Leadership In Law Podcast

S03E147 Why Law Firms Need a CFO-Level Strategist for Growth with John Scott

Marilyn Jenkins Season 3 Episode 147

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0:00 | 31:39

We bring on CPA and legal industry CFO John Scott to show how owners move from reactive bookkeeping to proactive leadership using four simple pillars: cash, financials, production, and pipeline. This is a practical, jargon-free tour of the systems that keep cash healthy, teams focused, and growth intentional.

John shares why setting a cash target tied to risk (10 to 30 percent of expected revenue) changes everything, and how current reconciliations and trust accounting discipline prevent ugly surprises. We dig into dynamic forecasting that functions like a GPS, helping you adjust pricing, staffing, and marketing in real time. You’ll hear how “hiring ahead” can safely create capacity, why hourly firms should track charge hour expectations, average billing rate, and realization, and how contingency and subscription models need different KPIs to move the right work faster.

We also get candid about leadership: training the next generation, delegating with trust, and building a practice that runs well when you’re out for two weeks or more. John explains how to use an accountability rhythm (think EOS-style) to translate big goals into monthly course corrections, and how to specialize your marketing based on actual intake and case performance, not guesses. Plus, we touch on AI as ethical leverage for repeatable work, with guardrails that protect quality and client value.

Reach John here: 
https://anderscpa.com/industries/legal-professional/ 
https://www.linkedin.com/in/john-c-scott-cpa/  https://www.linkedin.com/company/anders-cpa/ 
https://www.facebook.com/AndersCPA
Tiktok @jdc.vcfo
IG @jdc.vcfo

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Welcome & Guest Introduction

SPEAKER_00

With the knowledge tools, you need to build a successful and fulfilling legal practice.

SPEAKER_01

Welcome to another episode of the Leadership in Law Podcast. I'm your host, Marilyn Jenkins. Please join me in welcoming my guest, John Scott, to the show today. John is a CPA, AEP, and CGMA. He is a partner in tax at Anders and one of the country's leading authorities in law firm financial management. With more than 30 years of experience, John heads Anders Legal Industries effort within their virtual CFO team, guiding law firms with forward-thinking financial strategy, clarity, and critical thinking that need to grow. He's the author of Judicial Dollars and Cents and a specialist in tax planning, estate planning, and closely held business valuations. John works directly with firms of all sizes from million-dollar boutiques to $30 million multi-office practices to improve profitability, strengthen cash flow, streamline operations, and design sustainable succession plans. His work blends deep technical expertise with hands-on financial leadership, helping ambitious managing partners make smarter decisions, scale with confidence, and build firms that thrive long term. I'm excited to dive into why every law firm needs a CFO-level strategist, how to turn financial data into real decisions, and what it takes to build a practice that runs smoothly without burning out the owner. I'm excited to have you here, John. Welcome.

SPEAKER_02

Thank you so much, Marilyn.

SPEAKER_01

Absolutely. So tell us a bit about your leadership journey.

SPEAKER_02

I joined Anders in 1992 when we were a much smaller firm. And we had some dynamic leaders, but we got most of our referrals

Leadership Lessons From Early Career

SPEAKER_02

from law firms. And we love those referrals because their rates were generally higher than ours. So we knew that if we were getting a referral from an attorney, it was going to be a good client, or at least had the ability to pay our rates. And I was fortunate to meet a very entrepreneurial attorney early on in my career. And he showed me both good things and bad things. He showed me how to grow and scale any business because he worked on his business and not in it. And he paid attention to data. The other thing is, though, he was a bit like working for Elon Musk. And I don't know if you've heard stories about these entrepreneurs who are super smart, but also almost diabolical in their leadership ability to get people to do things, but not necessarily because they want to do them, but because they're afraid not to fail for their leader. And it's almost dysfunctional. And so what I learned from that was over time, and I'm not perfect at it, but I want to be a leadership or a leader that inspires people to work to our goals rather than to be overbearing. And I think over time I have developed some of those skills. Hopefully, by the time my demise hits, I will be perfect at it, but we're getting there.

SPEAKER_01

Well, I think it's it feels too much like manipulation where you know you want people to grow and grow with you.

SPEAKER_02

Right. And you want them to be better than you so that when you're gone, they can carry on the legacy of what you've helped to build.

SPEAKER_01

Yeah, exactly. You know, you want to be training your next manager as you're move going to move forward. Absolutely.

SPEAKER_02

That's that I'm sorry to interrupt, but that is something that holds a lot of organizations and firms back in that they don't train and trust the next generation. And so they never have the ability to walk away from the company and have it survive.

SPEAKER_01

Very good point. Yeah. I mean, that comes down to accountability, responsibility, and delegating appropriately. And you've got to be able to prepare your company for when you want to step away, whether that's taking every Friday off or taking a month-long vacation.

SPEAKER_02

That's a huge test to whether or not you've done your job.

SPEAKER_01

Yeah, taking a two-week vacation will show you exactly where the weaknesses are and where your business will break and where you need to work on it.

SPEAKER_02

Years ago in the banking industry,

Training The Next Generation To Lead

SPEAKER_02

that was required. And it was required for a different reason. In other words, if you were doing something nefarious within the bank, some sort of fraud, if you left for two weeks, it would be uncovered. So they would require people to take two-week vacations. But I think in in larger organizations that you're trying to build for legacy, you need to hire really smart people, train and trust, and give up control. It does a couple of things. One, it creates the next generation of leadership, but it also helps you do higher-level things, helps you do things that are in alignment with your skill set.

SPEAKER_01

Yeah, because I think if you're working on in the business every day, doing the things the business does, you never have a chance to do that forward thinking and work on the business towards the goals. You're kind of getting what comes in as opposed to trying to make something better. Excellent. Now, you say that a mall firm needs a CFO and it's not just about taxes. What are firms missing when they rely on a bookkeeper or an outside CPA?

SPEAKER_02

The first thing is we have to take a step back. Most lawyers don't have the traditional accounting and finance training. They didn't get it at undergrad. They don't teach it in law school. They're great at their craft, but when it comes to running a business, which every law firm is a business, they need to understand that finances and having good current financial data is the most important thing because without that, you

Why A Firm Needs A CFO Mindset

SPEAKER_02

don't know how much cash you need to hold on to. You can't forecast the next year. And when I say forecast, it's not just set a budget, I want to grow 20% and have it all drop to the bottom line. It is a dynamic forecast, much like a GPS would be for a trip, where you're saying, I've set my goals and I'm on this path, but I'm paying attention to it every month and I'm pulling different levers to stay on that path so that I ensure that I meet or exceed my goal. And then, of course, the sales outlook and then your production. So, what's my capacity? Do I have any capacity? Can I take on new work? And that would affect how I price things too. If you are redoing your kitchen or bathroom and you got three bids, and two of them are super aggressive and high, and the other one's lower. What that tells me, assuming they're all good quality contractors, is the one with the lower bid has a ton of capacity and wants to keep their people busy. Good point.

SPEAKER_01

Yeah, and and I guess that forecasting you've got to take into account if you have capacity, if you get one too many clients, do you have capacity to hire someone you'll bring them up to speed?

SPEAKER_02

And I want to speak to that real quick. We've always at Anders had the philosophy of hiring ahead. In other words, if we see good people or a good business to tuck in, we're gonna do it regardless of whether or not we have the work for them because our philosophy is good people are going to find and attract the work. So we never want to be in the position of being short people. It's happened. The market conditions were horrendous five years ago, where people were getting phone calls every day to get a 30% increase in pay. But we've always had the philosophy if if we stumble across somebody who's really good, we're gonna hire them.

SPEAKER_01

Preparing for the future. Exactly. And what's what at what stage of growth does a firm truly benefit from a virtual CFO and what changes the fastest once they bring one on?

SPEAKER_02

I think that, you know, when you

Forecasting, Capacity & Pricing Smarter

SPEAKER_02

get to more than one biller, so you're at two or three billers, and your goal is to grow and scale, to build something that's bigger than what you currently have. And why would you do that? Because leverage in the law firm space is not what it could be or should be. Leverage at some big firms is one to one or less than one to one. And in the accounting world, it's nine or ten to one. Now, I'm not suggesting that law firms would have leverage of nine or ten to one, but in order to grow and move upstream with your skill set, you have to have good people underneath you. So as you get to three billars and you want to continue to grow and scale, I think it's really important that you have good financial information that's current so that you can make decisions on the next hire, the next line of law that you want to go into, or do you want to invest in artificial intelligence and other technology that helps you create capacity?

SPEAKER_01

Yes. And I find that one of the things that's kind of misunderstood from time is if you bring on another biller, does your current staff have enough time to manage that? Or does that one biller need to bring on another person as well?

SPEAKER_02

When in reality, in an hourly billing firm, it doesn't take a whole lot of charge hours to cover the cost of that person. Now, I don't want to just hire people to cover their cost. I want to make a little bit of money on them. But the risk is not that great. So if I have four or five hundred charge hours that person can fill and I can bill and collect, I'm gonna cover their cost. When I get beyond that and fill them up, then I'm gonna start to make money on them. Right.

SPEAKER_01

All right. And so let's talk about the financial pillars that you're talking about. There you said there's four pillars that every ambitious firm should master. What are they and and why do they matter so much for profitability and stability?

SPEAKER_02

So the four pillars of profit-focused accounting, which we practice, is cash, financial, production, and pipeline. So when I say cash, how much cash do I need to keep to run the business? And in a growing organization, that's ever growing. But it's typically between 10 and 30% of a firm's expected revenue. The 10 to 30% goalposts are really a risk factor.

Hiring Ahead To Create Capacity

SPEAKER_02

If I'm a less risky firm, which means I have great clients that pay by return mail, then I can keep 10% of expected revenue. If I'm a PI firm that handles big med mal cases and has high case cost, then I'm probably skew more towards the 30%. Nobody's really on either either post or in between somewhere. But the point of that is we set those targets with the client and then we help them get to where they need to be so that we're never dipping below negative on cash where they have to put money in or go borrow on the line of credit. We have the lines of credit set up as a safety net, but we want to set those targets. And if I get to those targets, then the next incremental dollar that comes in really is available for distribution. When we talk about financial, it is more of so many firms have an office manager who has some capacity, had a little bit of accounting experience, and then they put them in charge of the financial statements. Then life gets in the way, their other responsibilities take over, and all of a sudden we're looking at three-month-old statements and reconciliations when in reality we need to know at all times what our cash balance is. And as the ILTA trust accounting, those have to be perfect. We can't have any errors in the trust account. So we really need an emphasis and focus on financial reporting. And we love to work with boots on the ground, people that are doing that work, but what we provide is the oversight for that work, the reconciliation, we offer best practices and just give some comfort and get everything current so that we

When To Bring In A Virtual CFO

SPEAKER_02

know at any time what our cash position is. And then production, we focus on okay, and this is a bad analogy, but if we look at our billers as machines on the factory floor, how much additional work could we do with the current folks that we have? So we're constantly capacity planning, and then really it's up to the firm to allocate that work amongst the billers. And then, of course, pipeline, where does our work come from? If we have capacity, how aggressive are we going to be to fill it? If we don't, do we need to go higher so that we can create some capacity? And then lastly, in that area, AI, there's two camps of attorneys about AI. One thinks it's going to be the death of the profession, the other one thinks it's really going to help us. Now, I think it's important that we ethically use AI. And I think if we use AI to handle repeatable things with proper oversight, it will create some capacity that will help us to do higher-level things. And I'm not suggesting that if we create 20% capacity, we can take on 20% more work. I'm suggesting that we do better work on what we have and then spend that time in a great way. There's a guy named Zach Cass who co-founded OpenAI and he's since left there. And he his whole purpose in life is now preaching that let's use the capacity that's created to spend time with family and friends. He speaks with state and local governments. He says, hey, we have to create good roads, transportation, parks, so that when we have more time because of AI, we can reconnect with the people that we love.

The Four Pillars Of Profit Accounting

SPEAKER_01

I love that sentiment. Yeah, because there is a lot of productivity that can be brought out with with AI or improved with AI, but I agree. We gotta, we can't, we can't just take it at face value. It's got to have some human intervention as well. There's still hallucinations in it. So but I think we're reviewing materials, content ideas, those things are actually really, really good uses of AI. And then you know, this Claud Bot and all this kind of stuff coming out. Um I think there's a lot of guardrails that we need to be put in place before that's something that we all need to look at.

SPEAKER_02

Totally agree. It's moving so fast, though, that we just have to keep a handle on it.

SPEAKER_01

Absolutely. Well, what's the most common of those four pillars that's often overlooked and how do they show up that make your foundation look weak?

SPEAKER_02

It's really the first two, not keeping enough cash on hand to pay your bills and then being behind on financial reporting. Look, many accountants are historical in nature. They tell you what happened. You bring in your stuff at the end of the year, they do the write-up and they say, Oh, last year you did really well or you didn't. We don't want to do that. We want to change the focus from what happened to what's going to happen. And I think that's where many firms fall short in their like, we wanted to do this. They get to October, that's not going to happen. They go and they do their tax return and they do their year end, and it, yeah, I confirmed it didn't happen. What we want to change the focus is not on the past, but on the future. Where are we going and how do we get there?

SPEAKER_01

I love that strategist. You know, so many, you're right, so many CPAs, it's all about historical data, which is excellent to have. But if I'm looking to grow and grow exponentially over the next 10 years, I need to be, I need a planner. I need a strategist that's going to help me get there.

SPEAKER_02

And in reality, you can break down revenue into non-financial drivers. What levers can you pull to course correct and get back on the path to hitting your goals? And we do that on a monthly basis with our clients. We look at, okay, we're falling short. And it's because of if it's an hourly billing firm, the charge hour expectations aren't hit. What's going on with Joe? Joe's on paternity leave. Okay, that explains it. And Joe will probably get caught up. But if it's just that Joe and his cohorts are not being managed, well, that's on leadership to then re-engage and get people back on track.

SPEAKER_01

And I think doing it monthly, it just keeps you from it get it cat, you know, getting ahead of you.

SPEAKER_02

Right. It's like the Waze app where there's construction ahead that you didn't know about. And oh, by the way, here's a workaround.

SPEAKER_01

Right. Keeping an eye on it. I agree. And then again, that comes back to following the data and and using what you know and just staying up on it so you don't get caught out on something that's not working.

SPEAKER_02

And if you have good data and then pay attention to it, some of your decisions are not going to be good ones. I did learn this from the entrepreneur I worked with. He paid attention to data even in the late 90s. And he would say, okay, we're going to open an office in Timbuktu, and in six months we're going to be profitable. But if it wasn't because he was paying attention to the data, he could course correct

Fixing Cash And Financial Reporting Gaps

SPEAKER_02

and cut his losses or double down on marketing to make sure that it did work within the six months. But if you just go into a vacuum and you pay no attention to the data, you could be 18 months into it and realize that was a mistake. And that's a big loss.

SPEAKER_01

Right. Yeah. Well, so many terms have plenty of financial data, but they just don't know how to use it. What are the key metrics that actually drive growth?

SPEAKER_02

Having the data and then pulling it into a dashboard so that you can look at those KPIs. And every firm has a different set of KPIs that matter to them. When an hourly billing firm, it's charge hour expectation, it's average billing rate. What's our my realization? You know, how do I keep people busy and create value for clients that the client sees and recognizes and is willing to pay for? In a PI firm where we don't charge hours, it's what types of cases do I take in? How quickly can I get things moving through the process from intake to adjudication to get that cash flow cycle moving? A subscription-based firm like we are, where we have a set price that we're charging, how many clients can I add at what rate? And so paying attention to the metrics will define and be based on what type of firm you are.

SPEAKER_01

I agree. And then, you know, some firms are are just general firms. They take anything from PI slip and fall to, you know, criminal tickets, family law, it's kind of hard to focus on which one do you want if you cover everything.

SPEAKER_02

That's fine early on in your firm's career to be a jack of all trades. But if you pay attention to the data and you find that, hey, criminal really does make us a great profit, but the PI stuff, because we don't really focus on it, isn't great. Over time, you need to winnow down what you're doing and specialize in an area, or go hire some talent so that you can really focus on it. But paying attention to the data, you can decide which areas to double down

KPIs That Actually Drive Growth

SPEAKER_02

in. I had a firm that did a ton of radio ads, and it really did drive revenue. And one time they decided, what if every other month we turned off the ads? Now it didn't quite cut their expense in half because the radio stations don't like that, right? Right. But it did reduce their marketing cost and it had no effect on calls that came in the door and intake.

SPEAKER_01

Really? They cut the marketing in half and it didn't reduce that.

SPEAKER_02

Yeah, we didn't quite cut it fully in half, but we had about a 40% reduction in cost and it didn't affect intake at all. Interesting. Because you would they had flooded the mark the airways for so long that they had this name recognition. So I don't know if that would work on a newer firm, but it certainly worked for them.

SPEAKER_01

Yeah, agreed. And I, you know, I've got clients where they do other practice areas, but one is the bread and butter. They know that and they follow the numbers, and so they're only advertised for that particular thing. But, you know, the name recognition, they get other cases just because I think of them, the name's there, they call it. Can you help me with? Of course we can.

SPEAKER_02

It's like college athletics where you have football and basketball are the revenue sports that support the lacrosse team or the soccer team. And a lot of firms need and want to be full service. So they have these other lines of business. It's okay to do that. We have it in our own firm. We have lines of businesses that don't throw off a ton of profit, but being a full service firm, we need and want to have that. But you still need to pay attention to the data to make sure you're not leaking out that bucket that it's actually costing you to do it. That's fine for a grocery store to have a loss leader on the end of the aisle because you're going to buy other things. And that's why firms do it, bigger firms, but you still need to pay attention to the data and stop the leakage.

SPEAKER_01

Yeah, and find a referral firm that you can send those to and hopefully get a revenue share for it.

SPEAKER_02

Yeah.

SPEAKER_01

To still make the client happy, exactly. So you emphasize strategic planning as a way to protect and increase your profitability. What does strategic planning really look like when you're inside of a law firm?

SPEAKER_02

You need buy-in from leadership because a lot of entrepreneurs don't want to be held accountable. They want to hold others accountable. And that's not a bad thing. It's really served them well. But if you want to really grow strategically, you have to accept that accountability and say, okay, we're going to commit to a process where we say.

Specialize, Measure, And Market Wisely

SPEAKER_02

Set goals and we're not going to open those up a year from now and say, oh, we didn't hit the goal. We have to visit that on a regular basis. It's an EOS model, right? And there's EOS and EOS light, but it's really setting those goals and having weekly or monthly accountability towards the progress of that goals. And I think it's important to reward effort towards progress of that goals rather than actual success, because I don't want people, I want people to work at to achieve the goal and not be penalized if they're in the red zone and at 85% of the goal. Right. I mean, that's 85%.

SPEAKER_01

Exactly. Yeah, as soon as you start talking about mistake at AOS. Yeah. Absolutely.

unknown

Yeah.

SPEAKER_01

Hitting 85% of your goal. It's like, you know, the old saying, shoot for the stars. And if you hit the moon, you're way up there. Is that exactly? So what's the first place you look at if a firm is not hitting its goals? Are you looking at billable hours, expenses? What's the one thing that you look at or start with to diagnose the issue?

SPEAKER_02

I look at the cash position. I look at the currentness of the financial reporting and then their processes. Are they reconciling the accounts as needed? Do they have the separation of duties and oversight? And then from there, it's going to bubble up because every firm's a little bit different. It's going to bubble up what the issue is. We went into a firm about a year ago and they were $800,000 short in their cash and on the line of credit. And what we realized pretty quickly was there was one partner in the firm who hadn't billed all year. Oh no. And they knew that, but it wasn't, they were in such a cash crisis that they couldn't. It's like the Kiwi and the Eagle. The Kiwi's at the bottom of the ground with the grassland all around him, but the grassland's on fire. The eagle soaring above and can see it. So when we come in, we can look holistically at it and see what the actual problem was. They knew what the problem was. We just confirmed it. And then we instituted some billing hygiene issues, got caught up, and their cash position is fine today, the line of credit's paid down.

SPEAKER_01

Interesting. Yeah, I think it has a, like you said, the eagle eye, have something that's outside the organization looking at it. You look at it with a different perspective. And again, data doesn't lie.

SPEAKER_02

When you pay attention to the

Strategic Planning And Accountability

SPEAKER_02

data, you can actually see the clear picture.

SPEAKER_01

Agreed. So let's talk about succession planning. So so many firms, you know, some of the older firms, they founding partners retired, so they're trying to work that through. What do firm owners often misunderstand about succession planning and whether they plan to pass the firm on, bring in a partner, or sell?

SPEAKER_02

The misunderstanding, I think, occurred 10 years ago when they thought that only they can do it the right way. They never trained, they didn't hire the right people, or maybe they did hire the right people, but they didn't offload the responsibility to them to make them better than them. You want to hire people that are going to be better than you, and you have to train and trust. You have to trust that they're going to make mistakes, but they're going to be better coming out the other side of those mistakes. And once you do that, then you have that firm that you can take a month-long vacation from and realize that everything's going to be okay. I met a guy the other day, I'm going to freeze on his name, but during COVID, he got COVID really bad and he was in a coma for eight weeks. And he came back and his organization was running just fine. And he realized that he had done his job. He had the great people underneath him that stepped up, and he's got this great culture. And that's what we all need to get to is a firm that you don't have to be at.

SPEAKER_01

Well, isn't that the dream though? You know, you built it, you want to be able to now enjoy your time and it continue to grow.

SPEAKER_02

And you want to you want to walk away when you want to throw your keys on the desk and say, call me if you need me, I'm available. But I'm not

Diagnosing Problems With Data

SPEAKER_02

going to be here every day anymore. You guys are in good hands because you're great. We've allowed you to develop and you can walk away.

SPEAKER_01

I love that. So anybody that's listening to the show today and they're thinking about maybe, you know, what maybe as you try CFOC, what strategies we're looking at, what would you say to them? What would be their first step to decide to do it and move forward?

SPEAKER_02

I would say hire the right people, whether it's us as an outsourced solution on a subscription-based model, or you're hiring a team internally, but don't discount the finance function. We work on a subscription model where generally the value proposition is we're about 80% of what it would cost to hire those people internally, and it's a fixed fee. It's a full service of items that we can do or you can keep. We go through those items, we pick what you're going to hold on to, what we're going to do, and the price changes. It's an annual price that's paid on a weekly basis. If two months into it you decide, hey, you want us to do payroll instead of you all doing it, we change the price, issue a new statement of work, and we move forward. There's no long-term commitment. So I see the value there is I might hire the right CFO internally, or I can outsource it and have no long-term commitment. If I've hired the right person, that's great. But sometimes I hire it's a bad hire. It takes 12 to 18 months to figure that out. Meanwhile, I've wasted a lot of time.

SPEAKER_01

I love that. Yeah, I mean, bringing in someone, I love the subscription model and that it can change as my needs change.

SPEAKER_02

Exactly.

SPEAKER_01

Well, John, this has been enlightening. It's very, very interesting what you do. And I love the way you look at the data and help firms grow and reach their goals. I know my listeners may want to reach out to you, connect with you. Where is the best place for them to do that?

SPEAKER_02

If you search on the web for Anders Virtual CFO services for law firms, I'll come up. I'm

Succession Planning That Works

SPEAKER_02

also on LinkedIn at John C. Scott CPA. I have a Instagram and TikTok where we publish some content called JDC because that stands for Judicial Dollars and Cents. And so that's where we publish a lot of our content.

SPEAKER_01

I love it. We'll have links to all of that in the show notes. And John, again, thank you so much for your time. This has been a great show.

SPEAKER_02

Thank you.

SPEAKER_01

Thanks for joining me today for this episode. As we wrap up, I'd love for you to do two things. First, subscribe to this podcast so you don't miss an episode. And if you find value here, I'd love it if you would rate it and review it. That really does make a difference in helping other people to discover this podcast. Second, you can connect with me on LinkedIn to keep up with what I'm currently learning and thinking about. And if you're ready to take the next step with a digital strategist to help you grow your law firm, I'd be honored to help you. Just go to Law Marketingzone.com to book a call with me. Stay tuned for our next episode next week. Until then, as always, thanks for listening to Leadership in Law Podcast, and be sure to subscribe wherever you listen to podcasts so you don't miss the next episode.

SPEAKER_00

Thanks for joining us on another episode of the Leadership in Law Podcast. Remember, you're not alone on this journey. There's a whole community of law firm owners out there facing similar challenges and striving for the same status. Head over to our website at LMarketingStal.