Financial performance beginning to “correct itself”
Fortunes are on the rise among smaller law firms, according to the Law Society’s annual financial benchmarking survey.
The 200 firms taking part in the 11th profitability survey, which is sponsored by Lloyds TSB Commercial, recorded an average increase of 0.2% practice fee income in 2010, following a 6.5% reduction in the previous year. Average equity partner capital also rose, by seven per cent to £135,191.
In terms of recruitment, there was some recovery with the firms’ reported total recruitment costs of more than £2m to hire just over 1,000 people. However, firms have reduced their average spend on non-salary overheads per fee earner to £35,551, down from nearly £42,000 in 2009.
Chris Marston, head of professional practices at Lloyds TSB Commercial, said: “In many ways this year’s survey shows a steady, consolidating scenario, but two things struck me.
“First was the increase in median net profit per partner from £89,621 to £106,297—a rise of 18.6%. But more important for me was the measure of profit after deducting a realistic notional partner salary—at 7.3% of fee income this is a terrific improvement on the 2.3% shown in the 2009 survey.”
The survey revealed a median fee income per equity partner of £455,650, down from £469,666 in 2009, and a fall of 8.4% in the median cost of a fee earner from £43,938 to £40,240.
The ratio of partners to fee earners remained static at 1:4.
Next year’s Law Society law management section financial benchmarking survey will include quarterly snapshots, said Jon Cartwright, partner at accountants Hazlewoods LLP, which compiles the data.
“It was very pleasing to see practices’ financial performance begin to correct itself following an extremely challenging couple of years,” he said.
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