Michael Kemp, The Daily Record Newswire
Two weeks ago my car died. It was a 2002 Impala, 12 years old, and I loved that car. I have spent countless hours under the hood before, during, and since law school trying to keep it running. In spite of (or maybe because of) my constant attempts at amateur repairs, it kicked the bucket this month. The mechanic came as close as mechanics are allowed to tell me that it wasn’t worth the cost of repairs, and that I should junk it. Just like that, I was in the market for a new car.
It’s not that I hadn’t been here before; this wasn’t my first car purchase. But I had bought the Impala only a year or two after coming back from my last job, where I was overseas and my credit was still good. Previous to that, I had a string of cheap cars that had cost me next to nothing but had served their purpose: to get me through a year or two of driving in a location where I needed them; all paid for in cash. This was to be the first test of my post-small-firm credit. And I was approved because I put a very large down payment on the car.
If I haven’t said this enough before, let me be abundantly clear now: Small-firm practice plays havoc on your life and on your credit. Unless you have a nest-egg already built up, come from old money, or are willing to take a chance on a new small-business loan, you will likely spend the first year or two of your practice just getting to a place where you can regularly pay the bills.
Student loans pile up in forbearance, office expenses (if you have chosen to rent an office and all the corollary expenses) in the first year will pile up, and just getting by will be a challenge. So when you get those “pre-approved” credit card offers in the mail, if you are smart, you will just laugh and shred them. If you can’t pay for it, you can’t pay for it. You will spend the next few years constantly reinvesting your profit back into your business, building something you started into something you think will succeed. All the while you are hoping some catastrophe (large or small) does not come along to derail your plans.
Which brings me back to where I started. I needed a car, and I needed one sooner rather than later. So I went to a dealership and bought one. I put a large chuck of money down and bought something not flashy or fun but reliable, and felt surprisingly (and depressingly) adult in my purchase. And that was that.
All of which is a long way of getting around to my point. If you are a small-firm practitioner, what are you doing to prepare for the emergencies in your life? When an emergency expense comes along, will you be ready for it?
I did what I usually do in emergencies. I went to my father for advice. I lamented (that’s the nice word for it) to him that, just when I had managed to get my expenses and reinvestments and budget under control and had finally built up significant savings, a significant expense had hit. I lamented to him (as I often do) the inherent drawbacks of a small-firm practice: that while I may have had an incredible few months lately, without any guarantee that this good business would continue into the future it was hard to commit to any long-term agreement like a car purchase. I lamented my bad luck that the better things got for my practice, the worse things that were happening. I will admit, I was overly dramatic about the loss of my car.
But my father (as he often does) stepped me back and made me look at the situation more logically. Yes, I had managed to build up enough savings that my business was about to jump another tier upwards. But no, it wasn’t a bad thing that this had happened when I was having a very good quarter; in fact, it was probably a good thing. If my car had died two weeks later, I probably would have done what I have always done: reinvest the money in the business, bank on a decent return on that investment in clients and capital, and count on luck or the grace of God to help me through any lean times that followed.
He told me it was good luck, not bad, that I had incurred a significant expense just as I had managed to put together significant savings. And he was right. It is a good idea to reinvest your earnings to build your small firm into something better, but it is also good to find that balance between growing your business and keeping yourself insulated during the lean times. Lean times, or emergencies.
I learned two valuable lessons from the death of my car.
The first is, no matter How much time you spend online and with friends who are mechanics learning the inner workings of your vehicle, a mechanic is a mechanic and a lawyer is a lawyer. No matter how much time I spent changing brake pads or replacing the alternator or making field-expedient fixes on the mass airflow sensor or the ignition, I will never be a mechanic.
And the second is this: Plan that things will go wrong. When you own your own business you can budget and extrapolate your expenses and income all you want, but the fact is, that things will go wrong. Clients will temporarily dry up. Income will rise and fall. And your expenses, no matter how accurately you attempt to budget them, will not be what you expect. So budget—by all means, set a budget. Know how much you make, and how much you spend. Know what you need to get by. But know that, if all you plan for is expected expenses, the unexpected may sink you.
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Contact Michael Kemp at mkemp@metlawmn.com.
