How Law Firm Owners Can Build Cash Flow Stability with Charles Harris, CPA (Ep. 136)

Written By Adedayo Adekunle

Running a law firm isn’t just about legal expertise, it’s also about building a stable, profitable business. Too often, law firm owners are just one bad month away from a cash flow crisis. If you’re seeking practical ways to safeguard your firm’s financial health, you’re in the right place.

On the latest episode of The Lawyer Millionaire Podcast, host Darren Wurz sits down with Charles Harris, CPA and founder of Charles Harris, CPA, to talk about cash flow management and smart financial strategies for law firm owners. Here’s a rundown of the actionable advice and key takeaways you need to create more stability and long-term wealth for your practice.

Why Cash Flow Matters for Law Firm Owners

As Darren puts it, “Most law firm owners are one bad month away from bankruptcy.” Whether you’re just starting out or have been in practice for years, unpredictable revenue can put immense stress on your business and personal life. The key is building a cushion so your firm can weather any storm.

Charles Harris specializes in helping law firms organize their books, plan for taxes, and keep more of what they earn. The foundation? Separating personal and business finances with no exceptions.

Step 1: Separate Your Business and Personal Finances

Still mixing business and personal expenses? You’re not alone—even experienced law firm owners fall into the trap. But as Charles explains, “the longer it goes, the more complex, the issues become.” Commingled finances aren’t just an accounting headache. They can lead to lost tax deductions, audit risk, and an unclear picture of your profitability.

  • Key Action: Open dedicated business bank accounts and keep all firm transactions separate. This clarity saves time, money, and stress at tax time, and protects you in case of an audit.

Lawyers have an extra layer to consider which is IOLTA accounts. Keeping these client funds strictly separate isn’t just good practice, it’s essential to ensure compliance and avoiding disciplinary issues.

Step 2: Pay Yourself First and Track Your Real Compensation

One sign of a healthy law practice is the owner paying themselves consistently. Charles and Darren both advocate for regular, automated payments so you aren’t constantly shuffling money between accounts or relying on random draws.

It’s not just about your “salary,” either. Track your total owner benefit, including distributions and perks like a company car. Understanding this number keeps your personal financial planning accurate and helps you set realistic goals for retirement and growth.

  • Key Action: Set up automatic transfers for both salary and discretionary draws. Track all owner benefits to see your true compensation.

Step 3: Build Your Emergency Fund for Business and Personal

Every law firm should have a financial cushion. Charles recommends three to six months of operating expenses, including payroll and rent, set aside in a high-yield savings account or money market fund. If your practice handles billable work that’s paid on a contingency or takes time to settle, six months is wise.

Personal emergency funds matter too. Both sides need a buffer to keep you from dipping into firm cash flow or personal savings when unexpected events arise.

  • Key Action: Start small if needed, and automate monthly transfers. Even $1,000 a month quickly adds up so consistency is key. Leverage cash management tools to earn interest on your reserves.

Having this liquidity means you’ll be prepared for both personal and market downturns and can even avoid taking out costly loans.

Step 4: Optimize Your Cash—Don’t Let Your Money Sit Idle

Too many law firm owners leave substantial sums sitting in basic checking accounts.

Upgrade your cash management:

  • Utilize high-yield savings accounts, business brokerage accounts, or conservative money market mutual funds to earn meaningful interest.

  • Once you build up healthy reserves, you can borrow against your brokerage account, often at better rates than a traditional business line of credit.

Step 5: Smart Tax Planning Is About Profit Maximization

Tax optimization is vital but don’t fall for viral hacks or chase deductions that offer minimal value. Charles cautions, “If I'm going to be spending five hours to help you do the Augusta Rule and I'm going to save you 100 bucks, it's not going to be worth it.”

Focus on the basics first: separating expenses, tracking owner benefits, and funding your emergency reserves. Approach advanced strategies only if they make sense for your firm’s structure and long-term goals. Always weigh the time, cost, and true benefit.

As Darren says, “It's not all about getting your taxes down to the lowest possible amount every single year.” Plan for the long haul as sometimes you’ll pay more now to save much more in the future.

Bonus: Buy Back Your Time - Leverage Support Staff Wisely

If you’re trying to do everything yourself, you’re slowing your growth and risking burnout. Both Charles and Darren reference Buy Back Your Time by Dan Martell which is a must-read for building systems and delegating tasks.

Start by hiring an executive assistant before paralegals or junior attorneys—reserve higher-value staff for work that requires their legal expertise. Buy back your time so you can focus on growing your firm and serving clients.

Ready to Master Your Firm's Finances?

Building financial stability in your law practice doesn’t have to be complicated. Start by separating your finances, paying yourself first, and consistently saving toward a robust emergency fund. These foundational steps will put you on the path to long-term wealth, minimal stress, and business growth.

If you’re ready for a clear, proactive financial plan for your law firm, The Lawyer Millionaire team can help. Schedule a consultation today, join our exclusive Book Club, and unlock new strategies to turn your practice into a wealth-building machine

Resources:

 

Connect with Darren Wurz:

 

Connect with Charles Harris:

 

About Charles Harris:

Charles Harris is a CPA who loves to help people understand the numbers of their business. In both tax and accounting roles he has assisted in helping businesses make good decisions to save money and increase profitability.

His specialty is working with small law firms (1-10 attorneys) all across the US. He understands the unique challenges that come with legal practices from maintaining IOLTA accounts in compliance, trust account issues, optimizing partner draws, and ensuring cash flow despite month to month income variations.

TRANSCRIPT:

Darren Wurz [00:00:00]:

Most law firm owners are one bad month away from bankruptcy, and here's how to fix that. All right, and we're here with Charles Harris, founder of Charles Harris, cpa. And, Charles, welcome to the show.

Charles Harris [00:00:14]:

So glad to be here, Darren. Thanks for inviting me.

Darren Wurz [00:00:17]:

Yeah, absolutely. It was great to connect on LinkedIn. As I recall, you're a CPA who is focused on law firm owners as we are. So it was great to meet someone in the space who is focused on law firm owners. Tell us a little bit about what you're doing in your business.

Charles Harris [00:00:39]:

Yeah, so we're relatively new. We've been open for a little over a year and a half now. We do bookkeeping, tax planning, and tax preparation. And like Darren said, mainly for law firms. They make a little over 50% of our client list. So obviously that's just been a growing segment, and we're just going to lean into it more and more. Mainly because I love working with lawyers, and they're fun, they're interesting, they have good issues to have, and it's engaging work. Right.

Charles Harris [00:01:08]:

So hard to complain. So we've just been leaning forward and just enjoying life. And, I mean, I was just telling Darren before this, we're just finishing up tax season for extensions, which is super exciting. And then we're into tax planning season, which is some of the most fun periods of time.

Darren Wurz [00:01:28]:

Yes. Tax season never ends. Does just keeps going around the year. Yeah. So I feel for you and for all the CPAs out there, for sure. Yeah. So I'm also really excited to talk about you because you have a lot of experience in the world of entrepreneurship. You have a podcast that talks about that.

Darren Wurz [00:01:52]:

Tell us a little bit about your background there.

Charles Harris [00:01:56]:

Yeah. So again, I started my business a year and a half ago, and it kind of took off pretty quickly, and, boy, it just blew my mind at the flexibility and the freedom it gave me. And so I just really quickly became evangelist for entrepreneurship. And then I have a really good friend who got a PhD from Oxford in business strategy, and we were talking one day and we said, well, why don't we talk about entrepreneurship? So he runs an entrepreneurship institute at a university. And then I obviously deal with entrepreneurs on a regular basis. I've dealt with them for my whole career and this and my own firm, it's just kind of grown even more. And so it just seemed like a good fit. And it's been just so much fun to just talk about, hey, how do we go from 0 to 1? How do we buy a business? And I'm talking to other entrepreneurs as well.

Charles Harris [00:02:48]:

And so it's just been a lot of fun.

Darren Wurz [00:02:52]:

Yeah, absolutely. And that is part of the fun of working with law firm owners is, you know, they're entrepreneurs and they've got a lot to deal with and think about in growing their businesses. And on the podcast lately, we last couple of episodes, we've been talking a little bit about cash flow management. We talked about the importance of separating your personal and business expenses in the. And finances generally in the first episode. Do you have some thoughts on that?

Charles Harris [00:03:25]:

Well, first you have to separate your business and personal. I don't care how smart you think you are, how much you know, in three months, you're going to forget what that transaction for $5 was from Amazon. And, and Amazon's not a perfect example because you can go back and find the receipts. But I have seen so often the longer it goes, the more complex, the more issues become. And then recently I did a cleanup project going back three years. And, you know, what ends up happening is that they lose a ton of their money because a lot of those business deductions you can't prove. So in reality, you can't take them as a business deduction. It was commingled with personal.

Charles Harris [00:04:08]:

It's impossible to tell. And so from my perspective, I want to be conservative. I don't want the IRS to come down and audit me and then audit my clients. Right. And so I'm going to say, hey, look, this is not a business deduction. There's nothing we can do to prove this. And so it's costing that person a lot of money. And so we've got to keep it separate.

Charles Harris [00:04:29]:

That's the bare minimum we do. And then obviously from there, we can build and do a bunch of interesting cash flow things. We can make sure that we have enough reserves. But that's, that's my first thing, make sure to have a separate bank account. So I'm glad you're emphasizing that as well.

Darren Wurz [00:04:46]:

You know, it sounds like such basics, but I see it all the time. Even in law firm owners who've been running their business for a long time. You know, they have. Even if they have separate accounts for things, there still are, you know, personal transactions happening over here and business transactions happening over there. And it just creates a lot of fogginess in the tax reporting world. Yes. So much time is wasted. You've got to go back through.

Darren Wurz [00:05:12]:

You've got to look at all those things. You got to figure out, you know, what, what did I spend this money on? Yeah, absolutely.

Charles Harris [00:05:19]:

And then Lawyers also have a special thing on top of this. Right. They have to keep their iota separate, too.

Darren Wurz [00:05:25]:

Yes.

Charles Harris [00:05:26]:

So we often talk about, hey, keep business and personal separate. Part of the fun of working with lawyers is they have special accounts and special regulations. That's why I enjoy working with them. Yeah, but you have to keep that Iolta as separate as your personal is with your business, if not more so. Right. That can lead to disbarring and other fun things like that. So we've got to keep it separate.

Darren Wurz [00:05:48]:

Yeah. In fact, it was interesting, I learned this recently, that Iolta issues are the number one disciplinary thing facing lawyers. That's the number one thing that. That bar associations are coming down on lawyers for is issues with their Iolta accounts. So it's really, really critical that you have that squared away and that you have someone who understands it and can help you with that.

Charles Harris [00:06:19]:

Exactly, yeah.

Darren Wurz [00:06:21]:

And then on the personal financial planning side, we see this all the time where when we're thinking about retirement, law firm owners are vastly underestimating their retirement needs because a lot of their personal expenses are flowing through the fir. And even if they are justifiably business expenses, we've got to think about backing those out. And so I had a conversation with a law firm owner recently, and one of the ideas we had was, I don't know if you're familiar with the profit first system and creating separate bank accounts for different things, it can get really, really complex with your accounting. Let's create a separate account for those lifestyle expenses that are business expenses. But if the business isn't paying them, you know, and you step away from the business, you're going to have to pay them. And that way we can have a easy way to keep tabs on them. So that's something that I see a lot of.

Charles Harris [00:07:21]:

That's a really good idea. One of the my favorite numbers to track, especially with smaller law firms, is it's a key performance indicator I like to keep track of called total owner benefit, which is basically your salary plus distributions plus ancillary benefits you receive. Right. And so I like combining all those together because, again, we're seeing the true value you're bringing in for yourself rather than just salary, which isn't really what's going on here. Right. It's not telling the whole story, which is why I like tracking that.

Darren Wurz [00:07:58]:

Absolutely. One of the biggest ones is, like, your car. If your business owns your car and it's paying for it or paying the lease on your car, you're not going to see that reflected in your paycheck. But that's a big part of your total owner benefit. That's a great concept. One of the things that we talked about on the last episode is we talked about the importance, and this ties into this very nicely, of paying yourself. First of all, paying yourself a reasonable salary, but then also making sure that you're actually paying yourself, you know, in an automated and regular way. I'm curious how you see that in the clients that you work with.

Darren Wurz [00:08:43]:

Where does that show up? And what are. What counsel do you give your clients?

Charles Harris [00:08:47]:

Yeah, so I think this kind of goes back to your profit first concept. Right. I fully endorse paying yourself first. You're starting your business to afford life and to hopefully have more flexibility than you did at a big firm. And so sometimes I think we kind of get distracted and we just think more and more money is what we need. And what we really need is actually to give ourselves the freedom and flexibility we created when we started our firm. And you can't know that unless you know exactly how much you're paying yourself. What is reasonable compensation? How are you going to make it through the next six months? And so I love paying yourself first.

Charles Harris [00:09:30]:

Personally, I probably would put my employees and rent. I'm maybe not quite a profit first. I don't follow it to a T. Right. But I think before you buy that new software, before you pay for additional contract support or help, you want to make sure you can pay yourself. And then after that, money is when you want to start looking at doing fun things like bringing on a new marketing person or whatever it might be.

Darren Wurz [00:10:00]:

Yeah, yeah, absolutely. And one of the things I see as a huge red flag when we first start working with clients is the movement of money back and forth between the personal accounts and the business accounts. And we've really got to get that fixed and squared away to where those are like, treated like entirely separate worlds. I see law firm owners who are having to send money back to the firm, you know, because the firm is running short or vice versa. Right. They have to repair the roof, there's roof damage, and they need to pay for that. And so they're taking a random distribution from the firm that creates a ton of chaos. It's impossible to know how profitable you are at a glance or what your actual pay is as the owner.

Darren Wurz [00:10:55]:

So that's something that we fix right away. And it's amazing how simple that is, but how huge of a difference that makes.

Charles Harris [00:11:06]:

Yeah, I mean, lawyers. Lawyers understand the importance of organization and your money. You have to be organized with your money, you have to know what things are, where things are going. Similar to you. I really like having a bit of a cushion there. I usually tell people three to six months, it's going to depend on the type of firm you are. Right. If you're a subscription based model, three months is probably okay.

Charles Harris [00:11:30]:

If your personal injury, maybe we want to go up to six months, depending on how consistent things are coming in. And so there's obviously a lot of room for flexibility on that. But I usually say three to six months, put it in a high yield savings account and then in your operating account, maybe keep a month. And that way we can have business accounts that are separate than our personal. And then we still need to be paying ourself that amount, that three to six months should include our personal pay. It shouldn't just be our employees and our rent. And I just strongly encourage that because of exactly what you're saying. The more it gets muddled, the more we co mingle, we mix, the harder it is just to be efficient and know what's going on.

Darren Wurz [00:12:19]:

Yes, absolutely. And I'm glad you brought up the emergency fund. Let's talk about that. Because so many law firms are one bad month away from bankruptcy. Right. Just razor's edge in terms of liquidity. It's so, so critical to have that buffer amount. And you need it on both sides.

Darren Wurz [00:12:46]:

You need a personal emergency fund and you need a business emergency fund. It's really, really important. What do you see? Do you see firms, do you see this where a lot of firms are just very, very thin on liquidity, or do you see them flush with cash? What are you seeing in the industry?

Charles Harris [00:13:04]:

Yeah, it's pretty thin overall. And to kind of hammer the point. Right. Covid was a great example. We didn't know it was going to happen. Obviously it didn't really impact lawyers as much as some other things could. But I mean, your estate lawyers for sure got hit. People that weren't, couldn't meet in person.

Charles Harris [00:13:25]:

Suddenly everything changed. And so we don't know what could happen. And a new emergency happens every other month that feels like something brand new, some issue that we weren't expecting. And so we need to have that liquidity. It's so important. And then we need it personally too. Uh, and I prefer that three to six months. Cause it gives us time to pivot.

Charles Harris [00:13:50]:

Um, you know, if we have to change our whole business plan, we can do it in three months. It's a lot of work and it's really hard. But you can do it. Um, and so I just, I like that cushion. Just, it makes me feel better.

Darren Wurz [00:14:06]:

Yeah, absolutely. Now, I mean, you may, if you're a law firm owner and you don't have that cushion and you're like, holy crap, three to six months. How in the heck am I going to get there, right? Where do you suggest law firm owners start.

Charles Harris [00:14:24]:

Again? Come up with how much you're going to pay yourself, right? Like just what you're talking about is the right approach. We're always going to have a little bit of a cushion above what you're going to pay yourself and what you pay all your employees and your rent. I mean, that's just, we need to be profitable, right? Not just break even. And so with that, just keep saving it and hopefully you can do 10% for 10 months. Right? Like, we don't need to say next month, I'm not going to take any money, I'm not going to pay myself, and I'm just suddenly going to have six months rent or a six month Runway. I'm not saying that by any stretch, but by being intentional, I think we can do it really quickly, especially as lawyers who, who can make a good amount of money when they need to.

Darren Wurz [00:15:10]:

Oh yeah, and I'm a big fan of automating this as much as possible. Like you can start small and just set it up on autopilot. Like let's say you have, you know, $1,000 a month going into an, you know, an emergency fund for the business. That may not seem like much and may seem like it's going to take you forever to get to your, you know, three to six month goal. But you got to start somewhere. And it's better to start somewhere small than to not start at all. And you'd be surprised, you know, a couple years down the road, you'll have a really nice, healthy emergency fund built up. You know, one of my first clients, we started doing this with, with him, we helped him set up some accounts and set up some automatic payments into those accounts.

Darren Wurz [00:15:53]:

When he first came to us, it was this situation of just cash flow chaos. There was money moving back and forth between the business and the personal accounts, right? You know, every week, every week, calling up the bookkeeper like, hey, I need $1,000 for this or I need to send, you know, $2,000 for that, you know, and so we, what we did is we just set up these automatic, automatic draw, right? Let's, let's talk about that. You can have your salary, your wages, but you can automate your Draw too. You can just have an automatic, you know, your draw doesn't have to be at random. Right. So you can, you can have that on autopilot a couple years later. He's got several hundred thousand dollars of liquidity on the business side and the personal side. He's sitting in a great spot.

Darren Wurz [00:16:39]:

Right. And actually it's funny because I have to remind him, Right. Like, actually this year started out kind of, kind of slow and he was drawing on his line of credit and I was like, well, remember you have $200,000 sitting over here in the business emergency fund. That's what it's there for.

Charles Harris [00:16:58]:

Yeah. Well, and especially you see this a lot with like personal injury. They need to take out loans for the liquidity to make it until the case settles or the payout actually happens. Right. If we can dig into our own savings instead, it's going to save us. Boy, I don't know what rates are 15, 20% these days. And that might be on the low end.

Darren Wurz [00:17:23]:

Definitely. And they've gone up.

Charles Harris [00:17:24]:

Super benefit.

Darren Wurz [00:17:25]:

Yeah. Yeah. And there's a lot of really cool things you can do. So, you know, put that emergency fund in a high yield savings. You can still get around 4% on your high yield savings. You have $100,000 in a 4% high yield savings. You're earning 4 grand a year on that money.

Charles Harris [00:17:44]:

Yeah. Another thing, don't leave it in a big bank. Don't leave it in Wells Fargo or Bank of America. Please don't. I see that a lot too.

Darren Wurz [00:17:51]:

Yes.

Charles Harris [00:17:51]:

Talk to a financial planner like Darren and move it to something where you're actually earning on it.

Darren Wurz [00:17:57]:

Yeah. It's so important. And then what a lot of law firm owners don't realize is you can open a business brokerage account, a business investment account you can have. Now, we don't want to be crazy with it. We don't want to put it in it. Put your emergency fund in Nvidia or something. I mean, although that would have been great over the last few years.

Charles Harris [00:18:20]:

Who knows?

Darren Wurz [00:18:21]:

Right? Right. And you don't have to invest it. Crazy. You can invest it very, very conservatively. In fact, you could in a money market mutual fund and basically do the same thing as a high yield savings. So there are a lot of options there for you and your business. And we've helped law firms do that. Your law firm can invest money, believe it or not, that can be an additional source of revenue and source of earnings for your firm.

Charles Harris [00:18:52]:

Yeah. Anyone's tax return who I do, and they're Earning boy, I'm going to be extreme. $10 in interest. You need to be doing something better with your money.

Darren Wurz [00:19:03]:

Absolutely. And then I'll add another really cool feature on here. So if you have a brokerage account, it gives you a lot of additional capabilities. You can actually borrow against that brokerage account at prime or close to prime. So rather than putting money, let's build up the emergency fund to a couple hundred thousand dollars. And then rather than drawing on the line of credit, we can actually have a line of credit backed against the brokerage account and we can draw on that at an even more favorable rate. Now you're earning money on the money that's in the emergency fund and you're being able to borrow at a more favorable rate. So that's where once you build the liquidity, it actually just enhances your ability to make money so much more as a business.

Charles Harris [00:19:59]:

Yeah, we complain in America all the time. Right. The people that are rich make more money. And this is exactly why, because they can take those risks. They can borrow against their money. Right. It just kind of grows and feeds on itself. And so we need to be those people that are using that strategy instead of borrowing against money we don't have or getting confused in what's going on.

Darren Wurz [00:20:23]:

Yeah. Make money for yourself instead of the bank. Right. Be your own bank, essentially. Let's switch gears a little bit, and I want to ask you about the last. We have a book club that we run here at the Lawyer Millionaire. And the last book we read was Buy Back youk Time by Dan Martell. I think you have read it, if I'm not mistaken.

Darren Wurz [00:20:47]:

Right, Charles?

Charles Harris [00:20:47]:

Yes, yes. One of my favorites.

Darren Wurz [00:20:49]:

Okay, absolutely. I know you commented on a lot of our posts, which was really, really excellent. So I want to get your feedback. When did you read this book? What kind of an impact did it make for you? Or how did it really change your thinking? What was kind of the biggest takeaway?

Charles Harris [00:21:05]:

So. Well, I read it the first time two years ago. It's been a while. And I think the first time I read it, I probably had the same impression as most people when they pick it up. Like, why is this such a fantastic book? I know I need to hire people if I wanted to grow. Right. Like, this is obvious. What I think was different about it and that kind of unlocked in my understanding wasn't so much that we need to hire people, but we need to create processes and systematize and then suddenly we need to figure out where our lowest points are.

Charles Harris [00:21:48]:

Right. And I love his Example of the secretary, because I know eventually, right, everyone should have an executive assistant. But speaking for myself, I work from home. It would be virtual. Like, what can she really do or he do? Right. Like, it's so nebulous, I guess, in a lot of ways. And I loved how he just simplified it, streamlined it, and like, these are the things that they can be doing. And it really helped kind of understand how to buy back my time.

Charles Harris [00:22:22]:

So it was very practical, which I really appreciated. And then just on a higher level, it's interesting to view his life and have him talk about it and how he has an executive assistant. He has a personal executive assistant. And then how he schedules all his meetings with them to then systematize his life to have better results.

Darren Wurz [00:22:45]:

Absolutely. I love that. So for me, it was one of the catalysts that started me on my business growth journey. My first hire was my executive assistant following his replacement ladder. And I agree with you, it really was just taking it and breaking it down and making it simple. Like, here's how you go about it and here's kind of the order in which you can think about getting things off of your plate. So often in the financial planning world, we think I need to hire another advisor. And in the law firm world, the thought process is I need to hire another lawyer.

Darren Wurz [00:23:24]:

Well, lawyers are expensive, and it's a very, very competitive environment for lawyers if you're looking to hire somebody for your team. So a much easier place to start is to leverage your time more effectively by hiring an executive assistant and starting there and then slowly moving up the ladder in terms of complexity.

Charles Harris [00:23:50]:

So that I'll even build on that too. Right. I. I often see lawyers hire paralegals, and then the paralegals become an executive assistant, basically, which is fine. I, I understand it. But again, you're paying someone that has at least some legal expertise and you can leverage their time to make a lot more money than you can an executive assistant. And so it's really kind of hurting yourself and not saying that apparel, like, if your paralegals become your executive assistant, that's o too. And maybe it's useful in your firm because they have to understand what's going on.

Charles Harris [00:24:27]:

But I've just seen that a lot. And I am curious after reading buy back your time, if they could substitute for a better situation.

Darren Wurz [00:24:37]:

That's such a great point, and I see that all the time as well. The paralegal is the first hire, but the paralegal shouldn't be triaging your email inbox. You're paying Somebody who's way overqualified to do that. That's something you could hire at a much lower rate and you could have the paralegal doing much higher value tasks. So that is a really, really great point. So the next book we're reading, Charles, is a random walk down Wall Street. And I'm really, really excited for this book because the stock market has just really been on a tear and there's so many new things happening with AI and there's a lot of speculation about, you know, stock market valuations. Are they getting too high, too much, too far ahead of themselves? We've seen some crazy things happen in the markets over the last five years.

Darren Wurz [00:25:35]:

We had Covid and then we had the meme stocks, and then it's been an interesting several years. So I'm really excited to dive into this book and unpack some of those common themes. I just want to kind of quickly get your take. What do you think? Do you think we're in a stock market AI fueled bubble or what is your perspective?

Charles Harris [00:26:01]:

Boy, no matter what I say, the opposite is going to happen. I am sure of. Feels like to me, we're in a bubble. But I thought we'd been in a bubble since COVID I thought Covid was a bubble too. So I don't know. That's kind of, kind of where it is. Maybe, maybe it's my accounting pessimism coming through, but I just don't know.

Darren Wurz [00:26:24]:

It is hard to know for sure. And we never really truly know until the dust settles. One of the biggest lessons from the book is guarding yourself against getting swept up in a lot of the hype. And that's really where investors go astray and get into a lot of trouble is, you know, abandoning kind of a tried and true methodology or, you know, abandoning a good old fashioned S&P 500 fund to jump into, you know, a leveraged Nvidia fund. I guess we're picking on Nvidia today, I don't know, but really throw up another thousand points. I mean, I have no idea, you know, Absolutely. But that's kind of. That's really one of the biggest lessons and that actually can apply to so many parts of life.

Darren Wurz [00:27:19]:

You know, it can be really easy to get swept up into that herd mentality and chase trends. They're in business in, you know, different marketing tactics and things like that. Do you see that in some of the clients that you work with?

Charles Harris [00:27:37]:

Yeah, I think usually where I see the same kind of concept is with tax deductions. Right. I'll have people reach out and say, I need to be using the Augusta Rule. And I'll say, that's great. The Augusta Rule is a great tax deduction we should take advantage of if we can. And then I look at their books and all their business and personal expenses are commingled, and I say, okay, we gotta step back. We gotta do what's we got to do. The basics.

Charles Harris [00:28:05]:

We have to make sure we're separate. We have to make sure we're taking all of our current deductions that we can. I'm happy to help people with the Augusta Rule. Employing your children. What are some of the other ones that I hear a lot? I think those are probably the most common.

Darren Wurz [00:28:24]:

Yeah, well, there's so many. And, you know, it really has to be a balance of, you know, risk and reward. And how much time do you want to invest in this to get the reward right? Because some of these things, you're going to have to put in some time and some money to get it working. And do you really want to do that? Do you really want to put forth the effort to do that right?

Charles Harris [00:28:48]:

And I'm going to pick on the Augusta Rule because I hear this one a lot, and it's one of the more difficult ones to reasonably do. But if I'm going to be spending five hours to help you do the Augusta Rule and I'm going to save you 100 bucks, it's not going to be worth it. And so I think a lot of times we hear these grand schemes and it's just not worth it. That doesn't mean we can't do it or they don't work, but everyone's situation is different. And so I think a lot of the excitement, the herd mentality comes from these deductions that they just heard about. And they're all excited. And then we look at it and it's like you can rent out your home for, say, $500 a day, and we could do that for. Boy, I forget how many days you could do the Augusta Rule for.

Charles Harris [00:29:40]:

So some other CPA can come on here and judge me, but let's say we rent it out for three days and then. So that's $1,500. We can add that as a deduction. It's going to save us, let's say, high end, 30% of $1,500. So about $500. Is that really worth it? Maybe not. Maybe not.

Darren Wurz [00:30:03]:

It all goes back to the buy back, your time concept. Right. Is the time and money that I put into making this happen going to. Should I really carve out five hours to make this specific deduction happen for myself? To save X amount, you need to weigh that. You need to see if it's going to be worth your time. And you know, it does. I'm glad you mentioned this. You know, it's kind of a different turn on the herd mentality, but it is kind of a thing.

Darren Wurz [00:30:32]:

I see like tax planning being like such a huge kind of viral topic right now. Everybody's interested in tax planning and it, it makes me chuckle a little bit as a financial planner because so much of it is, is hype. I've seen tax plans that people have paid thousands of dollars for somebody to put together, and it's of deductions that you could have gotten from ChatGPT. It's like there's nothing really extraordinary about it. In fact, I saw a tax plan put together where one of the recommendations for a law firm was there was something about hiring ex convicts in your business and you can get a tax deduction. And I was like, well, do you really want to do that? I mean, maybe, but is that maybe so I just, I mean, you can get your taxes down to zero by spending all your money. Sure. But that.

Darren Wurz [00:31:34]:

I like to rephrase tax planning as profit maximization because that is really what we should be all, all about.

Charles Harris [00:31:44]:

And you know this better than than most, right? Pushing off your taxes 0 tax bill today means you have a higher tax bill in the future, generally speaking. And so it's all about timing it to be the most efficient possible to get us in the lowest tax bracket possible. And it's going to vary for every person. And that's why it can be useful. But even something like the cost segregation and R and D tax credits, they can be really beneficial. And if we save that money and invest it correctly, it can be hugely beneficial. And so I'm a strong proponent. There are tax saving benefits out there, but we need to understand that even depreciation, which we're all excited that it's back to 100% on assets if we take the depreciation now, when we sell the asset, we're getting taxed or when we get rid of the asset, we're getting taxed.

Charles Harris [00:32:35]:

Right. And so it's just pushing off taxes to a later time.

Darren Wurz [00:32:39]:

Yes, yes. Thank you. Thank you, Charles. Because so much tax planning is like, okay, oh look, we saved you a million dollars in taxes this year. Well, no, you deferred that into the future. And at the end of the day, some years we actually might want to pay more in taxes. So it's not all about getting your taxes down to the lowest possible amount every single year, because that is absolutely true. You are going to be just shifting things down the road in many cases.

Darren Wurz [00:33:18]:

And so when we think about tax planning, we really want to think, like, let's look at the long, you know, let's look over the next 20, 30 years and make sure that we are paying the tax when it makes most sense to pay it.

Charles Harris [00:33:32]:

Yeah.

Darren Wurz [00:33:34]:

Well, great. I'm glad we're on the same page there. That's. That's fantastic.

Charles Harris [00:33:39]:

It's a pet peeve of mine. I see it too often. People want to get down to zero, and it doesn't make any sense generally.

Darren Wurz [00:33:47]:

Well, actually, taxes. In Greg Crabtree's book Simple Numbers, he argues that taxes are actually one of your top financial KPIs. The more you're paying in taxes, the better you're doing generally.

Charles Harris [00:34:02]:

He's right.

Darren Wurz [00:34:04]:

So it's not necessarily a goal to. I mean, yes, we want to be as efficient and optimal with our taxes as possible, but we're not necessarily out to get them all the way down to zero, as you said.

Charles Harris [00:34:18]:

Well, and you should try and get them lower if you can, and it's reasonable and it makes sense.

Darren Wurz [00:34:24]:

Definitely. Definitely. Well, Charles, we're out of time, but it's been really fantastic having you on and talking about all things cash flow and taxes and getting your take a little bit on the market. So thanks so much for being here. Why don't you tell us a little bit? Tell our listeners where they can find you if they want to learn more about you.

Charles Harris [00:34:46]:

Yeah, I'm pretty active on LinkedIn. You're welcome to reach out to me there. You're welcome to go to my website or you can come listen to my podcast. It's the Unsexy Entrepreneurship Podcast. If you can spell it, you can find it. That's always the harder part. But we have a lot of fun. We just talk about business basic principles and.

Charles Harris [00:35:10]:

And some tax principles in there as well. But yeah, just reach out to me.

Darren Wurz [00:35:16]:

Sounds good. Well, thank you, Charles.

Charles Harris [00:35:18]:

Awesome. Thanks, Darren.

Darren Wurz [00:35:19]:

All right, a huge thank you to Charles Harris of Charles Harris, CPA for joining me today in this conversation on cash flow, taxes and smart money management for law firm owners. You can connect with Charles on LinkedIn or check out his podcast, the Unsexy Entrepreneurship Podcast. You'll find the links in the show notes. Remember, my friend, financial freedom starts with clarity. Separate your business and personal finances. Pay yourself first and build that emergency fund so your firm can thrive through any season. Here at the Lawyer Millionaire, we help law firm owners do exactly the that creates structure, consistency, and long term wealth through intentional financial planning and smart business strategy. If you're ready to turn your practice into a wealth building machine, we can help you too.

Darren Wurz [00:36:15]:

Now, this episode ties perfectly into our Lawyer Millionaire Book Club where we dive deeper into books like Buy Back your Time and a random walk down Wall street to help law firm owners like you master your money and business growth. And the good news is, you can join us. The link is in the show notes. Now, who is the Lawyer Millionaire? That's right, it's you, my friend. Own it and live it. I'm your host, Darren Wirtz. Thanks for joining me. See you next time.

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Cash Flow for Law Firm Owners Part 2: The #1 Fix for Lumpy Revenue (Ep. 135)