Law firms showing signs of growth, says Law Society report
10 May, 2012
New research from the Law Society’s Law Management Section (LMS) reveals that legal practices are continuing to show signs of growth.
The LMS annual Financial Benchmarking Survey, sponsored by Lloyds TSB Commercial, shows that practice fee income increased by 1 per cent in 2011, as practices continue to climb out of the hit from the recession. In 2009, firms saw a 6.5 per cent drop in fee income.
The survey of LMS member firms also revealed that average net profit per equity partner increased from £112,549 to £114,853, a rise of 2 per cent.
Law Society President John Wotton said: “The LMS Financial Benchmarking Survey and the support that LMS provides to its members have had a key role to play in helping practices emerge from the recession through effective management.
“Now, LMS has added importance in the light of changes to the legal services market. With more competition emerging and more opportunities for practices as a result of the changes under the Legal Services Act, a robust management system is critical for any law firm looking to attract external investment or remain competitive.”
Chris Marston, Head of Professional Practices at Lloyds TSB Commercial, said:
“2012 will be a pivotal year for solicitors. New entrants and external capital will undoubtedly bring change, but I firmly believe that this will expand the market for legal services and create opportunities for innovative, well-managed firms with strong leadership and effective financial management. Getting in shape now is therefore very important, and this year’s survey shows admirable resilience on the part of solicitors. Fee income rose slightly in difficult economic conditions and I was pleased to see that median net profit increased by two per cent – modest, but nevertheless building on last year’s improvement.
“I was also struck by the accuracy of last year’s predictions – respondents suggested that income growth might be around one per cent and they were spot on. This year, they are forecasting three per cent growth, so hopefully there are better times ahead. Respondents again commented positively on the support provided by their bank and this is pleasing. This is a key focus for Lloyds TSB Commercial and latest figures show that we have achieved a growth in lending to the sector of five per cent in the past year (February 2012 vs. February 2011).”
Now in its 12th year, the survey, which is produced in association with Hazelwoods LLP, a medium-sized, niche accountancy practice specialising in advising the legal profession, is widely regarded as the annual financial health check, particularly for the smaller end of the legal profession.
Other findings from the survey were:
- The number of support staff per fee earner decreased from 0.65 to 0.61, an average saving per fee earner of £821.
- The 181 participants reported total recruitment costs of £2,775,770 paid to recruit 1,050 people. This is about 11 per cent of the reported workforce, and runs ahead of the £2.1m and 8 per cent in the 2010 survey.
- The median spend on non-salary overheads per fee earner was £38,142 compared with £37,163 in 2010, an increase of 2.6 per cent.