#234: Busy Doesn’t Mean You’re Financially Secure

[00:00:55] Welcome to Life & Law. This is your host, Heather Moulder, and today we are talking about something that I occasionally see come up. I saw this several times last fall. So it has been on my agenda to address on the podcast, and I wanted to get in here today because I don’t want this to happen anymore. I don’t want this to happen to you.

So how is it you can be super busy, have tons of work, and yet be in the red and financially insecure?

Let me just note a couple of things.

It’s not about being irresponsible. It’s about an illusion. An illusion that’s really easy to hold, that can be dangerous. And it happens if you’re not measuring the right things. Now, we talked recently about how to measure your ROI on business development.

This is kind of similar, but it’s a little bit different.

[00:01:53] It’s how to measure whether you are financially stable when you’re busy – and the KPIs that you need to be looking at.

Why Busy Isn’t The Same Thing As Being Financially Secure

So here’s why busy can feel like stability, yet not be.

Being busy gives psychological safety, a sense of control. It’s proof that whatever you’re doing is working. You’re needed. And in law especially, this is very tempting to go with. The assumption is that it means I’m stable. It means I’m making money. Well, you’re probably making some money, but are you making enough with what you’re busy with?

Work volume is often mistaken for business health, and that is not. They’re not the same things. It’s just not the case.

The problem is that the activity is very visible, but financial stability is not. You have to look under the hood.

What To Pay Attention To (Even When You’re Busy)

So what might you be missing? What happens when you’re not tracking the right things?

Matter Profitability (Pricing, Write-Downs, Discounts, etc.)

Well, you don’t know what is and is not profitable. You might be busy on work that’s at a steep discount or a lot of work that’s being written down because you have the wrong set of clients for the type of, you know, billing structure that you have.

Spending (& The ROI of Your Spend)

You don’t know how much you’re spending.

Employees

That new worker, they might be costing you more than they’re bringing in. And let me just say, typically they are for a time, right? So it takes time to integrate somebody into the practice. You’re going to have to pay them regardless of the fact that they’re not bringing much in at the beginning, and they’re bringing almost nothing in at first. And even when they start to bill, it takes time to get paid for their work.

And they’re not going to be as efficient, they’re not going to be doing the work the way you want them to. You have training to do. There are things to address.

It takes six to 12 months to fully integrate people and to be really, really profitable. So you have to go in with a game plan when you’re hiring. And I do see this a lot where people just assume I’m getting busy, it’s time to hire and they don’t do the financial analysis necessary to determine if they can afford the person that they want to hire.

There are ways around that, by the way. You can hire part-time, you can get contract help, or you can be careful about what you’re doing. You might have extra savings, you might have money on the side that you utilize and know, okay, I’ve got six months of leeway, I need to get them to profitability. But you can’t know that if you’re not really looking at your numbers.

This is how you end up busy, yet unable to pay the bills or your salaries at some point, because you have a false sense of confidence by focusing on being busy without measuring your KPIs.

So you need a strategy, and you need to understand those KPIs.

Tech & Other Expenses for Doing Business

What are my expenses? Where is the money going? How much of it is going? What are the hard costs? No matter what, should I be investing in this tech? Is it going to save enough efficiency and time to be worth it? These are the kinds of things we need to be looking at.

What am I actually collecting on, what I’m billing, What’s being written down? What are the rates?

A Real-Life Example

Otherwise, you can get caught in a situation where it just sideswipes you. You didn’t realize it was coming, and you’re so in the red that you’re pretty much done, you’re out of business, you can’t pay the bills, you can’t pay the salaries. You can’t pay yourself.

And I know this might sound crazy to some people, but I have seen it and I’ve seen it recently.

So for example, somebody came to me. Several somebody’s came to me and I heard this. I need you. I need you now. I’m ready to hire you.

I need to go figure out a couple things, you know, make sure my finances are in order so that I can pay you. But I plan to get started within the next seven to ten days. Okay, great. A week later:

I can’t afford you. And this is a real can’t afford, like I have no money. I’m in the red. I don’t know where I’m going to get money from to pay my salaries next week. This isn’t going to work out.

This is how this happens.

This is why tracking those KPIs are non-negotiable.

You Are A Business Owner (and You Can Figure Things Out)

And no, it doesn’t sound fun. And often we like to assume that things will work out. We also have this false attitude – we lawyers – of I’m not a business owner, I’m not a business person. I’m not an accountant, I’m not a finance major.

You don’t have to be!

And we worry about, but if I track them, it creates a sense of stress because we know where we really are.

[00:06:43] But it gives you the reality of what’s going on. It prevents self-deception. And guess what? It gives you early warning signs that you get to do something about. It gives you stability and a business you actually understand.

Don’t let being busy convince you that you’re financially secure and stable. It doesn’t necessarily mean that.

Make sure you’re tracking everything from the beginning. You’re paying attention to what you’re spending, what you’re taking in, how much you’re taking in. And you’re looking at them regularly, monthly (at least), so that you can plan appropriately, so that you can make the right decisions for your business.

This is going to empower you to run a real business that you actually understand.

That is it for today. We will be back next week. Bye for now.