Law firms continue to rebuild profitability as the economy recovers and they enter a ‘settling-down’ phase, according to a respected annual bellwether of the sector’s financial health.
Practices are also upbeat about their immediate prospects, forecasting a small year-on-year increase in their rate of growth in 2013/14.
These are among key trends revealed in the 14th Financial Benchmarking Survey, published by the Law Society’s Law Management Section (LMS) and covering the 2013 accounting year.
Some 165 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. Fee income of all participants totalled £685m, an average of £3.4m per practice.
Among the headline findings was a 3.6% rise in median net profit per equity partner, to £121,731. This is the same percentage increase as 2012 but compares favourably with the 2% rise of 2011 and the 6.5% fall recorded in 2009.
Fee income per equity partner rose 2% to £549,489, while interest income rose by 24% (an effective rise in income of £1,756 per partner).
Other findings from the survey include: total lock-up days (work in progress and debtors together) dipped slightly, to 177 days; the ratios of both fee-earners to partners and support staff to fee-earners remained stable; and, for one in five participants, partners’ total drawings exceeded profits in both 2012 and 2013.
Practices predict median growth in fee income of 3.7% for 2013/14, compared with the 3.4% they forecast for last year (against the 4.1% achieved).
LMS chair Chris Hart, managing partner at Devon firm Wollen Michelmore, said: ‘After what feels like an eternity of change within the profession, we appear to be in a “settling-down” phase.
‘Many practices have been through a period of change, in structure and/or operations. Across the profession practices are now focusing on financial performance and service delivery.
‘This year’s survey reveals several positives: an increase in fee income and profit per equity partner, an increase in interest received, a slight fall in lock-up, and stability in ratios of fee-earners to partners, secretaries and support staff. However there are negatives, [including] a fall in equity partner capital, with some firms overdrawing profits.’
- The survey (£150 for non-LMS members) is sponsored by Lloyds Bank Commercial Banking and conducted by accountants Hazlewoods. It is available from the Law Society bookshop