Law Firm Growth with a Virtual CFO
By working with one of our virtual CFOs, this law firm owner was able to increase revenue from $1.4M to over $4M in five years with an increase in profit margin of over 15% over the same time period! The owner had experienced a very difficult partnership breakup and started a new firm independently when we first started working together. Through collaborative efforts, we worked to regain control and secure financial transparency of the business to achieve the law firm growth desired.
From 3% to 18% Profit Margin in 5 Years
In the first year of working together, we were able to take the profit margin of the law firm from 3% to 12%. This growth continued over the course of the past five years to ultimately reach 18% in 2019. We did this by establishing processes and systems to give the owner a better sense of performance and provided vCFO services to help guide management decisions. During that same time period, they experienced almost 200% growth in revenue. This was accomplished through process implementation, cash flow and budget discussions, definition and management of KPIs, and regular meetings with their PJS & Co. CPAs vCFO.
Putting the owner back in control
When we began working together, the company was using an excel spreadsheet as an accounting system to list out income and expenses. This was only used when it came time to do the tax return at year-end. The owner had no sense of financial control or performance feedback because no other means of tracking income and expenses on an ongoing basis had been established.
We began working with the company to remedy this situation and get them on QuickBooks so we could have a real-time reporting system with meaningful information produced on a regular basis. There were scheduling challenges due to the owner’s busy schedule as an attorney, and a tight financial situation caused by lingering issues from the prior partnership, so we recommended a 3 phase approach to get accurate financials and improve the reporting.
- Phase 1: We first put the books on QuickBooks on a historical/after-the-fact cash basis so we could have the income and expenses fully tracked and reconciled for preparation of the tax return.
- Phase 2: We moved the bookkeeping to an accrual basis in QuickBooks so Work-In-Process, Receivables and Payables could be tracked providing better management reporting and KPIs (Key Performance Indicators).
- Phase 3: We integrated QuickBooks into her industry-specific time & billing software in order to continue moving to a more real-time reporting system. Additionally, during this process, we assisted in cleaning up the time & billing software data so that accurate financial and management reports could be produced (employee performance and utilization reports, work-in-process reports, sales reports, and receivable reports) and utilized in managing the company with accurate data.
Tackling Cash Flow During Law Firm Growth
During our three-phase process to implement better controls, the client had been growing tremendously and was bringing in just under $3M annually. This was great, but the firm was also experiencing severe cash flow shortages. Once we were able to complete phase 3, it was discovered that the Accounts Receivable balances were not being collected timely and there were over $300K in receivables that were beyond 90 days collection. Once we had the controls in place to see the problem clearly, we assisted the client in establishing stronger accounts receivable policies and collection procedures to turn this around.
Proactive Management & Continued Growth for the Law Firm
The firm now has real-time reporting on an accrual basis to manage their business proactively. They have regular reporting and meetings with a vCFO to discuss KPIs and can make informed decisions quickly to pivot their business in the right direction as needed. They also have their cash flow under control and continue to grow and become more profitable with this new data to guide them.
$400k to $1.5M in 2 years: Business Growth with a Virtual CFO
When the owner of a construction management consulting firm came to us, he had a clear vision of what he wanted to achieve. He knew he needed the right team in place to establish a strategy in order to organize and execute to achieve his goals. He came to us in search of an experienced tax advisor to help him navigate the business growth for which he was aiming. Upon becoming a client of PJS & Co. CPAs, this relationship quickly grew into a more holistic advisory role where we helped him create the roadmap for his overall business strategy.
When we started working with the company in 2013, their revenue was at about $400k. Within one year, by integrating strategic planning in conjunction with PJS & Co. CPAs, the owner was able to grow the company a half-million dollars and increase profits $280k, translating to a 32% profit margin by 2014. By 2015, revenue had grown to $1.5M with a profit margin of 40%. That’s an increase in profit margin up from 18% to 40% in just 2 years!
How the Owner Partnered His Industry Experience With the Entrepreneurial Spirit
Business growth and profitability don’t come easily to many entrepreneurs. You have to be in the right mindset and many business owners start a business as a technician, rather than as a business owner. The owner of this construction management consulting firm nurtured his mindset as an entrepreneur and had cultivated his ability to visualize business growth alongside his in-depth industry knowledge. This approach, along with good financial information, market knowledge and attentiveness to business fundamentals, led him to this success and continues to serve him well.
Integrating Advisors Into His Plan
In line with his entrepreneurial instinct, the owner gathered advisors who had the experience to work together to help him achieve his vision. Our firm was able to partner with him so that when he had a question in the business and he wanted to get feedback, we were a phone call or email away. We met regularly, at least once per month, to keep operations running smoothly and discuss updates and any action items necessary to continue moving forward.
Board meetings were conducted once per year and his assigned vCFO was invited as his trusted business advisor so she could sit in on discussions about where he was going with business as well as get and give feedback. The vCFO was able to work with other professionals on his team to ensure there was a united front and act as a business advisor, knowing the big picture.
Implementation of a Business Growth Plan & Ongoing Advisory
The implementation of an actionable business growth plan based on his vision was imperative to the growth of his company. This allowed the owner and his vCFO to track successes and failures and accurately measure progress. Regular meetings allowed his vCFO to provide monthly financial statements, review financials, and discuss how individual jobs were performing.
The vCFO worked with the owner to establish KPIs (Key Performance Indicators) to make financial decisions and accurately depict job profitability. She was also involved in budgeting and strategic planning for the business and when it was time to increase the size of the team, she assisted in operations, building up administrative infrastructure. By establishing this structure, the owner gained back valuable time and was able to delegate while continuing to grow the business and spend time with his family.
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