Law firms see upturn with PEP rising 2%

LAW firms in the West Midlands are continuing to see an improvement in fortunes, with average net profit per equity partner rising 2%, new research from the Law Society has revealed.

The findings in the Law Management Section (LMS) annual profitability survey help to determine the financial health of law firms across the UK.

The latest findings suggest that practice fee income increased by 1% in 2011, meaning practices continue to recover from the impact of the recession. In 2010, firms in the region saw a marginal increase in practice fee income of 0.2%, after a 6.5% drop in 2009.
 
The survey of LMS member firms also revealed that average net profit per equity partner increased by 2% from £112,549 to £114,853.
 
Law Society President John Wotton said: “The LMS Financial Benchmarking Survey and the support that LMS provides to its members have had a key role to play in helping practices emerge from the recession through effective management. 

“Now, LMS has an added purpose in light of changes to the legal services market. With more competition emerging and more opportunities for practices as a result of the changes under the Legal Services Act, a robust management system is critical for any law firm looking to attract external investment or remain competitive.”
 
Now in its 12th year, the survey, which is produced in association with Hazlewoods LLP, a medium-sized, niche accountancy practice specialising in advising the legal profession, is widely regarded as the annual financial health check, particularly for the smaller end of the legal profession.
 
The annual survey is sponsored by Lloyds TSB Commercial and Ken Garvie, senior manager, specialist markets for Lloyds TSB Commercial in the West Midlands, said: “This year’s survey shows admirable resilience on the part of solicitors. Fee income rose slightly against difficult economic conditions, while median net profit increased by 2% – a modest rise, but nevertheless building on last year’s improvement.

“Last year’s respondents predicted that income growth might be around 1% and they were spot on. This year, they are forecasting 3% growth, so hopefully there are better times ahead.

“Respondents again commented positively on the support provided by their bank and this is pleasing. This is a key focus for Lloyds TSB Commercial and latest figures show that we have achieved a growth in lending to the sector of 5% in the past year.”

Other key findings from the survey included:
 
•    The number of support staff per fee earner decreased from 0.65 to 0.61, an average saving per fee earner of £821.

•    The survey’s 181 participants reported total recruitment costs of £2,775,770 paid to recruit 1,050 people. This is about 11% of the reported workforce, and runs ahead of the £2.1m and 8% in the 2010 survey.

•    The median spend on non-salary overheads per fee earner was £38,142 compared with £37,163 in 2010, an increase of 2.6%.