Profits up but law firms warned on drawings

Topics: Law Society activity

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Law firms in England and Wales continue to enjoy inflation-busting profits – but for a growing number excess drawings could jeopardise financial stability.

These are the headline findings of this year’s Law Society Law Management Section (LMS) Financial Benchmarking Survey, a respected annual healthcheck of the sector.

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Median profit per equity partner increased for the fifth consecutive year by 3% to £143,000. Median fee income was up over 5%, and ranged from £620,000 per equity partner at the median to over £1m among the most profitable firms.

Fee income rose across most work types and regions, but so did the breakeven point for a fee-earner. This climbed from £102,000 to £109,000, mainly due to increases in costs and non-salary overheads.

Firms demonstrated reasonably good control of lockup, which amounted to a median of 145 days.

One concern is that partners at a quarter of participating firms took out more than they made in profits – up from a fifth. For law firms to remain financially sound, the report stresses that a considerable sum should be retained to fund working capital.

LMS chair Robert Banner warned: ‘The firms that take part in the survey usually have a particular interest in high performance and management. If a quarter of these firms are over-drawing, then the proportion for the rest of the profession is likely to be higher.’

Jon Cartwright of Hazelwoods, which conducts the survey, said: ‘Most mainstream legal practices are in good shape financially, although clearly some areas such as personal injury and criminal continue to be tricky.’

Some 200 firms responded to this year’s survey, ranging from one-partner to 25-partner-plus firms, with a combined income of nearly £1bn. The full survey, sponsored by Lloyds Bank Commercial Banking, will be published in March.

Readers' comments (4)

  • One latent problem is that 'profits' are usually measured on a 'bills delivered' basis, which is no basis at all (except for HMRC that is!).

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  • These numbers bear no relation to any set of numbers I've ever seen.

    I wonder what the average, rather than median, figures look like.

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  • I suspect that those firms beyond the 200 or so who responded either had profits which are marginal or non-existent, such that they had no time to respond, or were so big and full of self-importance, with embarassingly large profits, that they could not trouble to respond. If so, it would seem that the survey offers little that could be said to be indicative of the profession or, more accurately, the financially diverse elements of it.

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  • The Law Management Section (a practitioner committee rather than the Law Society generally ) undertake the survey. This is not Chancery Lane Ivory Tower stuff but firms nationwide. I sit on this (it is an unpaid role) and the firms involved range from sole practitioners to large regional firms.

    Despite the sceptical comments above its a pretty wide range of firms and a good indication of trends given the results vary from year to year.

    A leading bank and specialist accountancy practice encourage their law firm clients to partake. It is likely to be firm who are engaged with their bank or accountants who take part.

    The Law Management Section (LMS) is run by solicitors for the benefit of solicitors so some of the negative comments above are disappointing because the feedback from firms is the survey helps them (particularly the personalised report they get in return for providing their data) and even firms who do supply their data use the benchmark tools to help them manage their business.

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