Sweat Equity, Sweet Equity

Sweat equity is a term used to describe the contribution made to a project by people who contribute their time and effort. It can be contrasted with financial equity which is the money contributed towards the project.  In reality, a Third Wave attorney contributes a little of both.  But, equity itself defines an accounting equation, which means that after you put everything in -- time and treasure -- that you will achieve quickly the point where all of your assets exceed your liabilities.  When the reverse is true, meaning when your liabilities exceed your assets, that is strangely called "negative equity".  To me it means you are in a hole and, after you manage to dig yourself out of the hole, you will still be a zero.  When a typical company reaches a negative equity position then receivership or bankruptcy maybe an option.  When this happens a series of creditors, ranked in a priority sequence, have the first claims to proceeds, and the ownership (the equity, if any) is the last to get paid if at all.

A law firm is more abstract than this because in reality much of what is put in by you, the attorney, is sweat equity.  In a traditional law office practice this too often represents negative equity in which you, the attorney, is the last to get paid.  Only, instead of liquidation, this is the ongoing reality of the situation day to day.  This is because law firms have no intrinsic value beyond the garage sale value of its desks, computer and the like.  The sequence of creditors is the same, starting with landlords, equipment leases, employee compensation, division of legal fees.  Then there is the cost of commuting, maintaining your license to practice, and all of the the incidental expenses that pile up and in the long run are not so incidental.  The traditional lawyer takes behind all of these people, companies and providers, and can never build up sweat equity in the firm.  The math simply does not work.  If the lawyer were a stock or a commodity, I fear the short sellers would be all over him or her.

The question really is how to turn your efforts, as an attorney, into something that has some value to you?  How to minimize your financial equity, while trying to turn all of that sweat equity into sweet equity that pays some largest dividend to you, the attorney, each and every month?

The answer in my thinking is to radically and immediately cut everybody and every organization out of the priority sequence that you can other than yourself.  Lose the landlord.  Lose the staff.  Lose the equipment leases.  Lose the commute and all of the incidental costs possible.  If the priority sequence is flattened, there is nobody to take or benefit other than you, the attorney, for the work you put into your own practice.

Move your office home and you will at least be able to contribute the money earned from your seat equity into mortgage payments that might be able to pay down your mortgage more quickly and deliver true equity to you.  You might at least be able to put money int he bank.

The goal is to turn all of your hard work, your sweat equity, into a sweet equity you can enjoy.

Comments

[PerGynt]

Over capitalization in the service industry is an old problem.