EPISODE 385 – Maximizing Law Firm Success: Critical Financial Strategies From John Scott

In this conversation, we are joined by John Scott, the Head of Legal VCFO at Summit Virtual CFO by Anders and a Partner in Tax at Anders CPAs + Advisors. With a unique understanding of the financial and accounting issues that law firms face today, his insight is aimed at helping legal professionals reach their highest potential. What sets his approach apart? Tune in now to see for yourself!

Dive in to explore:

• Why making decisions based on data is so important.
• Factors that can inhibit the growth of law firms.
• How to price your work correctly.
• What your firm’s financial margins should be.

Whether you are striving to optimize your firm’s margins or seeking solutions to financial challenges, this podcast is tailor-made for you. Drawing from decades of experience, John sits down to share his financial insights and critical thinking strategies – specifically designed to address the unique needs of legal practices across the country…

To learn more about John and his work with Anders, click here now!

Richard Jacobs: Hello. This is Richard Jacobs with the secrets of attorney Marketing podcast. I guess he is John Scott. He’s a partner at Anders CPA and advisors. We’re going to talk about the law firms that they work with as CPAs, the different practice areas and some of the nuances they see. So, I think this would be great information for attorneys listening, regardless of your practice area, on some of the particulars that may help you. So, welcome John.

John Scott: Thank you, Richard. Great to be here.

Richard Jacobs: Just give a little bit about background on yourself, and then we’ll talk about the premise of Anders.

John Scott: Sure, so I started at Anders in early 90s, and Anders was a single office, mid-sized local firm that got most, if not all of its referrals from attorneys. So, even from an early age in my career, I knew and met a lot of attorneys and I was very fortunate early on to meet a very entrepreneurial attorney, who took his firm from one metropolitan area, and by paying attention to his data and what worked and what didn’t work. He expanded his practice to almost every state across the country, and he did it by focusing and making decisions based on data. So, in the 17 years I worked with him. I watched him make those decisions, participated in every one of his finance committee meetings, and really earned a master’s degree in how to run a law firm. So, from that, I just kind of morphed into serving law firm.

Richard Jacobs: That’s great. So, we’ll jump right in the firms that you service. Do you deal with solos, or is it always bigger firms of multiple attorneys?

John Scott: I do have some law firms that have 60 partners plus, none of the mega big firms, but most of our firms are solo practitioners, up to maybe 30 attorneys or 30 billers, and they spread the gamut between Pi firms that do contingent fee work only to hourly business to business firms, and even some firms that do fixed fee and subscription.

Richard Jacobs: Maybe we could start with the fixed fee ones, because at Speakeasy, the company I’m at, we work with a lot of small firms that are in fixed fee, criminal defense, family law, etc. So, what are some of the things that you see these fixed fee firms doing that either inhibits their growth or traps them in this low end, low earning cycle, like, how do they start to make the right decisions? What does that look like?

John Scott: I’m glad you asked this question, because I just had a debate with a subscription-based attorney, who I went up to after his presentation, and I said, hey, do you track time? And he said, oh, no, of course, I don’t, that’s why I do fixed fee work. He goes I don’t want to track time and I think the inhibiting thing for those firms that do fix the work and not tracking time is they don’t know if they’re pricing things correctly, because they’re not job costs. It’s not going to be rate times hour, but you have to know if let’s say you’re doing lease reviews, and if you don’t track your time, time some sort of standard rate, you don’t know if you’re pricing those correctly or not. Now, in a subscription or fix the environment, you realize that some things you’re going to go over on, some things you’re going to be under on, but on that trend line, if you’re pricing it correctly, you’re going to go right up that trend line, and it’s going to be great. But if you don’t know how efficient you are at doing that fixed fee work, then you can’t be pricing it correctly and I think the other thing that’s important in a fixed fee environment is standardizing your processes so that you can be as efficient as possible on those 60 projects.

Richard Jacobs: What I was going to say, right? If you’re not systematized and automated, let’s say you do DUI, and there’s always a particular emotion that has to be filed in these types of cases or, like, 80% of the time these certain filings have to be done. If you’re able to make that into a template, and let’s say you’re assistant knows, okay, just ask me these five questions, and they can do the rest and preparing that motion used to take an hour and a half. Now, it takes five minutes that could open you up to being able to maybe have more competitive rates or earning greater margin on the existing cases you take exactly.

John Scott: We call that leverage, and the fact that you can push that down to a non-attorney, get the relevant information you need, and then make things more efficient, you’re able to do more. If you think about it, let’s say you’re displaced from your middle management position at a Fortune 1000 Company, and you go and you buy a Subway Franchise, well, that’s great. You just bought yourself a job, but if you bought 10 of those and you had management in place running them, then you really have something that can return money on your investment. It’s the same thing in professional service practice. If we can standardize the process and push that work down to a lower level, we can do so much more work and realize more net income and cash flow.

Richard Jacobs: What is the from you see from a CPA perspective, a profit perspective, what should be the margin for various fixed fee law firms? You know, what range should they look at?

John Scott: Sure, it really depends on the size of your practice and your overhead. I’ve seen it as high as 50% as low as 15%. I think you want to be between 25 and 30% and if you get too high, that tells me that you’re not investing in people and in technology, and so you’re not going to be able to grow much beyond where you are that and now and then, the larger you get as a firm, that percentage is going to start going down. So, the firm that only makes 20% might be okay with that, because it’s 20% of a much larger number, whereas the firm that’s making 50% and as a sole practitioner doesn’t have a whole lot of overhead. They really can’t grow beyond what their efforts are.

Richard Jacobs: Well, I was going to say, if you don’t even know your margins, that’s a problem. If you’re starting at not very high margin, and you know the margin is just going to go down, you’re it sounds like you as the attorney, may not be ready to grow. You may want to grow, but first you have to get your house in order and systematize your processes to fatten your margin as much as possible so it can absorb these extra costs if you want to grow.

John Scott: I agree. You have to figure out how to do what you do very efficiently and then you have to take the leap and say, okay, I’m going to hire a paraprofessional, paralegal or an assistant to push a lot of this work down. So, remember, these systems and processes go from intake to the end of the client matter, and you have to map all that out and work on each piece so there’s no bottlenecks in the process.

Richard Jacobs: Again, a healthy solo, maybe as high as 40 to 50% or is that okay and then, I don’t know if you know this closely, but a two-attorney firm or a true solo and then the solo takes on a paralegal. How much should the margins go down before it’s up? We’re not doing something right, or we’re missing something.

John Scott: I can’t tell you a specific amount. I can tell you that if, as a solo you were at 50% and you hire a paralegal, you got to take a dip until you fill up that paralegals time and even if you go down to, let’s say, 45% you’re going to be able to do so much more. So, it’s 45% of a larger revenue number, you’ve got to be in a better position.

Richard Jacobs: What have you seen is responsible for the margin of these fixed fee firms? Is it just the lawyers time they don’t have enough time to work on more cases or do more intakes? Or is it like or it’s like what except that margin? Or what constitutes it?

John Scott: I think if we go back to its pricing, the fixed fee pricing has to be set at a level that allows us to make a profit, allows us to generate free cash flow for the owner and again, if I’m not tracking time, some sort of standard rate, I don’t know how to price that. It’s just a gut feel and that’s what so many fixed fee firms do, is use their gut, and then they look at their margin and say, well, I’m not happy. They need to increase their fixed fee.

Richard Jacobs: Amongst the practice areas, where do you see that the low fee pressure is greatest? I would guess, probably maybe bankruptcy, because fees are fixed and they’re very low, and it’s very, very high volume or traffic tickets like, what practice areas do you see in terms of margin than others?

John Scott: I think both of those that you cited are, they tend to be on the lower end of the fees, but can be very lucrative if you really get your processes down. Just about anything that’s repetitive and very similar from matter to matter, can be done in a fixed fee environment. It’s just a function of refining those processes and setting the price at the right level.

Richard Jacobs: Now, with some of the other practice areas, they’re doing business to business. It’s more complex, it’s not as cookie cutter, maybe even PI because of the contingency, I would think you have to be much more careful to price it properly, because otherwise you can spend all this time and make nothing or lose money.

John Scott: If you’re in an hourly environment, in a business to business, that’s just a function of having clients that have a need, and then meeting that need, and then having enough capacity to charge time to meet those needs and then send out bills and collect revenue. The advantage of a subscription or fixed fee is that money’s coming in on a subscription basis is coming in at least monthly and you can budget and forecast that in an hourly rate environment. You can still do that forecasting, but it’s not as immediate, and it’s not necessarily monthly, but I’m charging time on a daily basis. I’m sending out bills on a monthly basis, and then, theoretically, within my terms, within 30 days, I would have cash flow coming in in an hourly rate environment, in the contingent environment, that’s completely different. I could go months without having any cash flow because there is no time charging. It’s a function of I get a client matter. I take it up to either settlement or going to court and being adjudicated, and at some point, I get some cash in the door, not all of which is mine. I have to reimburse my expenses, pay the client, and then the net comes to the firm. But in a contingency environment, it’s a little more difficult to predict cash flow and do a forecast, but it is doable, especially if you, as you build your flywheel at these cases, they all have values, and depending on where they are in the life cycle of a client, matter, will depend on how far out that expected cash flow is going to come into the firm. So, it’s more difficult than a contingent PI environment to predict cash flow, but if you take the time to build your cases in your case management system and define milestones, so intake being the first one all the way up to a court date is assigned. I know somewhere around that court date, I’m either going to settle or the case will be adjudicated, and sometime right after that, I will get some cash flow. So, it depends on the type of firm you are and the type of bill you do, but predicting cash flow is going to be the lifeblood of whether or not you have a good margin.

Richard Jacobs: I mean, if it’s in your new trust account and you’re not looking at any of this, you’re not predicting. You have no milestones. You’re always going to be tempted to take from it, especially if you’re in need, and then you still got to do the legal work and you don’t want to run into trouble if you take too much, and then something happens with the case. We need to get more, or the client just stops paying you and you can’t get out of the case you’re stuck in it. So, I can see why this is very important to gage this.

John Scott: I want to make note, I’m sure you’re aware that that client trust money is not there, so can’t really take that until they’ve earned it, and in an outward rate environment, they earn it by submitting a bill, having the client approved, then they can move money from trust to general and it’s earned in a contingent fee environment suddenly comes in from a case, reimburse firm expenses that were expended on behalf of the case, send the client their piece of the money, and we’ve earned the remainder. So, the only thing the trust account can tell you is how healthy our retainer base is in in a firm. It can tell you future cash flows, but until I earn that money, it’s not the firm’s.

Richard Jacobs: I had heard anecdotally from speaking to a bunch of attorneys that COVID really caused problems, because some of them built up large amounts in their trust account and the court dates were pushed out, things were delayed, and then they were left in a situation where things opened up. They had so much legal work to do in order to be able to pull on that trust money, but now they also had to acquire new clients too, so it was a big conundrum to them.

John Scott: I can see that, because for a while they couldn’t really do their job because the courts weren’t open, and then the courts opened up, and that’s all they could do, was go back and do the work that they didn’t get to, but at the same time, you have to keep that flywheel full of potential matters and if we talk about that, if you have a five-person firm, five billers, and they’re working at 80% capacity, so they do have, in the aggregate, one full-time equivalent 20% each times five of capacity, and if you look at your close rate. So, in other words, I have 10-client phone calls that want to hire us, but only half of them hire us. Whatever my capacity is, if I have a 50% close rate, I need twice the pipeline of potential new work to fill that capacity, because I’m only going to close half of it. So, paying attention to when we talked about building out processes for the types of matters that we take from intake to close, we also need to pay attention to where did those calls come from, and what was our close rate on those calls? Not just globally, what was our close rate, but maybe there’s someone in the office that does a better job of closing a new client and getting them to hire us, then we want to focus that work on them, or if somebody’s lacking in that area of with, we’ll say setting the hook on a new client. Maybe we can train them up so that they do a better job in the future of filling the capacity that the firm has.

Richard Jacobs: I mean, it doesn’t seem to be a weird question, but why you guys so proactive with attorneys? It seems like, it’s nothing against you, but when a CPA is involved, it’s like, here come the bean counters, and they have no understanding traditionally, not you, but most of them have no understanding of the business, whatever business they’re doing the taxes for, and it’s all retroactive. There’s no planning. There are no systems how come you guys are on to all this stuff?

John Scott: I totally agree with you there that historically, accounting firms have not been proactive, and many still aren’t and I’m going to get back to that in a second. We love working with attorneys and speaking to them about financials, because most of them did not go to law school to get training in accounting or finance and they’re very cerebral people. They’re very logical people, but when it comes to running their business, they’re just not very good at it. Now, when we talk about accounting firms historically, accounting firms, they are historical. They look backward and they’re reactive and not proactive. It’s a lot like when your grandfather took his family on a vacation. The night before, he piled everyone in the station wagon, he pulled out a 10-year-old Atlas, and he made some notes, and the next morning, off he went, the only thing he could do is react to what happened in front of him. If there was an accident that shut down the highway, he was stuck, and then our parents had it a little better. They had AAA Triptychs so they knew that on the way to Florida through Atlanta, there was construction, and AAA would give them a little work around to keep them on path. Today, we want to do in accounting is be advisory and forward looking. We have ways in Google Maps and along the way, when you’re using one of those apps, it’ll tell you two miles ahead, there’s a car stall and the right traffic is slowing. There’s construction up ahead. Here’s a workaround to keep you on path. We want to do that same thing in accounting. We want to be proactive, do forecasts and align those forecasts with the goals of the law firm, so that in April, if we’re falling behind our goals and we’re not going to hit our annual goal. What levers can we pull? What adjustments can we make to stay on path? Just like Google Maps and ways we want to be proactive, have some workarounds, so that we can still get to our end goals. That journey, that destination that we’re trying to take as a firm we want to get there or exceed our expectation.

Richard Jacobs: That’s good that you guys have you employ all these things. What reaction do you get from attorneys? Are they surprised? Are they happy? Do they kind of grip their P&L tighter and say, leave me alone, and they’re uncomfortable with this? Like, what’s it like to work with them at first?

John Scott: It’s all over the board. The ones that say, oh, I’ve got a CPA. They’re not going to hire us, and I’m fine with that. A lot of attorneys are forward looking, and they do realize they need some help. Sometimes they’re not the roadblock, but rather the person, who’s been doing the accounting and the tracking internally. It’s usually an office manager that’s been with them a long time, in addition to the holiday party, the HR negotiating with the copier vendor. They’re also doing the accounting, and they’re doing it in arrears, and they’re not doing it in a timely manner that, on which, the owners of the law firm could make decisions and they’re kind of the roadblocks because they don’t want to let go of that. But in reality, what we can show those folks that are doing that is, hey, you’re still going to be involved. You’re still going to be key to this, but we’re going to do this on a timely basis so that we always know our cash position, that we can use data to make decisions to achieve the ownership goals, and your life’s going to be completely better. So, the roadblock to us is typically the person on the inside or the outside advisor, who’s currently handling things and thinking that being reactive and historical is okay, and it’s not. In today’s environment, we have to do forecast and look forward.

Richard Jacobs: Like in my own business, I use a cash flow calendar so I can look ahead one to two months and see up are we going to run into any trouble, any low spots, and I could adjust accordingly. Maybe go on a payment plan with this vendor or, if I can fix my receivables, then I’ll be able to do this or that, so that kind of thing. So, that’s what it helps me to do, to be proactive because I haven’t found a great EPA like you that looks ahead. I want them to, but the struggle. So, it’s really cool you guys do that.

John Scott: It is a struggle, and I’m so glad that you do that because you can see that, hey, in two months, I got a problem. unless I can get XYZ to pay me, or I know I was going to pay this off, maybe I can pay it off over three months and not have to borrow a line of credit. It or put money in yourself to get over that rough patch.

Richard Jacobs: What’s it like dealing with receivables that attorneys have? I would think that my experience, what I’ve seen there again, they’re really not good at collecting. Sometimes, maybe it’s a delicate type situation. If you married the progress of someone’s case to the milestone to asking for money, right? When a positive milestone is achieved, you’re probably likely more to get it. But again, what can attorneys do in terms of receivables to keep beating them down so that they don’t become a huge amount that just kills them?

John Scott: I think one thing is just good billing hygiene. In other words, bill and collect on a regular cadence, and when people fall outside your billing and collection terms, then you have to say something right away and you’re right. People are reluctant to call a client, who hasn’t paid within the 30 days, but they need to do that. The other thing is, the US Mail is dreadful these days. I’m not sure why, but I used to be able to mail something across the state or two or three states away in a day, and now I can’t mail something in my city. It might not get there in three weeks. So, emailing bills is a really good thing and I recently had a client that was emailing bills, but they weren’t checking to see if the bills were being opened, and so the bill would get emailed. 30 days later, there’d be no payment. They would check to see that. Oh, they never opened the bill. So now we instituted a policy that a couple of days after the bills get emailed, an admin goes to see that they got opened and if they haven’t, they make a phone call and say, we just emailed you a bill two days ago. You haven’t opened it. We’re going to do it again. Please open the bill and put it into your accounts payable department. So, emailing bills and then ensuring that clients adhere to your payment terms, because the once, the first time you let a client stray from your terms, you’re essentially saying to them, hey, I’m going to expand my terms to what you want and I’m going to reward this bad behavior by not saying anything. So, you need to train your clients to be responsive good a client.

Richard Jacobs: What about carrot and stick? So, let’s say I’ve got someone on a payment plan. It’s 500 a month. It’s doing the first why can’t I say to them, hey, if you get the payment in earlier than the first, take 25 bucks off on me as a thank you. If it’s later than this amount, then obviously the late fee and stuff, but I just want to incentivize you, and again, thank you for what you’ve done. So that’s why I wanted to offer that to you. What’s your thoughts there?

John Scott: No, I think it’s a wonderful inducement to get people to pay early. Offering even saying, hey, you can use a credit card to pay. You’re going to take the hit on the credit card fees, but they’re going to get the points on their airline glove that they’re at.

Richard Jacobs: What about attorneys that, they can’t get out of a case after a certain point and the person stops paying them? Do you help them with sending people to collections? Or are there companies that will pay them their retainer, maybe factor it, 10, 15% and pay them their retainer in full upfront? Are those advisable? What are your thoughts there?

John Scott: Collections and factoring it happens. I’m not a big fan of it. If you go to collections, your kind of open yourself up for an accusation of malpractice, potentially, so I would much rather see and a lot of times in family law. You’ll get to the point of no return, where the court will not let you out of the batter criminal too, probably, but I think what’s important to do is monitor that early get retainers that are evergreen, so that as you eat into the retainer on a regular basis, the client has to refill the retainer, so you can minimize how much you get clipped and then figure out at what point can you withdraw when you anticipate that a client’s not going to pay you, so that you don’t get stuck taking a case to fruition with a client, who’s not paying you. I think that’s the bigger thing, is recognizing those situations before it’s the point of no return. So that you can get out of that without getting stuck with work you’re never going to get paid for.

Richard Jacobs: What about practice mixtures? So, some law is very short term, criminal defense, you have a court date coming up, or you got arrested. Things that are pretty immediate, people can’t sit on them. Family Law, I don’t have to get divorced today or this week. Personal injury, I could wait a week or two to do anything of that, or maybe a month, which wouldn’t help me, but they’re not immediate. No estate planning. Really, there’s even less pressure usually. So, when the law practices you deal with, do you see that the attorneys that deal with immediate type laws are advised to also do some longer-term stuff, combine criminal defense and also do some PI work for like, base hits for criminal and then home runs that are rare for PI.

John Scott: You may see a firm that has several things, but within individual attorneys, unless they’re truly a sole practitioner serving a general practice, they’re going to specialize in an area. You’re not going to see a criminal defense attorney doing hourly real estate loans and closings, but you may have a firm that has a few criminal attorneys and then a few business attorneys. Typically, the PI firms are strictly PI.

Richard Jacobs: Maybe a better way to put it is, this is okay. I’m a solo and criminal defense I want to grow. Should I add another criminal defense person? Or should I now do some family law, or maybe get a PI person again, to diversify the practice areas that the firm handles, and again, this short-term, long-term, small versus large income scenario. Again, in terms of growing, is there any advice there, and what works better than other things?

John Scott: I would look at my capacity. If I was a solo criminal defense attorney, I would figure out, where’s my work coming from? Where’s the word-of-mouth driving people to me? Is it advertising? Is it from existing clients? Once I hit near full capacity, and think that I can grow beyond that, then I would go out and hire another criminal defense attorney. I don’t think I would divert my attention from that work to go do PI work or family law. It’s just a different specialization that I need to be able to clone myself to be really good at both.

Richard Jacobs: What about situations where you have maybe a more experienced senior partner and then you have a more junior one. They do the same practice area. One thing I told some attorneys that they could do is, on the intake part, well, so and so your case, we have two options for you. Lawyer A. she’s been doing it for 30 years, highly experienced. She costs more, but she deals with more complicated cases, like yours. Lawyer B, he’s been doing it for seven years, very competent. Doesn’t charge quite as much. Those are for more, like run of the mill cases, based on your circumstance, which do you think is best for you? And maybe you’re able to silo certain people to the big boss and other ones for the more junior person, and charge more for the cases the big boss gets, so they can be more selective about them. Is there any you ever see that dynamic going on?

John Scott: I do see that quite a bit and I think that’s the one big advantage that the more senior attorney has, is they can really pick and choose what they work on, and they can differentiate themselves by the rate. The client makes the choice. Do you want the more experienced person? If you do, you’re going to pay a premium. If not, you can go to the less experienced person, who’s still going to do great work, but it gives that senior person the opportunity to do two things, one, command a higher rate and really pick and choose what they work on. They can steer clients to that younger, less experienced attorney, and then pick the cases and matters that they won’t handle. It’s a way to reward the firm too, right? If we’re going to take up the time of the more senior person, then the firm should earn more money based on that person’s efforts and as attorneys become more senior, it’s really incumbent upon them to be ambassadors to the firm and fill up the younger attorney’s time to get them that experience, because at some point they’re going to be the senior attorneys feeding work down to less experienced attorneys.

Richard Jacobs: Even within a case, I could see, oh, I have to prepare this motion or do this thing. I’m going to get the younger person to loop them in. they’ll get maybe a small percentage of the case a few hours in, but they can help me so that I could do the higher-level work and not do as much of the drudgery.

John Scott: I agree and that goes back to leverage, when we push down work to more to less experienced people. We are training them to do what we do, but it also frees us up to do higher level, more valuable things for the client and without that, if we stay doing what’s comfortable for us? The mundane motion or researching a certain area of the law that someone else can do that it holds us back. We cannot grow and scale our business because we’re stuck doing these routine procedures that could be done by someone at a lower level. That’s the one area that I see in law firms that pales in comparison to accounting firms. The accounting firm leverage is 9 or 10 to 1, where law firm leverage, a good law firm will have a leverage of 3 to 1, and many of the bigger firms have leverage of one to one, so they have one partner for one staff person. The better you can increase that leverage number, the better you’re going to have a sustained firm that is training people, that is growing over time, and you’re really trying to replace yourself. You want it to get to the point where you only do what you want to do, or you can retire, which we don’t see a ton of in law firms. Law lawyers seem to retire in their chairs, which is not what I want to do.

Richard Jacobs: Lately, I’ve seen a bunch of firms leaving the industry, though I’m not sure exactly why or what the pressures are, but in the past three or four months, I have seen significant number closing down, which is odd.

John Scott: Some personal injury attorneys that are more seasoned and have told me that if they were getting into the business today, they wouldn’t do PI work. I don’t quite understand that and it could be where do we get our cases? Is it too cutthroat now on the referrals, but they make a good living. They know what they do. They do it well. They just have some regret, or would they do it over again? No, I don’t see that from everybody, just a few of them.

Richard Jacobs: I want to ask you I’m sure most of the attorneys you work with, maybe all of them have marketing help, marketing firms, that’s what we do. It’s at Speakeasy. We provide marketing for attorneys, small firms. What? Your experience from your position. Do you see that the marketers that attorneys work with are doing a good job for them? Or is it because the attorneys just don’t understand running a business, and a lot of them don’t want to deal with it, that do they get taken advantage of? Or does the marketing kind of. It’s like yelling into the wind. It goes nowhere because the attorney is not on board, and they just expect the marketer to do everything like what kind of dynamic do you see with those if you could see that deeply with those particular vendors?

John Scott: I don’t see that they’re being taken advantage of. I do see that they don’t understand it. Some do, but for the most part again, they didn’t go to school for marketing, but marketing works okay, whether it’s a TV commercial, a radio ad, a billboard on a bus that goes by, marketing works. I think the important thing is to judge the return on your marketing efforts and spend more time on those efforts. If you’re just casting seeds, you don’t know what’s working, but if you’re casting seeds and then tracking, okay, these seeds didn’t germinate, these did. We’re not going to throw seeds over here where they didn’t germinate anymore. We’re going to focus on what grew and grew well and feed that. I had a firm that does a ton of radio ads, and it’s very expensive. It did impact their bottom line, but it drove so much business. It was totally worth it, but they decided, and the radio stations didn’t necessarily like this, but they were going to go dark every other month and cut there spend a little bit. It didn’t really impact clients calling, so they continued to turn off, turn on.

Richard Jacobs: I’ve seen that some with online, but online the services that I think they’ve figured it out, they seem to punish people like Google and Facebook and all that stuff. Unfortunately, that doesn’t work. It ruins it.

John Scott: Those algorithms are a lot smarter than most of us.

Richard Jacobs: What do you see in terms of the law industry in general? Are you seeing any trends emerge that you think you’re going to be very impactful over the next year? Now we’re in the middle of 2024, right now. I don’t want you to look too far out, but you see anything dramatic coming that’s going to change how attorneys have to do business.

John Scott: I’m going to talk about something that we’ve all heard about and its artificial intelligence and you talk to my children and their friends, AI is going to ruin the world. I think AI is going to enable small and mid-sized firms to compete with big law firms. It’s going to allow you to automate certain segments of your business that aren’t art, they’re just processes. Now, can you just turn AI loose and push out the product that it produces? No, but you can. Let’s say, for instance, you’re scanning medical records, I’ve seen AI driven tools that will go through and chronologically pick out the events. Right now, firms are hiring teams of nurses, who do nothing, but analyze medical records to put together a synopsis for the attorney to review. I think we’re going to see over time. AI do that same thing with some oversight and review by nurses and then, of course, ultimately, by the attorney. But AI for the law and all professions are going to be much like the computer was to an amortization table. Believe it or not, we used to do those by hand and when the PCs came out in the mid to late 80s, you had desktop computers with a floppy disk. All of a sudden you could do a depreciation schedule or an amortization schedule with just a few keystrokes and it was life changing for the accounting profession. So, the point is, if we use AI as a tool to create efficiencies, not to do our job, but to make our job more efficient, then I think it’s going to be life changing for the profession. For those that embrace it and use it in the right way and when I say, use it in the right way, I think you have to set up parameters and rules and best practices within your firm so that it is used in an ethical correct way. If you just allow people to go out and use chat GPT to create letters and documents, I think that’s bad. But if you find some things that you can use it to create efficiencies that I think that’s going to be a wonderful thing for the profession.

The other thing though, I think you have to modify your engagement letters to comprehend those creative deficiencies, because if you’re an hourly billing firm, and all of a sudden you could do something in 10 minutes that used to take two hours, and your engagement letter says, I’m going to bill you time and expense, then you really have to pass that savings on to the client. I think your engagement letter would have to say, hey, we’re hourly billing, but for certain things that we do on a fixed fee basis. It’s kind of like the auto repair guy, if your right front fender is dented. He might say that takes, 0.75? hours to fix at this rate, and he might be able to do it in 10 minutes, but it’s the standard rate that you’re going to get charged. If you modify your engagement letters, then you can keep that efficiency or share it with your client, rather than having to pass it all on to the client in an hourly rate environment.

Richard Jacobs: I know you’re not an AI expert, but what’s one thing that you think AI is going to enable for law firms, you know, small firms specifically? One thing that they’ll have to do less of that AI could take up some of the slack?

John Scott: I think the review of large volumes of data to pull out the relevant bits of data and put it in a chronological timeline, would be something that is going to be very efficient. If I’m an attorney and I have 3000 pages of records to go through, AI could synthesize that into an outline that then I could focus on the relevant parts of the 3000 pages. So instead of spending 10 hours going through all those to try and hopefully find the relevant bits of data. I could use AI to do that and I’ve seen tools at conferences, they claim to be able to do this. I don’t know if they’re through beta testing yet, but we’re going to get there.

Richard Jacobs: How can attorneys find you? Where can they go on the web, and where can they call to? If they’ve listened to this and they’ve decided they need your help?

John Scott: I’m on LinkedIn as John C. Scott CPA. I’m at Anders and right now I am running not only a tax practice, but I am the VCFO in charge of legal services at Summit VCFO Services by Anders. I also have a book out, which I will send you a QR code for this. The book is called Judicial Dollars and Cents, and it talks about running a law firm based on data and metrics and the four metrics are cash, financial, production and pipeline and in the book, we go through those four different metrics and what levers you can pull to stay on your path to your journey, to meet your goals and increase profit and cash flow.

Richard Jacobs: Excellent and you can work with attorneys and all through these states, are there any restrictions?

John Scott: No restrictions whatsoever. The one thing the pandemic taught us is you and I will have to be in the same city to jump out of teams call and meet virtually or meet face to face via the computer.

Richard Jacobs: John, thank you so much for coming on the podcast. It has been a really great informative call. I appreciate it.

John Scott: Thank you, Richard.

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