Natwest report provides further reason for optimism
UK law firms are optimistic and reaping impressive profits according to recent reports, signalling an end to the economic downturn.
The second annual Natwest Financial Benchmarking Report into small and medium enterprise law firms operating outside the UK top 100 found optimism at an “all time high”. 92% of respondents think their profits will grow or remain the same in 2014 with nearly half predicting growth of up to 10%.
On average, firms reported a 7% increase in profits from last year. However, smaller firms, with less than £1.5m annual fees, reported a 15% jump with larger firms achieving just 3% profit growth.
Fees rose by an average of 3%.
The results confirm the findings of the LexisNexis Bellwether Report 2014 Brave New World, published last week, which reported the rise of new working practices, increased optimism and the emergence of a new breed of entrepreneurial lawyer.
The Natwest report is based on a survey of more than 380 firms and 400 legal professionals attending the bank’s legal conference.
Steve Arundale, head of professionals at Natwest and RBS, says: “Comparing a firm’s profit (per equity partner) and fee growth gives a great indication of their efficiency.
“For example, Scottish firms came out as the most efficient in the country, posting profits at an average of 27% despite fees remaining the same. This is compared to firms in London whose fees rose by 6% while profit dipped below Scotland at 22%.
“It was also good to see firms in the South West posting revenue growth of 2% against a flat performance in 2012.”
Firms in the South East and the North grew profit by 11%% against a 3% fee rise.
“One of the key issues we find firms have is in understanding the relationship between profit and cash,” Arundale said.
“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.”
Median profit per equity partner was £87,000 with the figure dropping to £64,000 in small firms and rising to £133,000 in large firms.
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