Regional law firms ‘leaving City rivals in the shade’

THE gap between law firms in the West Midlands achieving double-digit growth and those experiencing a drop in revenue is widening, according to a new report.

The annual Law Firm Benchmaking report, produced by audit, tax and advisory firm Crowe Clark Whitehill, also shows that despite increasing market competition, regional law firms have once again experienced faster growth than City law firms.

Ross Prince, professional practices partner at CCW’s Midlands office, said the headline growth of 6% masked the fact that some firms were struggling to keep up.

The report shows that one-third of regional firms have experienced growth of over 10% in the past year, compared to just over a quarter of City firms. In addition, regional firms saw a greater rise in Profit per Equity Partner (PEP), with over 70% of those which grew PEP reporting an increase of over 10%, against just under 40% for City firms.

However, there are mixed performances within both groups as 21% of respondents reported a drop in revenue, more than in recent years.

CCW concludes this may be indicative of the uncertainty in the economy following the EU referendum, which took place shortly after firms’ year ends.

Mr Prince said: “Aggregate growth of 6% in this year’s regional firm participants might appear steady. However, this headline masks a widening gap between firms achieving double-digit growth and an increasing proportion who are reporting a fall in revenue.
 
“The results paint a picture of an increasingly competitive marketplace, with firms that are willing to adapt having an advantage on firms who are not addressing the need to change.
 
“This year, firms have generally needed additional capacity, as average fee-earner numbers have increased by around 5%, although attracting new talent has not created significant inflationary pressures on pay. The average increase in staff costs was 2%, which is perhaps lower than we might have expected.”
 
Looking forward, City and regional firms indicate very different investment priorities, and challenges, for the next 12 to 24 months.
 
Regional firms see technology as the focus for investment (43%), while pricing pressure seems to be leading City firms to focus on marketing (22%) for the year ahead.  
 
For regional firms, there was a different but no less challenging variation on bid for talent, with 48% identifying the availability of high quality personnel as their main challenge for the coming year. For City firms, it was once again the increasingly competitive market place, with 32% identifying price competition as their biggest challenge.
 
When asked about potential sources of future additional finance, both City and regional firms identified a mix of partner capital and debt finance as the most likely combination. However, City firms indicated a greater willingness to request contributions from partners, with 64% stating their preferred source of finance to be capital supplied by current partners, and 68% for capital contributions from new partners.