Financially Legal

How should lawyers think about money? The experts weigh in

Posted by Dan Lear on August 21, 2020
Dan Lear

Listeners and readers have been pretty interested in our recent podcast on how lawyers talk to clients about money and our recent blog post about how one client (and Gravity Legal team member) wishes lawyers talked to them about money. So, we decided to ask the experts how lawyers should talk to clients about money.

We talked to three different accounting and finance professionals who work largely or exclusively with lawyers and law firms for their money and finance tips. And they delivered.

Devon Thurtle Anderson from Skepsis Technologies went right at the theme of our “How to talk to clients about money” and laid down some sweet wisdom. (Did we mention Devon’s also a practicing attorney? Could you tell?):

  • Money discussions should happen early . . . . The sooner the attorney brings up money in the initial conversation, the longer the client has to mentally process the payment hurdle, mentally budget for your fees, and overall "settle in" to the fact that their decision to proceed with you is going to have a financial cost (although the value of prevention and potentially an ultimate recovery down the road will, ideally, far outweigh that cost).

  • . . . and often. The fact that you expect payment for your services is not a taboo subject, and you can help your client get in the habit of paying you by making a habit yourself of discussing payment. In some cases, it's appropriate to discuss payment in every conversation you have with the client. Track your budget against your initial estimates, and don't be shy about letting your client know at least once each month whether the project's legal fees are on budget, and why. If the fees are not on budget, explain how and why the client should adjust their expectations, and how some of those fees might be made up or recovered down the road. Let clients know you'll be billing them for out-of-pocket expenses with a very short and matter-of-fact email before incurring the expense. Thank them for their most recent payment. While confidentiality, trust, and sage advice are cornerstones of a healthy attorney-client relationship, those can only exist when payment is a non-issue, so be just as open and honest with your client about your fees as you would about any other aspect of the representation.

  • They can smell your fear. Humans are naturally empathetic, and when you're uncomfortable talking about money, your clients can become uncomfortable, too. Money is a fact of the representation, just like any other fact of the case. So, it's important you discuss money using words and tone that are no different from other case facts and issues. Approach the subject with emotional detachment, and it will make the conversation much more comfortable for both you and your client. Also approach it with confidence, and that will in turn help your clients to have confidence in you.

  • Practice makes perfect. These tips sound simple in theory, but in reality, they take practice. "Fake it 'til you make it" and "practice makes perfect" are two great mantras to keep in mind that will help you overcome your own discomfort in talking about money with clients. In time, you'll find that the money part of client conversations will flow more naturally (although don't feel bad if it never becomes as natural as lawyering itself), leading to client payments flowing in more naturally as well.

For Paul Carlson from Law Firm Velocity, a lawyer or firm needs to keep their own financial house in order first, before thinking about the client:

  • Hourly based firms should review their client balances on a weekly basis.
  • Your client balance = Funds in Trust (IOLTA) – work in progress (work completed but not yet billed) – accounts receivable (amount of outstanding bills).
  • Set thresholds for requesting additional IOLTA funds or generating a mid-month invoice. Stop work on matters with high client balances that meet those thresholds.

Chelsea Williams from Core Solutions Group shared her top three rules about money for lawyers (pro tip: catch Chelsea’s awesome Financially Legal episode to hear more of her rules and soak in more of her wisdom):

  • Rule #1: Stop avoiding the numbers - You can't manage what you can't see. Every lawyers starts their firm for different reasons, but I'm willing to bet money was one of them.
  • Rule #2: Don't just look at your financials, analyze them. Having financials and using financials are two different things.
  • Rule #3: For the love of law, start holding yourself to a budget. Your first budget doesn't have to be perfect, just a starting point. The golden nuggets come each month when you compare the budget to what actually happens and fine-tune your projections.

Money doesn’t necessarily make the world go around but earning it, managing it, and deploying it effectively can have a huge impact on the success of a law firm - to say nothing of the principals’ stress levels. Be thoughtful about how you think, talk, and use money. And if all else fails, don't be afraid to get some expert help.

See how we can help reduce the cost and administrative burden of accepting payments for your firm.
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Decoding the Finance of Law

Financially Legal is a twice-monthly podcast on the finance and economics of entrepreneurial law firms and lawyering. Host, Dan Lear, talks with law firm leaders, academics, business professionals (both in and outside of law) and thought leaders to provide compelling and provocative content at the intersection of finance, economics, and law.

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