Yesterday, I gave you the most difficult commandment to help you get paid for 100% for the work you do as an attorney.
If you don’t remember, it was: don’t chase money.
Today’s commandment is a follow-up to commandment #3, and it will help you immensely in your quest to not chase money and to get paid 100% for the work you do.
Here is commandment #4: always have money in trust.
I call this the “banana stand” commandment.
If you don’t get the reference, George Bluth, Jeffrey Tambor’s character in Arrested Development, would cryptically and repeatedly tell his family, “There’s always money in the banana stand.”
After his son, Michael, burned down the family banana stand, George screamed at him, explaining he had lined it with $250,000 in case of emergency.
(The whole joke arc is way funnier than I’m making it out to be.)
The point is that you need to have money in trust to cover work you do for your client.
Most attorneys don’t do this.
Instead, they take a retainer, exhaust it in a month, and then make their clients pay just enough to get back to a $0 balance.
This is not good, and here’s why:
- You have no cushion if your client doesn’t pay you one month.
You’re simply out that money, or you find yourself violating commandment #3 (don’t chase money) by cajoling your client until he pays you something, anything, just to get him back to close to $0, all so the cycle can repeat itself next month.
- When your client runs a negative balance, you become your client’s banker, and no one likes their banker.
Your relationship really does change when your client goes below $0. You hound your client for money, which strains the relationship. Your client is embarrassed about the situation, which means there’s usually less communication, which means you don’t get the information you need. It’s bad all the way around.
- You’re more likely to get a one-star Google review.
For whatever reason, clients are more likely to leave you a bad review if they owe you money than if they have money in trust. This holds true even if clients with money in trust fire you or you get off their case.
So, how much money should you keep in trust?
Here’s my general rule of thumb: keep enough money in trust to cover a month’s worth of billable time if the case were to go sideways.
The way to quantify this is to think of the worst month you have on cases and see how much billable time you spent.
If that number is $5000, then you would keep $5000 in trust. If it’s $7000, then the retainer would be $7000.
Now, those numbers may run a bit high because you’re basing the calculation on the worst-of-the-worst case scenario.
If you aren’t comfortable doing that, that’s fine.
What you can do is back off a little and go with, not the 100% worst case scenario, but the 95% worst case scenario.
That will usually drop the number a bit and still give you confidence that the vast, vast majority of the time, the amount you have in trust will cover the work you do in a month.
One last thing: if you set an amount to keep in trust, you need to ensure that amount is in trust every month. This amount isn’t a suggestion, it’s a must and your clients need to respect it. (More on this tomorrow.)
There you go: always have money in trust, a.k.a., there’s always money in the banana stand.
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