West law firms lagging behind on profits, report reveals

March 31, 2014

Law firms in the South West are the least profitable in the UK and have profits per equity partner lower than the national average, research released this week reveals.

The region’s firms posted profits as a percentage of fees as 17% against the national average of 23%, according to the latest Financial Benchmarking Report from NatWest and RBS.

Profit per equity partner is also below the national average although profit growth was reported at 9% against the national average of 7%.

The report – now in its second year – looks at the financial performance of small and medium enterprise (SME) law firms operating outside of the UK top 100.

This year’s report includes financial results from more than 380 firms (an increase of 12% on last year) as well as a survey of delegates from the banks’ 2013 Legal Conferences – attended by 400 legal professionals. 

NatWest managing director for commercial banking in South and South West, Paul Marston, said: “One of the key issues we find firms have is in understanding the relationship between profit and cash. For example, a firm is unlikely to improve its position if it concentrates solely on growing revenue and profit and fails to look at the finer points like improving efficiency and lock up days.

“As the largest and only free benchmarking report in this space, this report provides a truly representative picture. We hope firms will use it to help them interpret their performance compared to their peers and identify areas where they can improve future financial performance and security.”

The report also showed that optimism was at a high among UK law firms with 92% of respondents believing their profits will grow or remain the same in 2014 with 48% of those predicting growth of up to 10%.

Fees are also on the rise with an average 3% growth – roughly in line with inflation.

The NatWest report is available to download at: nw-businesssense.com/legal-report.html

Other findings show:

* Median profit per equity partner is £87,000 with the figure dropping to £64,000 in small firms and rising to £133,000 in large firms.

* Some firms may not be accurately recording work with chargeable hours per fee earner listed at an average of 1,000.

* There is considerable regional variance of fees per fee earner with a UK average of £136,000 compared to £176,000 in London and £114,000 in Scotland.

* Larger firms have more trouble managing lock up with an average of 138 compared to 107 nationally and 87 in small firms.

* The majority of law firms have money in the bank. The median bank balance was £20,000, suggesting that most firms can afford to invest as economic growth takes hold.

* 62% of firms are expecting their bank balance to have improved by the end of 2014.

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