Law firms remain cautious despite profit growth
Law firms continue to rebuild profitability while keeping a tight rein on overheads, according to a respected annual bellwether of the sector’s financial health. Practices are also relatively bullish about future fees, with most expecting a 3% rise in 2012.
These are among key trends revealed in the 12th Financial Benchmarking Survey, published today by the Law Society’s Law Management Section (LMS) and covering the 2011 accounting year. Some 181 firms took part in the study, which is regarded as the sector’s definitive financial health check, particularly for the smaller end of the profession.
Among the headline findings was a 2% rise in median profit per equity partner to £114,853, a level not seen since the onset of the economic downturn in 2008. Practice fee income rose by 1% in 2011, continuing a recovery that began the previous year. In 2009, firms saw a 6.5% fall. Fee income per equity partner was £562,000.
Other findings from the survey include: the number of support staff per fee-earner decreased from 0.65 to 0.61, an average saving per fee-earner of £821; the 181 participants reported total recruitment costs of £2,775,770, paid to recruit 1,050 people.
This represents about 11% of the reported workforce and runs ahead of the £2.1m and 8% reported in the 2010 survey; and most practices in the survey awarded pay rises to their fee-earners, with the most common being 2.5%.
The survey (£150 for non-LMS members) is sponsored by Lloyds TSB Commercial and conducted by accountants Hazelwoods.
Andy Harris, a director in the legal team at Hazlewoods, attributed the improvement in profits per equity partner to tight control of overheads (as in 2010) rather than increased fees. However, practices reported that some areas, such as corporate and commercial, and personal injury, experienced real-terms fee growth.
Last year also saw a 17% increase in interest receivable - the first rise in three years. Harris suggested that a combination of higher client account balances, slightly improving rates on client monies from some banks and building societies, and recent changes to the interest provisions in the new Solicitors Regulation Authority accounts rules should help this trend to continue.
Chris Marston, head of professional practices at Lloyds TSB Commercial, said: ‘Against a backdrop of continued uncertainty and low confidence levels in the wider economy, this year’s results show admirable resilience on the part of solicitors.’
He added: ‘2012 will be a pivotal year. New entrants and external capital will bring change, but I firmly believe this will expand the market for legal services and bring opportunities for innovative, well-managed firms with strong leadership and effective financial management. Getting in shape now is therefore very important.’
For more information, see the Law Society site.