In this podcast episode I had an enlightening conversation with Danielle Hendon, owner of 4 Corners CFO about law firm finances and everything you need to know about hiring a fractional Chief Financial Officer (CFO).
Danielle Hendon: From Music Major to Accounting Guru
Danielle shared her intriguing background story with us. She initially pursued a music major in college, but later switched to accounting after realizing she couldn't afford a career in music. She found joy in working with numbers and the intricate details of accounting. After completing her master's in accounting, she worked in public accounting and then landed a job at an oil and gas company in Houston. However, the company went through bankruptcy and eventually closed due to the pandemic. This unfortunate event presented Danielle with an opportunity to start her own business and provide fractional CFO services to small business owners like you.
The Impact of Big Business Finance on Small Businesses
Danielle's experience in big business finance and accounting allows her to bring the same level of financial analysis to entrepreneurs like you. She helps business owners increase their personal livelihoods and make confident financial decisions.
When to Hire a Fractional CFO
One of the main topics we discussed was the ideal stage of business to consider hiring a fractional CFO. Danielle explained that it's never too early to have someone involved in your business financially, starting with a bookkeeper. However, when your law firm reaches around $100,000 in revenue and is looking to grow and scale, it's a good time to start considering a fractional CFO. This is especially important if you want to build a team and eventually step back from the business.
The Importance of Profit Margins
Danielle also explained the concept of profit margins and how they are calculated. She distinguishes between gross profit and net profit, with a focus on gross profit for service providers like attorneys. She emphasizes the importance of including the cost of people in the gross profit calculation, aiming for a 50% split between the cost of people and revenue. For attorneys, she suggests aiming for a higher gross profit margin, closer to 60 or 70%, considering the billable time of attorneys.
Profit Allocation and the Power of Paying Yourself First
We discussed Profit First and the importance of the money mindset of paying yourself first.
Pricing Models in the Legal Industry
We also discussed different pricing models in the legal industry. Estate planning and criminal law often use flat fees, while family law tends to be billed hourly. Offering services in phases can help lower the barrier to entry for clients in family law. It's also crucial to focus your marketing efforts on the most profitable services. By identifying the most profitable item and targeting the right demographic, your law firm can drive more business and increase profitability.
The Significance of Cash Flow
Budgets don't have to be complicated and can be based on past numbers and future projections. We highlighted the significance of cash flow and the need to anticipate cash shortages to avoid financial difficulties in your law firm.
[00:00] Introduction to Danielle Hendon
[04:35] Transitioning from Corporate to Small Business
Danielle Hendon shares her personal journey from working in corporate finance to starting her own CFO firm for small business owners.
[13:56] When to Consider a Fractional CFO
Discussion on when it is appropriate for businesses to consider hiring a fractional CFO based on revenue and growth goals.
[19:09] Using Profit First Mindset
The importance of paying yourself first and the value of the Profit First mindset in building a sustainable business.
[22:52] Setting Profit Margins
Explanation of the difference between gross profit and net profit. Discussion on the ideal gross profit margin for service providers and the range of net profit depending on business goals.
[28:49] Three Profit Levers
Explanation of the three profit levers: raising prices, cutting costs, and focusing on the most profitable product or service. Discussion on how to analyze revenue, costs, and profit margins to identify areas for improvement.
[42:44] Budgeting and Cash Flow for Business Owners
Explanation of how to approach budgeting and cash flow analysis, including using P&L statements, setting realistic goals, and considering profit levers.
[41:55] Danielle’s Parting Piece of Advice
Check out our Profit with Law YouTube channel!
Learn more about the Profit with Law Elite Coaching Program here.
Danielle is the founder and owner of 4 Corners CFO, a firm offering financial advisory services to small business owners on a scale that fits their company and budget. Coupling her decade of experience in corporate finance and accounting with her passion for small business owners, Danielle brings the benefit of “big business” financial analysis to entrepreneurs. Now, instead of helping corporations increase share price, Danielle gets to help business owners increase their personal livelihoods so they can leave a legacy and lasting impact on their community.
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