Owen: Positive outcome for firms
Four out of 10 law firms increased revenues above inflation in the last financial year, while 89% expect revenue to go up in the current year, research has found.
Accountancy firm Crowe also said regional firms led the way in their recruitment of fee-earners, increasing numbers by 9.5%, while City firms recruited a bigger proportion of partners.
With inflation peaking at 11%, it said it expected revenues to increase in the last financial year, but it was “interesting” that 39% of firms grew by more than that, with more City than regional firms among that group.
“Larger firms found it easier to weather the storm, which is no surprise, as they will have depth and breadth of different services and the partnership model works well,” Crowe said.
For three-quarters of smaller law firms (with revenues of less than £10m), revenue increased at less than inflation or fell.
Crowe’s annual law firm benchmarking report – covering 56 law firms – that seven out of 10 increased their headcount in the last financial year, by an average of just over 4%.
Regional firms led the way in recruitment of fee-earners, increasing numbers by 9.5% compared to only 1% for City firms, although the figures were 2.1% and 6.3% respectively when it came to partners.
Average fees per partner increased at regional firms by 5.9% to £995,000, but fell by 1% at City firms to £1.04m. However average fees per fee-earner, including partners, increased by 5% in City firms to £284,800 and by only 3% in regional firms to £146,500.
Staff costs as a percentage of turnover remained static at 37% for City and 47% for regional law firms, with average cost per head increasing to just under £80,000 in the City and £44,000 in the regions.
There was a further divide between City and regional firms in their approach to working from home.
Three-quarters of regional law firms expected staff to be in the office three or more days a week, but only half of City firms.
Almost a third of law firms have increased partnership capital levels in the last 12 months or were planning to in the coming year. Junior equity partners contributed £50,000 or more at 68% of firms, while average partnership capital totalled more than £500,000 at 8% of firms.
On cyber security, while 79% of firms said improving cyber security awareness at firm level was a significant priority, fewer than a third provided either monthly or quarterly training to their staff.
Nicky Owen, head of professional practices at Crowe, commented: “With firms adapting to various economic headwinds and changes this year – from high inflation and the increased use of artificial intelligence and new technologies to the arrival of a new government – it’s positive to see that the legal sector has performed well and remains optimistic.
“The challenge for firms will be controlling expenditure and increasing profits per partner whilst effectively managing clients and the wellbeing of staff, as well as increasing resilience in the face of surging concerns about cybercrime.”
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