New research has found that financial stability in the legal sector is improving, with practice income increasing by almost ten per cent.
The 2015 Financial Benchmarking Survey, published by the Law Management Section of the Law Society on 7 April, revealed a significant rise in the percentage of practices operating profitably and within their overdraft limit.
The survey, which drew on the responses of 159 UK firms across England and Wales, is regarded as the leading annual health check for medium-sized solicitors’ practices. Respondents provided data for two years – the most recent accounting period and the previous one – enabling comparison of results on a like-for-like basis. Key findings included:
- median practice income increased by 8.7 per cent compared to 2013, with most geographic regions and most work types seeing growth
- for the first time in several years, the ratio of fee earners to equity partners increased by 6.4 per cent
- median profit per equity partner increased for the fifth year running to £144,567, a rise of 16.9 per cent
- respondents predicted a median fee income growth of 3.3 per cent for 2015. The most optimistic participants predicted an increase of 9.4 per cent
- one in six practices thought it likely that they would seek external investment for expansion, and a similar number said that they were likely to bring in one or more non-lawyer owners
- a third of practices said they were likely to merge with another practice within the next two to three years, although only a fifth were speaking to other practices
- survey responses suggested firms were paying much closer attention to financial stability issues including cash flow, lock-up and working capital.
Law Society president Andrew Caplen said: “We are encouraged to see continuing economic growth for our members’ firms. Although financial stability can never be guaranteed, this is positive news given the challenging economic conditions of recent years.”
Paul McCluskey, head of professional practices at Lloyds Bank Commercial Banking, which sponsored the survey, said: “In a positive 12 months that has seen median practice income increase across the country, with further growth expected in 2015, it is also encouraging to see a change in attitude with the reduction in the number of firms where partners’ drawings exceed profits.
“Understanding what success looks like is crucial for local firms to plan ahead and deliver their objectives, and these results indicate a positive outlook within the sector as economic confidence continues to grow across the country.”
With the report suggesting that the economic outlook for the legal sector is a more positive one, firms that are already doing well may wish to consider investing in their practices or further developing their services to take advantage of new opportunities. In these circumstances, working with professional advisers experienced in the legal sector is likely to prove a value for money investment.
Practices that are seeking ways to improve their overall performance and profitability may also find it helpful to seek expert advice.
Moore Thompson can assist with issues including profit improvement and strategic planning, including assistance with acquisitions, mergers and exit strategies.
We can also advise on all aspects of accounting, tax and VAT and offer a range of services to assist solicitor firms in meeting their clients’ needs, including inheritance tax, trusts, planning for long-term care and forensic accounting. For more information, please contact us.