Revenue-Rich, Profit Poor: The Mental Traps Sabotaging Law Firm Owners' Cash Flow (Ep. 150)
Are you leading a high-revenue law firm but wondering why there’s so little profit left at the end of the year? You’re not alone. Many law firm owners find themselves making impressive money, only to discover razor-thin margins or worse, running their businesses paycheck to paycheck. After years of coaching law firm leaders, I’ve found the same core mental traps creeping in again and again, silently siphoning away their profits.
Let’s break down these five mental traps so you can spot them in your own business and take steps to maximize your profitability.
1. The Scale Illusion: Bigger Isn’t Always Better
It’s easy to assume that growing your top-line revenue will inevitably lead to higher profits. The truth? Larger firms often struggle with even thinner margins than small practices. Growth brings bigger expenses, higher payrolls, more overhead, and more complex management challenges. Instead of focusing on size, ask yourself: Why do I want a bigger firm? Will it actually solve my problems or simply create new ones?
Action Step: Before chasing growth, consider how it aligns with your financial health and long-term vision.
2. The Survival Trap: Chasing Revenue at Any Cost
When faced with a financial crunch, many owners jump at any opportunity for quick cash, whether it’s adding a new service line or slashing prices. But not all growth is created equal. Chasing revenue without a clear strategic fit can drain your energy and resources, and distract you from the proven drivers of profitable growth.
Action Step: Think beyond immediate gains. Ask: What are the second-order consequences of this new initiative, and how will it impact my firm’s long-term profitability?
3. The Revenue Deception: Top-Line Obsession
It’s tempting to focus solely on the numbers making headlines, “My firm did $10 million last year!” But what really matters is how much you’re taking home after taxes, payroll, and overhead. High revenue does not automatically mean high profit. Many law firm owners run their businesses waiting for the next client payment without ever truly building wealth.
Action Step: Regularly track your real profitability, not just revenue. Understand your expenses and margins so you can make better decisions.
4. The Bank Balance Mirage: Mistaking Cash for Profit
Glancing at your bank balance can be deceiving. Having cash in the account feels great until a wave of bills hits and the well dries up. Most firms don’t fail because of lack of revenue, but from timing mistakes and poor cash flow management.
Action Step: Structure your banking and bookkeeping systems so you have a clear picture of cash flow, upcoming expenses, and true financial health. The “Profit First” method is a great place to start.
5. The False Finish Line: The Moving Goal Post
“If I just hit this revenue goal, I’ll finally be profitable.” Sound familiar? In reality, profit isn’t a destination—it’s a habit that needs to be baked into your operations from day one. Growing your firm won’t magically make it more profitable unless you focus on improving margins at every size.
Action Step: Ask yourself, What could I do right now to increase profitability without growing revenue? Tighten processes, reduce unnecessary spending, and make sure your prices reflect the value you provide.
Resources:
Book: Profit First - Transform Your Business from a Cash-Eating Monster to a Money-Making Machine by Mike Michalowicz
Connect with Darren Wurz:
Transcript:
Darren Wurz [00:00:00]:
If you're making great money but not sure where it's all going, these four mental traps could hold the keys to changing that dynamic forever. It's not unusual to see a $2 million firm throwing off less profit than a $200,000 firm. Welcome, friend, to episode two in our profit Systems series. This part of this is part of Profit on purpose 2026 happening right now inside the lawyer millionaire community. And by the way, you can join us just click the link in the show notes. So today we're expanding on what we talked about last week, which was the growth trap. And I want to talk with you about the four mental traps. Actually, it's five mental traps that keep us stuck in the revenue rich, profit poor quadrant and are silently killing your cash flow.
Darren Wurz [00:00:59]:
You could think of it as four boxes. You know, low revenue on the bottom, high revenue on the top, low revenue on the left, or low profit as a column on the left and high profit as a column on the right. Where we want to get to is the high revenue, high profits. That's the quadrant we really want to get into. And why this matters, of course, is because at the end of the day, profit really is all that matters. And so many law firms are operating on razor thin margins. They have great revenue but little to no profit. They're one bad month away from bankruptcy.
Darren Wurz [00:01:41]:
It's true. I see it all the time. And if it's not you, it could be you very, very soon. Because, friend, this is an easy trap to fall into. It's so easy. Been there, done that. I've made my share of business mistakes. You know, you get all excited, you get your goals, you're kicking off the year.
Darren Wurz [00:02:03]:
You've got some great ambitious targets. This year we're going to double revenue. So you spend a crap ton on marketing. You invest in all kinds of things and it's okay because it's all going to pay for itself. Right? But did you hit your goals and was there money actually left over? You know, even multi million dollar firms have these problems too. Are you spending like it's going out of style? And you know what I'm talking about? Let's ask the hard questions. Did that $30,000 you spent traveling to conferences last year really benefit your bottom line? You want to grow, but are you focused on the one or two things that really drive strategic growth in a profitable and sustainable way? Are you relying too heavily on big marketing spend to just keep the money wheel cranking? Are you giving away discounts and making yourself unprofitable? Just to get the business because you don't have enough confidence in yourself. And here's the real kicker.
Darren Wurz [00:03:13]:
How much more could you have brought home last year, spent on your family, put in your daughter's college fund, Contributed to your 401k if you had just spent a little less? You already know this, but you struggle with it. Why is that? We all struggle with this. This to some degree. And the reason is there's a lot more to it than just logic. At the end of the day, we are human beings and there are psychological biases that cloud our judgment. And we're all prone to these psychological biases. They impact our behavior. They are mental barriers that are keeping us from profitability.
Darren Wurz [00:03:56]:
They're kind of like money scripts. We've talked on this show before about money scripts. These are business money scripts that have programmed your thinking and keep you sabotaging your own business. The good news is understanding these could free you. Recognizing these mental traps in your life could keep you from terrible mistakes or worse, bankruptcy. And as it turns out, the biggest secret to success in business, I'm going to give it to you right now. Ready? Write it down, because this is it. This is the one.
Darren Wurz [00:04:30]:
This is the biggest secret to business success is not making stupid mistakes. That's it. And avoiding these could be the key to massive profitability for you. Profitability that could help you do all kinds of things that could fuel your dreams and goals, that could send your kids to the best school, that could take your spouse on that dream vacation. You could complete that final home renovation. You could build a nest egg that gives you the confidence to step away if you want. So what are these mental traps? Okay, we're going to go through the list, and for each one, I'm going to give you a key question, a question that you can ask yourself that will help you recognize and dig your way out of of these traps and hopefully avoid them in the future. So here they are.
Darren Wurz [00:05:24]:
The first mental trap is the scale illusion. It's the illusion that bigger is better. But as it turns out, bigger is not necessarily better. Even though we all want to grow, bigger is only better when we have financial health. And there are a couple of reasons why we talked about these on the last episode. So I'll just summarize them for you. Bigger means bigger problems. It means bigger budgets, larger expenses.
Darren Wurz [00:05:54]:
You have to keep the money coming in to meet those expenses. And bigger doesn't mean bigger profits. That's a key one. There's a false assumption among business owners, and it's common Maybe you've had this yourself, that at a certain point in revenue, you'll reach profitability, and when you get there, surprise, it's not what you thought. Okay, here's the key question to ask yourself if you find that you're prone to the scale illusion. Ask yourself, why do I want a bigger business? Really, truly. And if I do, what problems will it solve, actually solve, and what problems will it create? The second mental trap that we often fall into as business owners is the survival trap. The survival trap is where we're willing to do anything to make a buck.
Darren Wurz [00:06:55]:
The problem is all growth is not equal. And I have seen this with many of my clients that I have been speaking with lately. So I think this one is highly relevant. You know, when we're in a crisis, we're not thinking logically, we're thinking emotionally. It's our. Whatever, the other part of our brain that kicks in. And as a result, we grab for the first solution that we see without really thinking through it critically. You know, our brains go through different states, and you actually can become a completely different person when you're not in a logical state, when you're in an emotional state.
Darren Wurz [00:07:36]:
And we're all prone to this. Okay. There are many things that will take you out of a crisis. So what is the survival trap? The survival trap is where you're just trying to do anything to make a buck to increase revenue. The problem is there are lots of things that will move you to higher profitability that will take you out of the crisis, but there are many things that will also take you further away from your vision. I've had several clients lately who've been frustrated with the practice area they're in, and they've toyed around with, hey, you know, I'm thinking about adding this new practice area. Hmm. I think I want to get into personal injury, because those are the guys that make all the money, Right? Or I think I want to add this new service line because it's something we could.
Darren Wurz [00:08:28]:
It would be easy cash, easy, fast cash, and we need some extra cash. So many business owners fall into this. Now, I'm not saying it's always a mistake, but you want to really be clear on why you're doing what you're doing, and what are all of the. What are all of the effects? What are all of the secondary consequences? You know, sometimes we want to add a new service or stack value into a client offering for some fast money, but we need to think, what will it actually do to our company? What will it actually do to who we want our company to serve. There's a difference between profitable income and debt generating income. The problem with easy money is it's never as easy as we think it is or everyone would be doing it. And when you find something that you think is easy money and has a high profit margin, watch out, because it's the target of other people who are looking for profitable things to do as well. And the problem with adding a new service line or, you know, adding a new thing.
Darren Wurz [00:09:39]:
And actually, this is kind of really related to the book Profit first that we're reading. Mike talks about the guy who mowed his lawn and how he kept adding new services. And eventually it's like, hey, I could fix your roof too, and I could do this and I could do that. And the problem is you're working against scales of economy and you're working against scales of efficiency. And instead of something actually adding revenue to your bottom line, it ends up costing you. And the biggest cost of all is the expense of our time. How valuable is your time? You know, wandering down a rabbit trail to chase some new service or that you're going to add to your clients or market to your clients without having really thought it through first can be a time suck. And you know, that can be very distracting.
Darren Wurz [00:10:32]:
As a business owner, you've got to be focused. You've got to be laser focused and dialed in on the number one thing that drives your success. That's it. You've got to be laser focused. And it can be so easy to get wandering down another rabbit hole. I had a conversation with a client who was going to invest in this tax scheme. It was going to save him a bunch of money. He just had to fly to another state and spend a few hundred hours doing this, that, and the other.
Darren Wurz [00:11:03]:
And I said to him, how much money will this actually save you in taxes? Okay, now let's think about the time that you're putting into it, and let's think about the value of your time, and let's think about the opportunity cost. And what's the cost of your time if it's not invested in your business? Hmm. At the end of the day, we need to be doing the things that drive the biggest results. Adding new things can work, but be aware there's a potential loss of efficiency as the business gets bigger and more complex. It becomes harder to manage and costlier to run, and we fool ourselves into thinking that we're making progress. So if you are prone to the survival trap and you are a shiny object person like me, a quick start. You like to jump into new things. I do this too.
Darren Wurz [00:11:50]:
Okay, here's the question to ask yourself. What are the potential pitfalls? What are the second order consequences of this new growth initiative? Okay, okay. Mental trap number three is the revenue deception. It's the top line revenue obsession that business owners have. We're obsessed with top line revenue. Ooh, My firm did 10 million last year. I could give a rat's ass. How much did you actually take home? That's the only thing that matters.
Darren Wurz [00:12:26]:
When we first start, it's just us, right? And so revenue is all we look at, and it's the only thing that matters. We don't have any employees to pay. We don't have extraneous expenses we have to worry about. We're just trying to put money in the bank to pay for groceries, right? As we grow, this becomes really, really deceptive because growth creates risk and brings expense. $100,000 in extra revenue does not mean you have an extra $100,000 to spend. Ah, maybe there's a light bulb going off. What are the taxes? What are the other expenses? What are or how much do you want to pay yourself? Every hundred thousand dollars in new revenue often yields $25,000 plus in payroll, $10,000 plus in marketing, 5 to 10,000 in software and overhead, and 30 to 40% in taxes on what remains. The sad truth is many business owners, many law firm owners are running their firms paycheck to paycheck.
Darren Wurz [00:13:31]:
We're just waiting on that next disbursement, waiting on the last client to pay, waiting for the government to finally send out funds, waiting for the case to settle. Waiting, waiting, waiting, waiting. And we spend our lives so obsessed with revenue and just waiting to get that next check. We're actually running our businesses paycheck to paycheck. And that is a problem. The big problem with this is that it leads us back to mental trap number one. Bigger is better. And we're all focused on revenue.
Darren Wurz [00:14:02]:
We're just focused on getting more. And we're not considering the second order consequences. How will this strain the system? Can I or my team handle the growth? Are we profitable? Will this cost more? What could go wrong? How else could we grow without making ourselves busier? If you're someone like me who is prone to the revenue deception, you could ask yourself this key question. How could you get a better, more accurate and up to date depiction of the financial health of your business on a regular basis? And I'll give you a hint. Profit first is one way to do it. Okay. The fourth mental trap is the bank balance mirage. We're so used to looking at our bank balance, it's easy, it's a big number or a small one, but it's one number.
Darren Wurz [00:14:56]:
I can look at that. I know how much money I've got. I know. Hey, I know how my business is doing. The problem is it's extremely deceptive and it leads us to bad behaviors. When the bank account looks healthy, we feel great. We pay the bills, we pay off the credit card. Oh, wait a minute.
Darren Wurz [00:15:12]:
Now there's no money. Ah. What happened? The problem is we're not thinking about how cash flows, right? We're not looking at the income statement, we're not looking at the balance sheet. We're not close to the numbers. We're not forecasting things out next week, two weeks, three weeks, four weeks. With understanding how the cash is going to flow through our business and when we're doing all of that and we're not really getting a true sense of where our business is, and we're going through that cycle of spending all of our cash and then being cash poor in our business, we end up taking on debt. Yep, I said it. Most law firms don't fail because of lack of revenue, but they fail because of timing mistakes, fixed costs over distribution to owners and partners.
Darren Wurz [00:16:05]:
Your bank account is a snapshot, not a movie. And if you're relying on that number to judge the health of your business, you're going to make mistakes. So the key question to ask yourself is how could you better structure your banking system so that it isn't lying to you? And hint, profit first is one way to do that. Okay. The last mental trap is the false finish line. It's the moving goal post. Once I hit X revenue, I'll finally be profitable. Wrong, my friend.
Darren Wurz [00:16:42]:
Profit is not a destination. It's not a place you're trying to get to, okay? And the problem is, once you get to that revenue level. Wait a minute, where's the profit? Profit is not something that happens at the end of the year. It needs to be baked into your business. Your job is to maximize profit regardless of the size of your business. That's the key. And so the key question you can ask yourself if you're subject to the false finish line mental trap is this. What could you do right now to be more profitable without growing? What could you do right now? Okay.
Darren Wurz [00:17:25]:
Well, you know, focusing on profit is so critical because it forces you to ask these tough questions. Tough questions like how could we do this faster? And more cost effectively. How can we reduce our customer acquisition costs? Are we charging our clients enough to ensure a healthy profit margin? Are we creating raving fans who will give us repeat business and referrals? Or relying on Google Ads and clicks? Here's the hard truth, and here it is, because this is a doozy. Many law firm owners are running law firms with fancy degrees from prestigious institutions, but could be making more money as an hourly employee in retail in terms of what actually hits their personal bank account in the form of owner's compensation and profit. Wow. It's sad, but it's true. We need to ask ourselves the tough questions and be willing to confront the reality before us and be willing to understand where maybe we have been prone to these mental traps and where these mental traps are causing us to sabotage our business. So here's my challenge for you this week.
Darren Wurz [00:18:38]:
I want you to ask yourself some tough questions. Why are we not profitable yet? Or why are we not as profitable as we want to be? Sit with that question and brainstorm. Don't go to ChatGPT. Don't do it. At least at first. Do your own thinking. Really challenge yourself. Here at the Lawyer Millionaire, we're the dream team for law firm owners.
Darren Wurz [00:19:03]:
We're here to help you expand your business, maximize your profitability, and grow your wealth. We do that by providing you with an entire team of financial, business and tax professionals to guide you. Kind of like a family office designed for law firm owners specifically. Want to learn more? Book some time with me and join us for Profit on purpose 2026 happening now inside the Lawyer Millionaire community. Each quarter we're diving deep into a specific profit theme and a related book. And each month we're hosting a masterclass dedicated to helping you implement these ideas and make real change in your firm. You'll thank me later. The link is in the show notes.
Darren Wurz [00:19:50]:
Well, that's it for today, my friend. And remember, if your law firm isn't building you wealth, joy and freedom, what the hell are you doing? Can I get an amen? I'll see you next time.