Investing in Your Law Firm:
How to Leverage Debt Wisely
to Scale Your Law Practice

Ali Katz:
If you have cash available, I would still get a line of credit for your business because that's just what a healthy business has. Just see if you could get one of those lines of credit where the money just sits there and it's available to you, but it doesn't cost you anything until you draw on it. So you'll ask the bank about a line of credit rather than a loan. And do they have a line of credit where you could just have the money available in case you need it, but as long as you don't draw on it, it's just sitting there. It will still cost you something, some percentage to get it, but it will just sit there. Backup backup capital, because there may come a month when business is bad and you need breathing room. And I want you to be prepared for that. And I don't want you to freak out and think you need to quit.

Ali Katz:
Welcome to the NewLaw podcast for entrepreneurial lawyers. Here at Personal Family Lawyer, we want to help more families and business owners make eyes wide open legal and financial decisions. But we cannot do this without you. Which is why we started this podcast to find those of you ready to offer a better way to serve your clients.

Ali Katz:
So if you are a legal professional who wants to help improve the legal and financial wellbeing of your clients and offer a service model that differentiates you while meeting the needs of your community, and rest easy knowing that you are running your law practice like a real business, then join us on this journey by subscribing to the show and find out how you can use a new law business model to love your life as a lawyer.

Ali Katz:
In this episode, you are going to hear me coaching our members from our new business owner coaching call, where we talk more about the wise way to use credit to fund the growth of your business, whether you should use a line of credit, credit cards, and if you stay all the way till the end, you'll even hear my strategy for using a home equity line of credit, a HELOC to fund your business.

Ali Katz:
You're also going to hear what to do when you panic financially, how to make it through the moment of terror, which happens to everybody that is entrepreneurial, that is building an entrepreneurial venture. So you're going to hear how to make it through that moment and hear as well how to change your relationship to debt from that of consumer to that of business owner. So listen in and I'll see you on the other side.

Ali Katz:
So then let's talk just briefly about funding and then I'm going to open it up for questions. So, funding, and this is a question that came from Valerie on the pros and cons of going to Fund and Grow versus going to a bank and asking for money. I don't see it as a pro or con to either or. I see it at both end. You need a line of credit as soon as you can get one from your bank. That's a bunch of money that sits in a bank account, ideally that you don't pay interest on until you draw on it. It just sits there and is like in a holding account.

Ali Katz:
And the bank has charged you something to get the line of credit, but they don't charge you interest on it until you've moved money into your account, if that's available to you. So you get that from the bank. And the business credit cards are 0% cards for some period of time. Okay? Six months, twelve months, eighteen months. And they're credit cards, no matter what, you need business credit cards because you want to be able to buy yourself at least 30 days on any bills, at least that. Put every bill on your credit card. You get points, rewards points. I get cash back from BOA, Capital One. Plus I have like over a million miles on United.

Ali Katz:
It's good. I travel now. I mean, we run, you know, half a million a year in Facebook ads. All of that goes on my credit cards. One day you're going to be running a lot of ads, maybe not a half a million a year, but your own version might as well be getting points.

Ali Katz:
When you use Fund and Grow, they will do all the applications for you and they then do them all at once in one day so that it makes it more likely that you get approved for all the cards. And then they go back to the credit card companies and they negotiate the credit amount up, the available credit amount up. They might give you a card for 6000 or 3000 or 5000, whatever, 2000, even $500. They'll go back and say, hey, could you increase this? And then they teach you how to get the inquiries removed from your account, your credit report, so that they can help you to manage that credit. I have a member in my Eyes Wide Open program. I think she's done like four rounds of credit with Fund and Grow and she just keeps getting new 0% cards and just rolling them over and buying herself more and more availability of resource. Okay. And so it is something that you get to learn to use as a business owner. And again, just, we haven't learned that.

Ali Katz:
And so it could feel scary, it could feel uncomfortable, it could feel counter to everything you've learned about credit. Yes. PFL business owners must understand this is analogous to a franchise in which they're investing. And I often like to say that about what we've created here. What we've created here for you is intended to be all the best parts of a franchise without the worst parts, the best parts, like the economies of scale, like the systems and frameworks. But you get to stay independent. Now you staying independent doesn't mean that you should invest two and a half million dollars in a McDonald's, which is what is recommended for a franchise of McDonald's, which is amazing, and then tries to figure out how to make a better burger. Now, we want you to actually make a better burger eventually, because to me that becomes like you're all super smart, you're all super creative. Together we can rise even higher, but you've got to get those fundamentals. NewLaw has designed a proven model. Deviate from it at your peril, but you can deviate from it after you've mastered the fundamentals. So I just want you to stick with the fundamentals at first.

Ali Katz:
So that's why I recommend Fund and Grow. Can you do it yourself? Get business credit yourself? You can. You just won't likely be as successful because they've done it for tens of thousands of people now. So it's the trade off. 3500 to them could get you tens of thousands of more credit. Now if you're not going to use the credit, then do it yourself. If you really just need it so that your business has business credit cards and you don't really need the 0% capital because you're not going to make any investments anytime soon, more than you already have, then don't use them. Just get business credit cards. If you have cash available, I would still get a line of credit for your business because that's just what a healthy business has. Just see if you could get one of those lines of credit where the money just sits there and it's available to you, but it doesn't cost you anything until you draw on it. So you'll ask the bank about a line of credit rather than a loan. And do they have a line of credit where you could just have the money available in case you need it? As long as you don't draw on it, it's just sitting there.

Ali Katz:
It will still cost you something, some percentage to get it, but it will just sit there. Backup, backup capital, because there may come a month when business is bad and you need breathing room. And I want you to be prepared for that, and I don't want you to freak out and think you need to quit. That happened to some people during COVID. This is good for all you new business owners. One of our, you know, kind of long time model PFLs. Called me, must have been May of COVID and they both said, we're going out of business. We can't do it. We give up. We're out of money. I said, all right, let's get on the phone. And we got on the phone and I got into their financials with them. This was like the beginning of what is now, what became then fix your financials. And then what is now called our Advanced growth mastermind, where we're actually working in the, some of our advanced PFL firms, businesses financially with them. And what I saw is they just didn't know anything about how to use credit. They didn't have any backup. They forgot that all they had to do was serve in their community and engage clients, which they knew how to do. They got into such a panic that they almost gave up.

Ali Katz:
So we don't want that to happen to you now. Luckily, we got on the phone, we worked it through that. It took us a weekend. They found the money to help them make it through, and they went on to build a 750,000 firm before got sick and then passed on. And now is on her own doing it. And she's got an entire team in place to build her $3 million business. But she had to make it through that moment of terror. We're going to give up. We're going to quit. We ran out of money.

Ali Katz:
I don't want you all to have to do that. So you get the line of credit ahead of time. Now, you might have the line of credit, and then that moment still comes where you've, like, stopped engaging clients and something has happened in the world and you think you're going to have to quit. That is the perfect time to reach out and say, help, because we can help you in that moment. We know how to help you get through that moment. Kelly, another member, she was going to quit. She had held on to the wrong CSD for too long. This is another reason, another thing that sometimes causes people to hit a rock bottom moment. She'd hired the wrong CSD, didn't want to fire her, held onto her for too long, almost ran the firm into the ground as a result. Fortunately, she reached out, help. And, you know, I think. I think she ended up doing either five or 600,000 last year, turned it around. So when you hit up against that. Don't give up. Ask for help.

Ali Katz:
If possible, ask for help before you're at the rock bottom. It will make it easier for us to help you. Ask for help when you see it coming. My engagement rate is going down. Beatrice, another one, reached out. She was in a really terrible place emotionally. Didn't even know if she wanted to stay being a lawyer. She reached out. She took the actions we gave her. She got herself to C4, which was a big deal, because she was in a very bad place emotionally. And today, her business is thriving, her relationship is thriving. Her life is. She's, like, lit up.

Ali Katz:
She made it through. It might prove to be a little challenging in the moment that it's happening, but in the moment that it's happening, your own version of whatever I just described, your own version of that. Your own version of I can't do it. I'm failing. I'm going to fail. Oh, my God. This is the worst thing I've ever done in my life. I don't want to do it anymore.

Ali Katz:
That's the moment where you're becoming the next version of yourself. That's the moment. That's the moment where you are becoming the next best version of you. How you handle that moment, what you choose to be in that moment, is the determiner of your future. And so you ask for help. It's actually one of the things I think that we are really the best at is helping you through that moment. Well, this is really great to know, Kathleen, that Wells Fargo has a small business line of credit for businesses opened less than two years. Kathleen got $25,000 quickly.

Ali Katz:
That's amazing. A lot of the banks don't have them for less than two years in business. If you watch our funding master course, what you will see is Sarah, brand and new, out of law school, went to the banks in her community, brought the PFL business plan. You all have access to that. If you haven't been through that PFL business plan yet, get it. Modify it. If you get lost trying to modify it, ask your coach for help. Just going through the process of modifying it is going to help you a lot.

Ali Katz:
And then take that and your enthusiasm to every local bank in your community. Tell them about what you're creating. You'll get funding. You will get funding. So much of this does depend on your internal state. Do you believe you deserve funding? Can you trust yourself enough to get funding? Can you trust yourself to use it wisely? Many of you know that I needed to ask my mom to use her credit because back in 2017, I was like five years from my bankruptcy and I couldn't get my own credit cards with these kinds of limits. And so I asked my mom and then she said yes. Okay, so should you borrow from yourself with interest if you have cash available? So you certainly could, but I still think you need a business line of credit. You still need business credit cards. Now the question is, should you use your business line of credit or should you use your own cash? Well, depends what you're going to invest your cash in and the way that you're going to manage the credit on your credit cards. If you have 0% interest on your credit cards, well, put the things on your credit cards and then invest your cash. Now, what should you invest your cash in? It's a big question right now. You can invest in the stock market. Ideally, you're doing that in the most tax deferred way possible. Ideally, you're investing in businesses that you really believe in and not, in my opinion, just, I'm not a big fan of, just like index funds that are invested in things that don't really support you or support the ecosystem, the planet, the world that we're living in. I'm not a financial advisor.

Ali Katz:
Would you love direct support to help you grow your law practice into a business you love? Go to newlawbusinessmodel.com/show and sign up for a call with one of our trusted law business advisors. Each of our advisors has been trained directly by me over the past five years plus to help you chart your path from wherever you are now to where you want to go as efficiently and effectively as possible. You're ready to grow. We're here to help.

Ali Katz:
Great. So, but how can we grow out of the you should have no debt mindset? I've worked so hard to try and pay off all my debts. Getting a loan makes me so anxious. It's really, really, really, really deeply conditioned. So if you look at any, any rich person that has built a business, maybe not a high income earner rich person, right? There's different kinds of rich people. There's rich people who are high income earners because they work for a corporation and they make 150, 250, 350, 500, a million dollars a year.

Ali Katz:
That person does not need to use credit to be rich, financially rich. But any person that has built a business of any size has had to invest in that business. And credit is one of the greatest available resources to invest with, as long as you can outearn the interest rate. Now, when interest rates during COVID were 3.75 through the EIDL loan. That was really over 30 years. That was the cheapest money we'll probably ever see in our lifetime. I got as much of that as I could. You don't have access to that now, but you could still think of it the same way.

Ali Katz:
So as long as you can use the money that you are going to borrow to invest in assets that are going to grow so that you can pay back the investment, it's not an issue. Yeah. Yes. Thank you, Valerie. The worst advice I ever got, Dave Ramsey grinding up the credit cards. Unless, yes, Dave is hardwired. He is. He's hardwired into our views on debt.

Ali Katz:
It's one day, maybe, it might be ten years from now. I really hope that my work in the world has gotten out there to a degree where I've, like, unwired the Dave Ramsey stuff. But for now, I can do it for you because you're here with me. You just have to look at the numbers. So it's not about growing out of the you should have no debt mindset. It is the what can I use this debt to invest in? To create a machine that will generate me money through my service and my leadership? What do I need to do to trust myself enough to use this credit wisely? What if I just started to see the credit as zeros and ones instead of as something that I'm going to drown under? It's an available resource. So, yes, Ashley, I love this. You can restructure the idea of debt as you using someone else's money to grow your own wealth.

Ali Katz:
And I can see that if you have a certain mindset around it that might not feel good to you to use someone else's money to grow your wealth, that might feel to you as somehow you're doing something wrong. As long as you understand the game that you're playing, you see that it's not wrong. The key is you need to understand it so that you could pay it back, so that there's never any question in your mind about, am I going to be able to pay this back? Yes, you're going to pay it back because you're investing it in being able to earn and being able to create the machine that is going to earn and serve, earn and serve, earn and serve. And when you're earning and serving, of course you're going to be able to pay it back because you're making investments in what is going to increase your capacity and what is going to get you clients to fill the capacity, increase the capacity more clients to fill the capacity. And you're obviously going to need to start small so that you can go through this wheel that I call the journey to financial liberation. Because at each turn of the wheel on the journey to financial liberation, you are going to ideally expand your capacity to generate more and to hold more. And that is going to be able to start to shift your own awareness of what's possible here. And so I would say start with the smallest amount that will allow you to hit your goals and make it really wise, where it's 0% and you're only using the credit cards in the amounts where you know you're going to be able to pay it back and you won't end up paying any interest.

Ali Katz:
You just get used to using credit cards wisely and tracking wisely. And then on the line of credit side, see if you could get a line of credit. My guess is, Sunny, you have a really good credit score. Is that right? Because you've really protected it. Great. Yay. Use it. Recognize that you protected it. You created it. You invested in getting a really good credit score so that you could have this capital behind you. You are worthy of the capital. You're worthy of being invested in. And in a way, that's what is happening. The bank's investing in you. They're not dumb. They need you to borrow money. Our economy requires debt. So remember that Dave Ramsey's advice is for consumers. It doesn't make sense to pay 20% interest to buy $1,000 purse. And yet that's what a lot of consumers are doing. It doesn't make sense to pay 20% interest to buy a car that you can't afford. And that's what a lot of consumers are doing. But it does make sense to pay 20% interest if you need to, if that's your only option to invest in building yourself a business, that makes that interest irrelevant, because you can charge 4, 5, $6,000 per client, and they are happy for you to serve them in a truly meaningful way. Makes sense to do that all day long.

Ali Katz:
You might also want to read Steven Schwartzman's new book, "What it takes". I'm reading it right now and just make sure that that's what it's called. "What it takes". And what I like about it is, yeah, "What it takes". Stephen A. Schwarzman, what I like about it is he's talking about such big numbers. And the way he built his business is with leveraged buyouts where these private equity firms borrow millions, billions whatever of dollars to buy companies and improve them and then sell them. I'm like, wow, just expanded my thinking.

Ali Katz:
And they're using debt and meanwhile we're being told that we should pay off all our credit. Pay off all our debt. Don't use debt. Why? Because we're not smart enough? Well, yeah, if we listen to Dave Ramsey, we're not. Because we're not, we don't have the financial literacy, but we can get it. I didn't have the financial literacy the first time around. I did not, I did not know what I was doing and I had all of the thought and we can go into that, another call and oh, HELOC. Is that a bad mashup of business and personal? If you are going to get a HELOC and use that, which is a home equity line of credit, which could be your best source of capital, then you are going to, I think the best way to do it is take the HELOC, contribute it to the business, have the business pay you interest so that you could pay on the HELOC.

Ali Katz:
So keep it separate that way. The money then that you've put in from the HELOC is tracked as either a loan or a capital investment in the business. And you could talk to your CPA about what's the most tax like, what's the best tax efficient way to report it. If you're using your HELOC. Should we do it as a loan to the business or a capital contribution? Okay, so good. Yeah. Make them an offer they can't refuse. Bye.

Ali Katz:
If you love that episode and you're starting to see wow, I actually have access to all the capital I need to either start or grow my law practice into a business I love. I just need the support to do it with the systems, the technology, the revenue model, the sales, the marketing, all coordinated in a differentiated service model. And if you would love to use life and legacy planning as your differentiated service model and become a PFL - Personal Family Lawyer Firm leader so that we can help you with all the training tools, technology, systems, coaching, support that you need, go to newlaw.co/show and book a call with a law business advisor and I'll see you on the inside.