Two-thirds of regional law firms are failing to meet their performance targets and 40% say equity partner profits are falling.
By contrast, the City is shrugging off the threat posed by Brexit - over 90% of practices report increasing revenue and four in ten say partner profits are up by over 10%.
These are among the key findings of a new benchmarking survey by the accountants Crowe Clark Whitehill.
In the regions, one in five firms saw revenue fall in the latest financial year, the same proportion as in the last survey. But only 28% saw income rise by over 10%, compared to 41% in 2016 and 52% two years ago.
The survey reports that competition in the regions continues to be tight, with more market share taken by fewer firms.
On the plus side, fee-earner numbers again grew by around 5%, though growth in support staff numbers slowed to just over 1% - half the rate in 2016. Regional firms are also reducing lockup.
Some 43% of regional firms cited availability of high-quality staff as their biggest challenge - this helped push up staff costs by 3.2% compared to 2% in both 2016 and 2015.
Aggregate partner numbers in the regions fell this year by 0.5%, with the main shift being among equity partner numbers, which fell by 2.8%. Crowe Clark Whitehill observes that a headline increase in aggregate profit per partner of 2% ’certainly does not tell the full story’, with 40% of regional firms experiencing a fall in PEP.
’With price competition, inflationary pressure in personnel costs and, anecdotally, good quality property and space also costing more, it appears that even firms who are growing their top line are finding it hard to translate that growth into bottom line profitability,’ the accountants conclude.
The City enjoyed a better year than 2016, with only 8% reporting a drop in revenue compared to 23% last time. Average profit per partner rose 4.2% suggesting that, despite a strong increase in the number of fee-earners, firms are ’still mindful of fee earner/partner leverage’. Perhaps surprisingly, the City saw an aggregate rise in the cost of indemnity insurance premiums (3.2%), though 20% saw a fall.
Some 24% of City firms identified Brexit as their biggest business challenge, compared to just 9% in the regions.