The seasons are, in some places anyway, marked by the changes in the weather. Spring, summer, fall, and winter, and then it starts again.

Most owners of small law firms barely notice.

For those lawyers, the interval that matters is payroll.

Instead of watching the leaves change, they’re watching the cash flow.

The payroll is due on the 15th and the 30th, and the tension level starts to rise right after each payroll comes due.

The tension builds from the first of the month and increases each day until the funds are set aside for the next paychecks.

Thankfully, sometimes the tension gets relieved before the final day. Sometimes payroll is made early in the cycle. It’s awesome when payroll for the 15th is in the bank by the 7th or 8th. That makes for happy times in the week preceding the due date.

Unfortunately, however, payroll isn’t always met early. More often than not, it’s met on the afternoon of the 14th. Sometimes it happens on the 15th. On occasion, it happens after the 15th, and there’s huge anxiety about how the bank will treat the checks when presented.

Tension starts, builds, peaks, and then dissipates. That’s the way most small firm owners mark the seasons. Depending on frequency, we have either 12 or 24 seasons per year.

The Toll of Payroll Stress

When the stress of the payroll happens to coincide with the stress of a trial or an especially difficult client, we do bad things. We:

• kick the dog (and that’s not a euphemism),
• smoke some weed (in Colorado, Washington, Alaska, and D.C.),
• scream at the kids,
• drink too much,
• find a partner for unsafe sex (harder than it seems),
• overeat, and
• engage in other undesirable, destructive behaviors.

It’s all that tension, stress, and self-destructive activity that moves some lawyers to shut down their practices, take jobs in government, or find career alternatives.

Some lawyers—many of us in fact—don’t leave. We don’t quit. We just take on the stress, and we keep doing what we’re doing. We live with the stress. We cope as best we can. Sometimes it gets ugly.

That’s not good. Living with payroll stress is no way to live. There has to be an alternative.

If you’re ready for a change, read on. Let’s talk about options for getting out from under. Let’s talk about saving you from the slow, destructive impact of living with stress that rarely stops. You might not see it killing you, but it is. That kind of stress has a way of slowly, day by day, eating away at your physical and mental health. You can’t sustain it forever unless your “forever” isn’t very long.

Your Options for Managing Payroll

Let’s look at the options:

1. Quit. You could, and many do, simply close your doors. You can take a job in government or in someone else’s firm and let them deal with the stress. Quitting is a noble way out if you can’t find an alternative that’s going to make you happy. Many lawyers discover, after they’ve started their own practice, that they made a bad choice. Doing your own thing isn’t a good option for everyone.
2. Credit line. Get a bank to grant you a credit line. That’s what many lawyers do when they first feel the stress. Unfortunately, we usually max out the line early in our banking relationship and never find the funds to pay it down. Some banks will let you pay interest only, but others will insist that you pay down principal. The bottom line is that credit is a short-term solution that usually just increases the stress level when you’re struggling to meet payroll while paying the minimum required by the lender.
3. Reserve fund. This is the option that works. You need to set aside funds so that you don’t feel the payroll stress with each cycle. You need to have payroll funded before you incur the expense. That’s the only way you’re going to reduce the stress.

Of course, building a reserve fund feels impossible when you’re already struggling to meet the next payroll and it’s only days away. You’re right. It’s impossible to do it quickly and over the short term. There’s no way you’re going to fix this problem over the next two weeks.

I can hear you screaming at me from here.

You’re yelling, “If I could set aside a freaking reserve fund, I wouldn’t be feeling like this.” You’re getting really loud. Maybe you should shut the door, okay?

If it’ll help you feel better, then go ahead and call my voicemail and scream into that. It’s 919–787–6667 (see the three sixes?). Operators are standing by.

How to Create Your Reserve Fund

Anyway, now that you’re calming down, let’s get serious about this reserve fund.

You can do it now, or you can do it later. The stress is not going to subside until you set aside the funds. Actually, you can’t do it later. If you don’t do it now, you might not be around later. This stress is deadly. It’s the kind of thing that eats you alive. You are killing yourself.

How do you do it?

[ While I have you here, I wanted to remind you that you can get the latest articles delivered to your inbox a week before they go up on the web. Just one email per week. Sign up here. ]

1. Stop spending. You’re likely spending too much on your personal life. Stop it. Go listen to some Dave Ramsey or something. You need to cut your spending so you can have something left at the end of the month. You wouldn’t let a client get away with the bullshit excuses you make about why you can’t cut your expenses. Why do you let yourself get away with it?
2. Cut back at the office. We grow our undercapitalized businesses too quickly. We hire before we’re ready, and we end up with payroll that’s thinly supported by the revenues. Business can grow when the business appears, but only if the business has the capital to grow. If you’re pushing the limits of growth (even if it’s slow going) by doing it without capital, then you need to slow down. You need to reduce payroll in order to create reserves.
3. Work more. Yep, I said it. If you’re undercapitalized and can’t afford a reserve fund, you need to work more, generate revenues, and put those revenues away. Sweat equity is the way we build businesses when we lack access to capital. I can hear you screaming, again, about how you did that years ago. Yep, you did. But you didn’t put aside the funds, so now you get to do it again. I’m sorry (call the voicemail and complain).

That’s what I’ve got. You need to build that fund. You need the savings.

Here’s the deal: you’ve got a choice to make. You’re making it, regardless of whether you choose to think about it.

You can:

1. Live with it. That’s what you’ve been doing. You feel it every cycle. Sometimes it pushes you to the brink. You can elect to keep the stress just like it is. Is that acceptable to you?
2. Take action. You can go ahead and gut it out and make the sacrifices and put away the funds. It’s going to be tough. You’re not going to be happy. But it’s the path to stopping the stress. It’s the only way you’re going to eliminate the up and down of every payroll cycle. Are you ready to stop that stress? Are you ready to solve the problem?

The choice is yours. My guess is that you’re going to set aside that fund at some point. You’ll either do it now, or you’ll do it when you can’t handle the stress any longer. You might as well do it now and enjoy the benefits of the reduced tension. It’s never going to get easier, so there’s no time like the present.