Small law firms have faced ‘unprecedented pressure’ but are largely optimistic about their prospects in the year ahead, exclusive research conducted by Wesleyan for Lawyers in association with the Gazette has revealed.

A survey of 129 firms, mainly small practices with fewer than 10 partners, showed that 57% have seen their fee income shrink in the past 12 months, with more than a quarter reporting a drop of more than 10%.

Nearly half the firms questioned have made redundancies, and almost a third have cut staff working hours, while 13% have closed at least one UK office.

However, despite a bleak 12 months, the research indicated that solicitors expect a more favourable business environment in the year ahead, with 55% of respondents predicting a rise in fee income in the next year. Of these, more than a third expect fee income to grow by more than 10%, while only one-fifth think it will fall.

The research also pointed towards a tailing off of redundancies in the profession, with 68% of firms not intending to reduce headcount in the year to come, compared with 16% planning further job cuts. One-fifth intend to increase the number of equity partners.

Firms expect some upturn in property and commercial work, but will also seek to derive more fee income from other practice areas. Forty percent expect to do more family work in the next year, and nearly a third plan to do more criminal defence work.

Respondents also showed a greater appetite for merger activity, with 15% reporting that they plan to make an acquisition in the year ahead; only 3% acquired another firm in the previous year.

In terms of finance, 72% of firms said they would have to borrow money to meet the cost of professional indemnity insurance, and 40% said they would need outside finance to fund practising certificate costs. Three-quarters expect their insurance premiums to go up, with 20% braced for a rise of more than 10%.

More than two-fifths described their bank as ‘unhelpful’, but only 14% intended to change bank.