The Law Management Section of the Law Society recently published its Financial Benchmarking Survey 2012. Andy Harris of Hazelwoods comments for Legal Life.
The results show that, despite the ongoing challenging economic and market conditions, the situation for law firms continues to improve. Andy Harris introduces the results of the survey, and in particular the results for firms in the South West.
The Survey is now in its 13th year, and is one of the largest of its kind in the UK, with 170 firms taking part this year, including 40 or so from the South West. Produced and written by Gloucestershire-based niche accounting firm Hazlewoods, it looks at a whole range of areas, including fee income, profitability, working capital management and firms’ expectations for the future. As in previous years, participants provided two years’ data – the most recent accounting period and the previous one – allowing direct comparison of two years’ results on a like-for-like basis.
The overall findings from the survey are positive: median fees are up by 3.6%, interest income increased by 20%, and the median profit per partner increased by 3.6%. In addition, many firms continued to take on new staff, and participants predicted a median fee growth in 2013 of 3.4%.
The results from South West firms were also broadly positive. Here are a few brief headlines:
- Median practice fee income increased by 2.9%, following a 2.2% increase last year. This is the third year running that median fee income has increased;
- Median fee income per equity partner was £449k, up from £423k last year;
- Interest receivable increased by 20% – an average of almost £2,600 per partner – as the amounts of client money held continue to increase, and banks continue to pay improved rates of interest on client monies;
- The ratio of fee earners to equity partners for South West firms fell slightly, to 4 to 1, and is lower than in most other regions. The overall median is 4.7 to 1;
- The ratio of fee earners to secretarial support staff remained steady, at a median of 0.71 to 1. This is higher than in most other regions, where the overall median was 0.61 to 1;
- The median profit per equity partner for South West firms was £117k, compared to £126k in the previous year – slightly under the median for the survey of £121k – and the net profit percentage fell by 1% to 25.3%. This is still higher than the overall median of 23.2% though;
- If you include a deduction for equity partner notional salary and notional interest on partner capital, the median “super-profit” for South West firms was £49k, compared to £51k in the previous year;
- A median predicted fee growth for 2013 of 6.4%. This is almost twice the overall median for the full survey.
This year we also asked participants for their thoughts on their own future over the next few years, particularly following the introduction of alternative business structures and external investment in practices at the beginning of last year. A third of practices told us that they were likely to merge with another practice within the next two to three years, and a similar number were already speaking to other practices.
This certainly ties in with our own experiences – we are currently assisting more practices with mergers, demergers and hiving off parts of their practices than ever before.
Finally, one in five 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, e.g. HR, IT, Finance, spouses, etc.
The Law Management Section has approximately 1,200 members, representing a total of 1,200 law firms across the country. The Section provide practical guidance, information and support on a full range of practice management disciplines, including HR, finance, marketing, IT and client care. Membership is open to solicitors, those involved in the management of a practice / department and those supplying financing or management services to legal practices.
The Report costs £75 for LMS members and £150 for non-members. To order your copy, and to find out more about LMS please visit www.lawmanagementsection.org.uk
Andy Harris is a director in the Legal Team at Hazlewoods LLP, an independent firm of chartered accountants based in Gloucestershire, with a dedicated team of 26 specialising in advising legal practices across the UK.