Leadership In Law Podcast

S02E74 Fractional CFO Strategies for Business Growth with Tom Dillon

• Marilyn Jenkins • Season 2 • Episode 74

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Tom brings years of experience as a fractional CFO to the table, offering a wealth of knowledge about how proper financial management can become your firm's secret growth engine. He challenges the common belief that cutting costs is the pathway to profitability, instead advocating for strategic growth investments backed by a solid cash flow understanding.

The conversation tackles one of the most uncomfortable yet crucial topics for law firm owners – pricing. "The biggest mistake small business owners make is pricing their services too low," Tom reveals, explaining how raising rates not only improves profitability but often eliminates problematic clients while creating more capacity for valuable work. This counterintuitive approach has transformed countless firms from constant financial stress to sustainable growth.

We explore the tangible differences between firms caught in a scarcity mindset versus those embracing abundance thinking. Tom's insights on capacity planning, strategic hiring, and building a truly valuable, transferable asset will fundamentally shift how you view your practice's future. His provocative statement that "the less the owner is involved in the business, the more valuable it becomes" serves as a wake-up call for attorneys who haven't considered the long-term worth of their practice.

Reach Tom here: 

https://www.linkedin.com/in/tom-dillon-cfa/
https://x.com/profithuntercfo?lang=en
https://www.frakfinance.com

This episode is sponsored by Wealthy Woman Lawyer® 

Wealthy Woman Lawyer® is a law firm growth strategy and business coaching service exclusively for women law firm owners. Ready for a practice that funds your dream lifestyle and gives you time to enjoy it? 

Visit https://wealthywomanlawyer.com today.

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Speaker 1:

Welcome to the Leadership in Law podcast with host Marilyn Jenkins. Cut through the noise, get actionable insights and inspiring stories delivered straight to your ears your ultimate podcast for navigating the ever-changing world of law firm ownership. In each episode, we dive deep into the critical topics that matter most to you, from unlocking explosive growth to building a thriving team. We connect you with successful firm leaders and industry experts who share their proven strategies and hard-won wisdom. So, whether you're a seasoned leader or just starting your journey as a law firm owner, the Leadership in Law podcast is here to equip you with the knowledge and tools you need to build a successful and fulfilling legal practice.

Speaker 2:

Welcome to another episode of the Leadership in Law podcast. I'm your host, marilyn Jenkins. Please join me in welcoming my guest, tom Dillon, to the show today. Tom is a CFA, a seasoned financial strategist and the force behind Fract Finance. With years of experience as a fractional CFO, tom specializes in helping SMBs unlock growth through a data-driven financial management, cash flow optimization and strategic investments. His mission is to demystify complex financial concepts, empowering entrepreneurs and executives to make confident, informed decisions that fuel long-term success, and I agree with the demystifying thing. I'm excited to have you here, tom Welcome.

Speaker 3:

It's a pleasure to be here. Marilyn, Thanks for having me.

Speaker 2:

Absolutely. Tell us a little bit about your leadership journey and growing into FRAC Finance.

Speaker 3:

Yeah.

Speaker 3:

So that all really kind of started with my first career at William kind of career job at William Blair, the investment banking firm here in town, in Chicago town in Chicago, and there it was really kind of a path forward into finance of thinking about this idea of or not really idea, but maybe this sickness of entrepreneurship where I really wanted to go and become an entrepreneur and I didn't know exactly how.

Speaker 3:

And I did know, though, that I didn't really have any ops jobs, and so my first kind of part of my career at Blair I was I like to call it while I was an analyst I would really like to kind of describe that part of my career where I was a pontificator, I really was questioning and judging other people's business decisions, but I really wasn't making too many of my own.

Speaker 3:

And then, as I moved into, you know, towards becoming an entrepreneur, I kind of took on more of the role of an operator, and so, after I left William Blair, I took a job as a CFO at a private equity firm and then was promoted to CEO. So I was running that for a while, and then I went back to school and started really building my companies from there and tinkering around different ideas, and that's really when I became, you know, both kind of came together as an entrepreneur and that's what I've been doing. Coming back to my roots in the corporate finance advisory role, so that's really where Rack Finance kind of sits at the crux of helping SMB owners business owners that are, you know, looking for assistance in finance and accounting and they might not really need a full-time person, and so that's where we come in.

Speaker 2:

All right, fantastic. So what inspired you to focus on? Helping small business owners with their financial struggles strategies.

Speaker 3:

Yeah. So I think a lot of it might have even just was born around starting and building my own companies and going from a certain level of service quality. I mean you know the companies that I worked at were fantastic and you know they set the standard excellence in my mind at an early age in my career that as I stepped into my own role of you know, owner, operator, building these companies, I just didn't get that level of service at this lower middle, you know, but lower end of the market.

Speaker 2:

And.

Speaker 3:

I saw that as an opportunity and so we started doing this before kind of the whole big fractional you know, which is boom and a lot of people are now familiar with fractional. It was really part-time or consulting and it's kind of a hybrid, I guess, maybe of both.

Speaker 2:

But yeah, now it's a trending term, right it?

Speaker 3:

was not the case when we first started, you know, 10 plus years ago. I mean, that was not a word that we even spoke about, and then, at sooner you know, a few years in, it kind of did, and then it really exploded and so, yeah, that was kind of it. It was really just seeing a need that I wasn't getting, and this was something maybe you could relate to, marilyn, on the sales and marketing side of the business as well, where we really were looking for help, and unless we had a huge, massive budget, we really couldn't get the quality that I thought we deserved or that we could grow with these firms. And so that's really the impetus of there's an opportunity here in the market that we can serve and help our companies grow, our clients grow.

Speaker 2:

I love that. I love that and it's having that expertise that you can help people get their mind around what they need to do. Most of us we enjoy what we do, we have a passion about what we do, and a lot of that is not numbers, so it's good to have someone we can rely on, who can trust to help us get our numbers in line. And I see that you believe that cash flow management is the backbone of business growth. Can you expand upon that a bit?

Speaker 3:

Yes, I will try to keep it high level.

Speaker 3:

But so what I mean by that is one of the hardest things to do in business is hire ahead of growth as well as allocate capital towards marketing and sales, and so having a good understanding of your cash flow allows you to be more strategic in that allocation of what you're investing in the future.

Speaker 3:

So I'm going to invest this money now for growth in the future. And how do I get comfortable doing that? And that's what I really mean by it in terms of being the backbone of the growth of an organization. If we can find and figure out that there's some level of predictability around the marketing KPIs, the aspects that you help with, and we can get comfortable with what the cashflow of the business is doing, then we can come back and say, marilyn, here's what we feel really comfortable investing in and this is where we can properly allocate without overburdening this business owner. And so it's really just understanding what we're going to be putting in and what we expect to get out with a level of predictability. That's really the cash flow management, and there's different levers not to get really granular, but there's different levers within the typical business working capital that can pull cash forward and suck cash out if you're not watching it.

Speaker 3:

And so that's really what I mean by that.

Speaker 2:

Well, we're also talking about investing for business growth, right? So one of the things that I, a concept that I understand, is like say we've got our next hire in mind, right? So is it a good time to have that person ready to go when my current capacity in that position is at 80 percent? So that way we have the 20 percent of that person to do training and as the other person is taking on, so is there a particular if that makes sense is there a particular level of capacity that now we need to say it's time to invest forward to bring on a new staff member?

Speaker 3:

That's a great question and I would say it all depends on what growth looks like. So how much allocation is going to be going to marketing? Is our sales funnel in a proper position to handle more capacity, and do we feel like the conversion rate's at a level that justifies it? Or do we need to make some tweaks and improve it before we go and invest this level of capital into our future growth? And so I think it's in tandem with that marketing budget and thinking about it from that standpoint.

Speaker 3:

From a higher range perspective, if we're looking at flat growth and you're humming at 80 capacity, no, there's probably no need to hire. But it's interesting because we just built this model. One of our cfos built this beautiful model for a client and it has all of these capacity questions and we have it built where it highlights every month where the team's overutilized and it'll show that there's stress. So there might be, you know, there might need to be an employee wellness at the end of the month or or some sort of, you know, cultural happy hour, whatever. It is right that you, that you you feel like is a good thing, your, your team, really enjoys, and so, and then we have that conversation. Hey, you know, this month we're going to be a little overutilized.

Speaker 3:

Can we talk about what future growth looks like? Do we need to hire someone? And, yeah, you're going to be hiring ahead of growth. There's going to be a training time period of this productivity ramps up for this individual. What does that do to cash flow? Can we afford it? Do we need a little line of credit in order to bridge this gap as we hit this next part of the growth curve, and so all those things from a financial perspective. We're talking with the different department heads. Even if it's a small business, they don't have a CMO per se, but they've got a consultant like you in there, or they have a team member that's helping out in that department and we like to strategize with them. You really have to make these decisions with everyone in mind and everyone on board.

Speaker 2:

Yeah, I think the capacity is definitely something to look at as an old geek, I would say in technology.

Speaker 2:

So you know, years ago you know you had to be careful how big your hard drive was or whatever your storage was, and if you reached 80% it was time to get something new Right. So, and that feel like, depending on the complexity of the position, that that's kind of the position you know. You've got to be prepared to train and absorb that. The worst part is when you bring someone in when you need them to be productive tomorrow, and that's just not realistic either. So I think having a financial planner, somebody like you, come in and say this is the training time, this is where your plan needs to start I love that you brought it back to the sales funnel as well. That's your process of getting new business, whether it's online marketing or referrals or networking or whatever. You got to see how fast is that happening. So I love the idea that you guys are putting together plans for that as well, because everybody wants most people want their business to grow.

Speaker 3:

Yes, absolutely. We certainly focus in on clients that are looking to grow. Yeah, I think there's two different real buckets of CFOs that are out there. There's the cost-conscious, cost-cutter types. They're either cutting costs or plugging holes, which is great. You need those people to plug the leaky bucket for sure, but you can't cost-cut your way to profitability forever. It's just not sustainable. It's kind of a one-time. Let's get this straightened out and make sure that we keep an eye on it. But for us we're more of the growth-oriented CFO and that's really where we focus in on, and we'll focus in on, both organic and inorganic growth. So some of our clients on the wealth management side they're looking to acquire books or people and recruiting them to come to their firm, and so we look at it from that angle of the inorganic growth through acquisition lens as well.

Speaker 2:

Okay, all right, excellent. So, thinking about those leaky buckets, what are the most common financial mistakes that small business owners make?

Speaker 3:

The biggest one is pricing your services too low and I think if you were to increase your prices, you're going to lose some clients, no doubt some customers, but you'd be surprised at how many are willing to pay it and happily pay it. And you'll look at the impact of that pricing and realize that you got rid of some probably bad customers, bad clients that you didn't need in the first place. And, going back to the capacity issue, that opens up some utilization for your team. That's true.

Speaker 3:

They can serve better, more profitable clients, and so that is one of the biggest mistakes that we see. And then you know another one is just not looking at technology and just kind of looking at these systems and processes as well. This is the way we've always done it and kind of stuck in that rut. And it's not that they're not open to utilizing the innovation, but a lot of times it's just not a priority. You know, all right, this increases, you know, our profits by $80,000. You know, I'd rather go out and go get another client that's going to produce me $100,000. And that's what I mean by us being more growth oriented and mindset is kind of thinking in that capacity. How do we move the needle on our top line rather than just that it cuts on costs? But you make a really good point.

Speaker 3:

There are issues there and I'd hate to say this, but there's a lot of talent out there where we see a lot of kind of where overhead and pricing of your team has crept up and your pricing of your services haven't, and so there's this degradation of your profits.

Speaker 3:

Naturally your costs are going up more than your price, and so there's this degradation of your profits. Naturally you just your costs are going up more than your, your price, and so when that happens, it's either time to kind of think about utilizing some level of technology to help on the cost side, or think about raising your prices. Get someone like you, marilyn, in there to help grow the business. And so that's where you know, those are kind of the three aspects you know, and every business is different. Like we could talk about a landscaping business, we could talk about a wealth management, the costs are going to be very different, and so there's not it's very industry specific on kind of those typical buckets that we see. And so I I'm kind of giving more of a high level answer than the specifics maybe that you were looking for, but I think it's kind of helpful in that context of looking at it from a higher strategic level.

Speaker 2:

I think you're absolutely right when it comes to raising your prices, because when people start doing some analysis of what their competitors are charging or what the market will bear, however, you want to look at it and then look at how long it's been since you did raise your prices. Now I know some people that are unwilling to raise their prices with their current customers by, worried about the backlash. And I think you're absolutely right If you've got super price conscious clients that are also usually your most time consuming ones, because they have the most you know they want the most for their dollar there. If they go away, it's actually going to be better for your team.

Speaker 3:

That's absolutely right Increase.

Speaker 2:

Yeah, I love the way you say you also increase your capacity by raising your prices, and that that's a true, that's definitely a true statement. Yeah.

Speaker 3:

And we we see it all the time and most people are really nervous to go and do that. And then they realize, oh wow, you know there's a lot of value here, that I'm, you know that's perceived or reality from your clients and that you're not going to lose them. And so, yeah, I think more people need to consider that path, and sometimes they just need to see the data and say, all right, here's our retention rate. This is what's typical when this happens, of a 15% price increase. We're going to lose, you know, we're going to have this level of churn on our client base, but here's what it does to cash flow. Again, part of that cash flow management is understanding how this affects the company, and if you're an owner and you're mainly living off distributions and a small salary, it matters.

Speaker 2:

It matters.

Speaker 3:

You really know what's going to be coming down the pipe so you can plan accordingly. A lot of it's just unknown complexities of something like the working capital, or thinking about utilization and hiring, how to grow, all those different you know complexities. Or if there's debt involved in the debt service and all that. I think it's even more complex. But you know, at the end of the day, I think we really are trying to help these business owners just get a really good handle on being comfortable around what they're able to do and have that visibility to do it.

Speaker 2:

I think it's what we get preached at a lot is know your numbers, and that tends to be one of the biggest issues. I have cash in the bank at the end of the month. Why does my P&L show a negative? Figure out what happened there, but know your numbers and that'll give you a better. And I did hear and I've used this piece of advice before is if you're looking to raise your prices and you're not comfortable going back to your current clients, raise your prices on the next one.

Speaker 3:

Yep, well, definitely those kinds of things.

Speaker 3:

That strategy too, and then it's kind of this, it's this discovery, you know, and there are people that worry that they're you know they didn't land the client because their pricing were too high. Now, sure do you want that client that's just the cost conscious client, or do you want the one that sees value in what you do and they like you and they want to work with you? And so sometimes it's a conversation around what is the sales process look like and in what you're selling, are you selling on price? Because there's different aspects of the market in terms of how you differentiate your product and service. There are low cost providers that are out there, and then there's value providers and there's luxury or high end type providers, and so you can think of it whatever product makes the most sense in your head.

Speaker 3:

If you want to think about it in cars, a lot of times it's perceived value. It's not necessarily quality always, and so I think you have to really make the decision or have that tough conversation and say, okay, who are we and what are we to our customer base? And that really, I think a lot of times, when we have that conversation, it starts to really define the pricing and where we want to stand in the market, and that then really helps solidify and makes your job a heck of a lot easier around. Who are we going to target?

Speaker 2:

Messaging Exactly the other thing along that lines, as far as if someone said no, and I feel like I lost the sale. I had a coach tell me one time until you've had five ideal friends say no, it's not your person. I love that. So you know you've got your pitch down, you know your value, you're representing your company and your service or whatever you're doing, and until you have five people that you really wanted to work with say no, your pricing's not too high. So it's an interesting place to be. But I know that we're also with a lot of law firms going from do we stay hourly? Do we do flat rate? You know and taking advantage of technology, what in some cases AI can help make those your cost per task and time less by using technology. And that is another way of another thing to think about. So I love that you help small businesses law firms examine all the different aspects of where their money's going and where they could save money and where they can grow.

Speaker 3:

Yeah, I think one of the interesting analysis that we had done was the fixed fee or the hourly rate analysis, and it really depends. Again, going back to the customer. So we had in the ETA space the entrepreneur through acquisition space. So people buying businesses, A lot of them are cost conscious.

Speaker 3:

Some of them are coming out of their MBA program saddled with debt and if you just think about putting yourself in their shoes and the way that they're trying to approach the market, knowing that this first business they approach, they're likely not going to close. It's usually not the first one. They usually go through a handful of due diligence and they may even get down the legal path and then the deal blows up. You've seen deals blow up over arguments over working capital, how much cash should stay in the business, and so, as you're very cost conscious, you have a limited level of resources to be able to get this deal done. It just makes sense, thinking about it from their perspective, that a flat rate made way more sense than an hourly. So there's some level of predictability around. What can I expect in budget for? And so sometimes it's more about the. You know not where you want to stand in the market, but ultimately where your customer is standing and what they can afford in the psychology that they're kind of working in.

Speaker 2:

Excellent, excellent, thank you. So let's talk about struggling and thriving. So, in your experience, what's the difference between a business that one is struggling?

Speaker 3:

and one is thriving. Well, I could tell you what the conversations look like in terms of the conversations around the businesses that are struggling are more around cost management and resource management and how it's kind of a scarcity mindset around what, what can we do with as little as possible and who could take on more responsibilities?

Speaker 3:

could take on more responsibilities Like, look, and why we like to be focused more on growth. It's like the team, the organization typically needs these resources especially to grow, and so it's really a different mindset around the scarcity or abundance mindset, and so those conversations typically aren't fun and you can kind of get a sense of those pretty quickly. And those are the businesses that are struggling and those are the conversations that you're constantly having. It's not you know what utilization rate is this person at and what's a healthy level? It's how much can we burden and saddle them with before they break and we have to hire someone.

Speaker 2:

You know, I don't know if that's a long-, then you risk them quitting right whenever it's going to leave you in a lurch. Yeah, the scarcity mindset is a difficult one. We always end up going back at bad times. It's like what cost can we cut? That's not always the best question to ask.

Speaker 3:

That's exactly right. And how can we grow our top line? So it's really that growth mindset and the businesses that are thriving. We're really looking at the forecast model, we're talking about resource allocation for the future, and those are the businesses and conversations that we really enjoy having.

Speaker 3:

And look, there's times where you kind of got ahead of your skis a little bit and you know, even if you tried to manage expectations around some of the conversion rates and knowing that as you expand to the market, a level of conversion is going to come down. But you know, sometimes the owners or the team kind of department heads in that arena don't believe that to be the case, as much as you can vocalize that to them, and so sometimes you get a little bit ahead of yourself and then you're dialing it back. But people talk about, like J-curving your business model and a lot of people think about it in terms of it just being one time you invest, you J-curve and then it's just off to the races, growth up and to the right. And the reality is it's really a dance of, you know, back and forth and making sure that everyone's, you know, has has the proper, the proper, you know cadence, I guess, within the dance, knowing that you're going to be J curving and kind of in a wave format where you're going to have.

Speaker 2:

It's never always, you know, up into the right it's yeah. Entrepreneurism is not that, and we all know that. It's kind of like social media it's everybody's highlight reel. You don't see the struggles. So you've got to keep trying, you've got to keep growing and keep doing what you need to do to evaluate and grow.

Speaker 3:

That's exactly right and you have a little bit more flexibility and cushion in that kind of next curve where you're reinvesting into the business. But ultimately you just kind of have to realize that it's a cycle and you're going to have to really think about what this future growth looks like and how you're going to manage it. And one last thing I will talk about, because I was having an interesting conversation with a lawyer who was starting to have the realization that they didn't they weren't building a transferable asset. They had a great, they had a great practice, cashflow was amazing, but the reality is is that they weren't able to step away from it in any capacity. They were the business. I think it's important for people to realize that the less the owner of the business is involved, the more valuable the business is.

Speaker 2:

Yes, I mean it's like you know in people in my industry. You don't want your name to be the value of the business. It should be a variant, but it has to run without the attorney. It has to continue to be an asset without having the name to turn in, but it has to run without the attorney. It has to continue to be an asset without having the named attorney in it.

Speaker 3:

And that's what we kind of help our clients understand is what do you want to build? What are we building for? All right, and if that is the absolute goal line here, let's reverse engineer how we get there. And that's really where the fun starts, in building that forecast and what we need, and in the continued ways of the business as we get there. And it's a lot of fun.

Speaker 2:

I love that. I love the challenge of getting to the story. You know deciding what do I want? So anybody that's listening, if you want to go through the exercise of what do you want, what in the end, how do you want to exit, or what do you want from your business, definitely reach out to Tom here Now. I know my listeners are going to want to connect with you and maybe reach out and schedule some time with you. Where's the best place to do that?

Speaker 3:

So you can email me at Tom at frackfinancecom that's F-R-A-k. Financecom or go to our website, frack financecom, and you can geta hold of us there as well awesome.

Speaker 2:

I will make sure that both of those are in the show notes and this has been. This has been very interesting. I appreciate your time and thank you for taking the time to come on the show thanks for having me.

Speaker 3:

It's great seeing you again, marilyn absolutely thanks for joining me today for this episode.

Speaker 4:

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 lawmarketingzonecom 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 1:

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 success. Head over to our website at lawmarketingzonecom. From there, connect with other listeners, access valuable resources and stay up to date on the latest episodes. Don't forget to subscribe and leave us a review on your favorite podcast platform. Until next time, keep leading with vision and keep growing your firm.

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