Our latest Legal Benchmarking Report reveals the UK legal sector is experiencing its third successive year of income growth. The review of the sector was undertaken in association with our national MHA Professional Practices Group and draws from insight across England, Scotland and Wales. The Benchmarking Report highlights some of the pertinent issues for those in the legal sector and focuses on trends in income, profitability, employment costs and lock-up.
- A year of growth in fee income across all size firms, with growth of 8%-20% experienced for firms with more than five equity partners.
- This year has shown a worrying increase in lock-up days for all multi-partner firms, other than the firms with 5-10 partners who have managed to keep control of their work in progress (WIP) and debtors. The 11-25 partner firms’ lockup increased by 31 days between 2015 and 2016.
- Equity investment continues to be the favoured method of financing, making up between 63% and 72% of the overall finance in the year. Equity investment ranged from £87,000 to £215,000 dependent on the number of partners involved in the business.
- Practices with between 2 and 10 partners achieved an impressive 5% increase in net profit percentage this year.
- Inadequate succession planning continues to be a challenge for law firms.
- Income per equity partner has almost doubled in a year. It averaged at £750,000 in 2014 and 2015 and has jumped significantly to nearly £1.4m.
- Professional indemnity insurance continues to increase.
- Total funding per equity partner increased by 30% for the larger firms.
We would urge firms to consider the findings of the report in the context of their own practice, especially as they respond to increased workload from an economic upturn along with ever more increasing compliance requirements.
Karen Hain, Head of the Professional Practices sector at MHA explains:
“While our report reveals a sector in financial health, with performance in 2016 pointing to a positive outlook for the future, firms continue to face a challenging environment. With potential cost implications from areas such as the government’s new Apprenticeship Levy, pension Auto Enrolment, the National Living Wage and business rate assessments, firms will need to maintain control of expenditure if profitability is to be increased.
If firms are planning to grow income at similar levels for 2017, they must consider how to fund this growth. We have already seen lock-up increasing so plans need to be made now for additional bank finance or partner contributions before cash runs out.”
You can read previous Benchmarking Reports on our Solicitor resources page.
A version of this blog originally appeared on the website of our member association MHA.