From yourdictionary.com: Reality check means a statement or action that helps you see what is really happening or possible.
From Webster's New World College Dictionary: an instance of confronting or acknowledging the facts about something and thus dispelling unrealistic notions
Performing a financial reality check is the first step towards meeting your financial targets. To steal from the definitions above, confront the facts to see what is happening and what is possible. "Confront" is an important word choice, because when you chose to be a lawyer, you might not have realized you were signing on to be an entrepreneur. As an entrepreneur, however, you have to deal with money facts, which are often all tangled up in money feelings. That's why a reality check is required, to make sure that you're managing the facts of what is happening, and not acting on an interpretation of reality that is influenced by your feelings.
A financial reality check will help you know if what you're doing is going to get you where you want to go, financially.
- How big is the gap between your actual and target financial results?
- Is the gap getting larger or smaller over time? What's the trend?
- Can you build a practice at your fee and volume levels?
- What's the real lead time from getting in front of someone who has the problem you solve right now and turning him into a client? How long does it take for the marketing you do today to show up in your financial results?
- How many qualified prospects do you need to connect with in order for one to choose you? Is your marketing activity level calibrated properly?
- How many clients and what types of matters do you need to bring on board to generate both the cash flow and income you want?
- Is there any opportunity to build leverage into your operating model? Virtual assistance, in-office help?
You can see that the analysis will lead you to look at just about every aspect of your business. Start with the facts and see where they take you. Act on the facts, create action plans. Do more of what matters and less of what doesn't. Learn from where you are, don't beat yourself up for anything you coulda/shoulda done. That's a waste of time. Do the reality check and start where you are.
Review your financials on a monthly, quarterly and year-to-date basis. Don't go to the income statement level, choose something that is relatively easy to put together and benchmark against yourself. Once you start doing reality checks on a regular basis, you'll improve them over time. If you're using a book keeper and/or accountant, work with them to come up with a regular report that they give you- so that you spend your time acting on the information, rather than on creating the data.
Next time, we'll add in the target component of the reality check. If you have targets, fantastic- if not, I'll give you a simple starting point so you can start your fourth quarter fully locked and loaded!