here.

• #262: Don’t Get Scammed: Numbers Are Your Roadmap, Not Coaching

• #263: Hiring: The Smartest Way to Build Your Team

• #264: Is Your People Cost Healthy?

Enjoy the Show?

Leave me a review in Apple Podcasts or anywhere else you listen!

I’m Melissa Shanahan, and this is The Law Firm Owner Podcast Episode #265.

Welcome to The Law Firm Owner Podcast, powered by Velocity Work, for owners who want to grow a firm that gives them the life they want. Get crystal clear on where you're going, take planning seriously, and honor your plan like a pro. This is the work that creates Velocity.

Hey guys, welcome. I’m so glad you're here. We are going to be talking today about something that is really important for facilitating a great retreat. It's really at the top of the day, before you get into this. It's very important for you as an owner to be clear about what it is that you're aiming for. Because what looks like success to you is not going to be the same thing as what looks like success to the person next to you.

Now, there may be some common themes. But we're not interested in just themes. We're interested in specifics. How do you know, as you grow your firm, that you are successful? What are the signs and signals to you? What are the results that you can create in your own life because of the success of the firm?

So, this isn't just about the firm. Although, yeah, you should put anything that resonates in terms of what is going on inside of the firm, what it feels like, what it looks like, the clients, the experience, really specific ideas around how you know you are successful as an owner with your firm. But I want you to also tap into you as the human, and your personal life.

How do you win by taking on the risk that you took on, and are taking on, to be the owner of this firm? To be the strategic, visionary person that's at the helm, that is pushing things along, that is driving culture, that is caring about customer experience? There are so many things, right? There are so many things you have to think about as an owner.

And as you grow, you can have different team members that are very much a part of that, so you're not carrying the full weight just on your shoulders. But when you think back, no matter where you are on this journey, there was a time where it was just you; and maybe you're there right now. And then there was a time where you had some more help, but maybe they weren't as invested as what you wished they were. So, it's really still on you. And then, you grew your team.

As time goes on, the goal is to get buy-in from the team, for them to exhibit the values that you care about so deeply for this firm and that matter for this firm. When that starts to happen, people start to show up in ways where you can spread the load, in terms of responsibility for certain things in the company, and you know that they're going to be taken care of very well.

Now, listen, I'm going into all this, and I could keep going... This is hard work. Sometimes, oftentimes, people find themselves in the midst of this journey and it feels like they're a hamster on a hamster wheel. It feels like Groundhog Day, and there is no sense of “Where are we going here?”

What does success look like for you? Many people have a vague sense of, “Well, I'll feel better when I finally get an attorney. I'll feel better when I finally get the right key team member. I'll feel better when this process gets done. I'll feel better when we hit a certain revenue level.” All of this is very likely to not be true, because you don't know, you haven't identified the result of having those things. What does it give you?

Now, I make people get very clear about this before the retreat. We spend time on this, and I ask them, “What does success look like to you? Write down your thoughts below, and be as specific as possible. Include numbers where you can, that helps with specificity.

Whether it's a certain number of hours that you want to work in a day, or certain number of days that you want to work a week, or a certain number of vacations that you'd like to take in a year, or a certain type of car you want to drive, or a certain house you have, or if you want to pay for your kids college.

All of these things are specific to you, if you write down “What does it mean to win? What gets to happen because you're winning? What gets to happen because you built something you're proud of and it's working and it's successful? How do you know? What does success look like to you?” It will be different for your neighbor.

So, this is important to identify, and here's why. If you can start to get to these things, the things that you care about, the things that matter to you, and you want to be able to afford because of the success of your firm… And it's not just about your personal success, that's not what I'm insinuating. But it does matter.

And as an owner, oftentimes you put yourself last. You don't think about these things first. You don’t think about the goals that you want. What do you want for your life? What do you want to be able to provide to those around you, that you care about deeply? What opportunities do you want to provide for yourself and for others? What experiences do you want to have, because you actually have a successful firm?

And once you get some of that stuff down, the important part after that, whatever you write down… All the things. Make a list of all the things that you would love to do and that would be a marker for your success. What are all those things?... And then, you're going to start to figure out, “Huh, well, what does it take, in terms of money, to be able to provide these kinds of opportunities to myself and to those around me? What does that look like?”

You could start to put an investment next to each thing. Once you put the investment next to each thing… it’ll be rough, right? You could do this in different ways. I'll talk about that in a minute… you start to put numbers to it, which then begins to help these aspirations and these goals and these dreams take shape. And you can start to think through what it's going to take.

Now, once you've done that… and this is a cool mental exercise to work through… then you could start to think about, “What does the business need to do in order for that to be possible for me,” as an owner? What does the business need to do in terms of revenue, in order for me to be able to take money and put it into these things I would love to invest in, these experiences and opportunities?”

Even if they feel frivolous, it doesn't matter. You said this is what success would look like, just honor that. People sometimes get in their own way. They feel like they need to have some altruistic answers to this question, and you absolutely do not. It just needs to be honest.

So, if you're thinking about, for you as an owner, all the risk you took, all the blood, sweat and tears that it takes to build this firm and lift it off the ground and run it in a way that feels really healthy and is aligned, what do you want to be able to do because of your hard work with that? What are the payoffs for you? And when you get clear about that, it helps you start to make sure that you're aligning yourself in the right ways, which helps prevent burnout, and keeps you accelerating and aligning this firm in all the ways that makes sense.

It is important to figure out. Put a number to your dreams. Put a number to the things that you say are “success” in your world, in your head, in your mind. And once you have that number, and you've added some things up, then you have to ask yourself, “What does the firm need to do in order for me to afford my dreams?” This is where people get stuck. That part is typically easy, they can think through that.

There are times when I have clients that will do this exercise, and they'll have a second home, a home in the mountains for example. So, they'll put what the downpayment is, and then what the monthly mortgage payment would be. So, they're not just putting the price of the house down, of what they think that would be. They're really thinking through what would it take for them to be able to have that mountain home.

Once you've done that, then you have to think about the business and people get stuck here. Because it's like, “Okay, I know now what my dreams would cost to fund them. But I do not know what that means for the business. And what the business has to do in order for me to be able to have those resources, personally have those resources, to spend?”

So, I'm going to give you a guide to think about this. I work with people on this intensely during retreats, in our Mastery Group and Syndicate. And when I am facilitating this, I offer them a way to think about it that I'm going to share with you. Recently, I built a calculator for them to think through how this might look; and year over year what the business needs to do in order for them to fund whatever success looks like for them.

It really boils down to profit and how profitable the company is. And yes, definitely, also revenue levels. But you can start to play around with the numbers using this calculator and it's super fun to do. But listen, I just developed that calculator recently, and I've been leading people through this for a long time.

You don't have to have this calculator in a spreadsheet, though. You could build one for yourself, or come into our world and you get it. But this is meant to be “napkin math”. It's meant to be played around with. This is not your strategic plan. So, have fun with this, to figure it out.

Essentially, when you're thinking through what the business has to do, there's a few things that are important. The first thing that's important is yes, the revenue level. What needs to happen from a revenue perspective?

The second thing that matters is your profit margin. We'll talk more about that in a second.

And the third thing that matters is your tax rate, because you're taxed on the profit.

So, those are the three things to do pretty good napkin math; those are the three considerations that you have to work with. Okay, so let's talk about profit margin. I did just release a couple of podcasts that should be helpful for you to figure out some things, have some clarity that will lend itself to more information for you about your profit margin. But here's what I'll say.

The important thing with profit margin is that you calculate where you are right now. And in terms of opportunity, I see and work with clients who have a profit margin of 50% on the high end. And then, on the lower end, 20%, when things are really healthy. It depends on the practice areas, it depends on the kind of firm, etc. But 30 to 40% is not out of the question for most firms that I work with.

Now, if you aren't there right now, or if you're negative profit margin, like negative 1% or 5%, or whatever, okay, well, that's where you are right now. We are going to make incremental improvements. And there are definitely levers for you to pull that are healthy for the business. When I say “healthy for the business”, it means it's a win-win-win. It's a win for the clients. It's a win for the business. And a win for you and your team. So, all three of those things are thumbs up; it's a better move for everyone involved.

There are plenty of opportunities, I don't care who you are. When you start digging into the numbers, and when you start getting really strategic and having a look about the current reality of your business, and discovering ways to bridge the gap from where you are right now, which you have to have facts on, to where you want to be, opportunities will fly at your face to improve the health of the business. And that will improve your profit margin.

So, wherever you are right now, it's about making incremental improvements towards something really ideal. And for now, you could even just use a third of profit as ideal. Now, I think you could probably get better than 33% profit. But who knows? You will figure that out as you get in here. And as you dig in and do the work to get clear, so that you know what the best decisions are for your company, for your law firm.

Now, let's say that you are sitting here and you're thinking, “Okay, Melissa, I really do want to calculate this out forward. I want to see how long is it going to take me to be able to pull down a million dollars from the business.” From the business profit; that's not your salary. That's the distribution.

So, we're going to set up a scenario. Let's say your firm is bringing in, in terms of revenue, $375,000 last year, and you're at 20% profit. Well, knowing that… and you weren't really focusing on any of this… let's say you are going to be conservative and shoot for $400,000 this year, and to bump the profit margin to 25%. That would be $100,000 in profit.

Well, we know that 60%, roughly… 60% could come to you and 40% needs to go to taxes. Alright, so if you could make that happen this, in the next year, year one, that's $60,000 that goes towards the million that you're wanting to generate from the firm and from the firm's profits.

Okay, the next year. Let's say you set a goal, when you were mapping this out, you think, “Okay, in terms of growth, let's go to $480,000 for the year.” So, from $400,000 to $480,000. “And we want to improve the profit margin to 31%.” Okay, with those numbers, 31% of $480,000 is $150,000. And then 60% of that you can pull.

This is napkin math, guys. No one send me emails for ‘why this isn't possible and that we need to set aside cash.’ Yes, I know. I know. I know. Can you just stick with me here for a little bit, so that you can figure out these future numbers and what they need to look like in order for you to realize your dreams that you have for yourself and your family, etc.? It's just an exercise.

Okay, going back to this. So, 60% of $150,000 is $90,000. So, for year one, we had $60K that we can pull. For year two, now we have $90K we could pull. And that's when we're doing $480,000 at 31% profit, and then we know we could take $90K. Should we choose to, we could take $90K.

The next year, let's say the growth you want to see, you want to go from $480K to $550,000. And in this particular year, you think, “Okay, I just want to hold that profit margin, let's just hold it right there at 31%.” So, 31% of $550,000 is $170,000. And that means 60% of the $170,000 is $102,000. Alright, so far, we have $60K for year one, $90K for year two, $102K for year three.

Now, you make a hire. In this next year, there's some strategy involved, and even though from your seat right here, right now, as you're thinking forward, you don't know exactly how this is all going to unfold. But you do know… and if you don't know, let me just be a voice of reason here… when you make a hire for a producer, let's say an attorney, and that hire is a $100,000 hire, they should be bringing in…

And this is your responsibility to set these expectations up front. This goes along with the last two podcasts I have… The expectation is that they bring in three times, at least. That's the bottom of what you are investing in them. So, you could make a real jump for your firm. You could go from $550,000 to $850,000 without working very hard. It's just making sure that you this team member has what they need and expectations are set correctly.

So, this year in particular, math jump, maybe. Okay, so I put it down as a jump from $550K to $800,000. In this next year $800,000, let's hold that profit margin of 31%, and that's $250,000 profit. 60% of $250,000 is $150,000. So, in year one, it was $60K. In year two, it’s $90K. In year three, you can take $102K. And in year four, it's $150K. That adds up to, roughly, just about $500,000. Okay, that's in four years. Good to know.

Alright, let's keep going. Now $800,000 is the year you just had, and we're thinking forward again. There is such a thing as a non-revenue growth year. That doesn't mean that your revenue won't grow at all, but it is more about turning your focus internally and getting your house in order. Sometimes when you grow pretty quickly. There's a lot that you see, in terms of opportunity that needs to be fixed, it needs to be tightened up.

Sometimes the systems that you did have, they break. They don't work well enough for the growth that you're experiencing. And so, a non-revenue growth year can be very strategic because if you could just get things in line, then it allows you, in the next year, you can really put your foot on the gas in a way that doesn't max out your systems and stress out your team and you.

So, a non-revenue growth year. Let's just put one of those in. Okay, so we're going to hold $800,000 again. And again, same profit margin. So, it's another $150,000. That's your five year. And then, we're going to go to year six, and say, “Well, now, let's grow.”

We're going to put in a million dollars at this point because the systems have been tightened up and because you have producers in place. Now we're going to bump the profit margin to 33%. So, if we can do 33% on a million dollars, then 60% of that is $198,000.

To recap; going back through what we've already mapped. Year one was $400,000 in revenue at 25% profit. Year two was $480,000 in revenue at 31% profit. Year three was $550,000 in revenue at 31% profit. Year four was $800,000 in revenue at 31% profit. Year five $800,000 in revenue at 31% profit again. Year six is $1 million at 33% profit.

That's what we've talked about, in terms of growth and the profit margins over the years, as we sort of map these out. And we incrementally improve these things in meaningful ways. And if we take 60% of the profit, then what we're up to at this point is $850,000.

So now, probably just one more year and we will be able to hit the million dollar mark of what's being able to be pulled from the business for you as the owner. This next year… Again, this is just playing around with numbers. You could do this and you can go back and change everything, if you want to play around even more.

The next one I put in is $1.1 million for the next year, and 33% profit margin. When we take 60% of the profit margin, that's $237,000 that can be pulled for distribution. That took seven years, and the total for that is almost $1.1 million; it's a little shy of that. So, seven years at, somewhere in the seventh year, you would be able to hit the million dollars.

Now, yes, it takes focus to grow in these ways. But this growth path that I've just outlined for you, is not insane. This is not something that people don't do and can't do. I meet people all the time that do this kind of growth, incrementally over time. And depending on where you're starting…

Let's say that you are starting in a different place, and you're making $150,000 currently. You do want to grow, but you're bogged down with everything and you have zero team; you have no help, you can't figure out how to make more, and you feel really stuck. Then all of this can sound daunting and pie-in-the-sky.

Well, do your own napkin math. If you want to grow over time, you may not know how, but it does not mean you cannot do it. You may not know how, but I'll tell you what, when you get clearer and clearer about what you want to shoot for, the pin in the map so to speak, then lining yourself up with the pin in the map is not so complicated.

But most people never line themselves up with anything because they will not put a pin in the map. They will not play around with these future numbers. They're too afraid, and they have all these excuses that come up on why it won't work. They don't know how to do it. I mean, since when has not knowing how to do something stopped you? If you are listening to this podcast, you can figure it out and you know you can.

The good news is you do not need to figure out your seven right now. You need to figure out year one. That's what you need to figure out. And when you get yourself there, then you need to figure out year two. And then you figure out year three. This, my friends, this is how I have watched people make a journey that's very similar to what I just mapped out for you.

And quite honestly, most people, they speed up more quickly than what I just mapped for you. Once you get into the $4-5-800,000, you don't just spin there. Unless you are unintentional and you don't really have the facts in the business. You don't understand the right levers to pull because you don't have visibility into things. Then yeah, you can stall out pretty easily.

But that doesn't happen with people we work with. You always have visibility. You always figure it out. You always know what needs to be done. It reveals itself to you. That may be hard to believe, but I really do want you guys to understand that that's true. Your next steps reveal themselves to you.

The further you go along, you have visibility for further out. Because you have more clarity, you have more experience under your belt, you understand how these things work together, it becomes easier and easier to see further out.

So, I'm asking you to play around with these numbers. It's important, because you start to get your brain used to dealing with the bigger numbers that you are not used to dealing with right now. You make your brain familiar with those. You play around. There are bigger swings of money happening. And it really is the way the math works as you grow.

And so, when you are thinking forward, this is why it's such a good mental exercise to play around with the numbers that you say you want. Okay, well go play around with those. See what it looks like. See how it stacks. And maybe you keep the same revenue levels, as you think forward year over year. But maybe, then you change the profit margins to be either more conservative, and then you swing it the other way, and you do less conservative, so that the profit margins are higher.

You play around with, what it would mean if you could do X? Then it means Y for you. If you could do Y, it means Z for you. And none of it is good or bad, it's just data. It's just numbers, and you are playing around so you have some sort of shape to what it's going to take for you to fulfill your dreams.

Because you built this firm that's doing really good work in the world, has a really great team that's serving your clients, and the firm is really doing a great job of serving your team, and you have freedom and space of more time and money. This is how it works.

The more you start to picture your future, and different versions of your future that all lead to you being able to realize your dreams, then it makes it all the more real and you see what you have to line yourself up with. And you know what you do then? You focus in on the year in front of you.

Alright guys, I think there are some of you who might be listening that think this is too pie-in-the-sky without a spreadsheet. But I’m telling you, I did this without spreadsheet for a very long time. It’s more about thinking forward. It's more about understanding the numbers. But maybe more importantly, getting familiar with the numbers, and the relationship between different numbers. If you can understand that, it becomes fun to play around with this stuff. I always bring people back.

So, we do this future work, we think through it, we get familiar with the numbers, and it helps us realize how long it's going to take us, even within a range of years, right? It's not going to be perfect, but you will have a sense of it. And then, once we identify some of that stuff, I always bring people back to what is in front of you now. How can you get started on this journey now? What needs to happen in terms of revenue this year?

What needs to happen in terms of profit margin this year? What needs to happen in terms of hiring a team this year? And we make good decisions. So, you set goals, and you set priorities for the near term so that it puts you on track with the future that you mapped out already.

I hope this was helpful in some way. Have fun with this. Please, no one take this too seriously and sit down and get frustrated. Play. Play with this. The more lighthearted you are about this mapping of your future, and different paths and routes that you could take, and different ways of looking at this, the more fun it is to think about your future.

And when you are in that state, it's easier to then get excited about what's in front of you here that puts you want on a path for the future that you've have been dreaming about.

Alright, everybody, have a wonderful week. I'll see you here next Tuesday.

Hey, you may not know this, but there's a free guide for a process I teach called Monday Map/Friday Wrap. If you go to VelocityWork.com, it's all yours. It's about how to plan your time and honor your plans. So, that week over week, more work that moves the needle is getting done in less time. Go to VelocityWork.com to get your free copy.

Thank you for listening to The Law Firm Owner Podcast. If you're ready to get clearer on your vision, data, and mindset, then head over to VelocityWork.com where you can plug in to Quarterly Strategic Planning, with accountability and coaching in between. This is the work that creates Velocity.