Report shows improving fortunes for Scotland’s smaller law firms
The Law Society of Scotland’s financial benchmarking report shows improving fortunes for smaller law firms.
The annual survey of law firms’ financial performance in 2013-14 has shown an overall increase from £64,000 to £69,000 in profits per equity partners. (Profits per equity partner are before a salary, tax, and other business costs).
Smaller firms, which make up just over a quarter of the Scottish legal market, performed better during 2014, with 2-4 partner firms showing a rise in profits per partner from £64,000 in 2013 to £74,000.
Firms with 5-9 partners showed profits per equity partner of £92,000, a drop from £99,000 in 2013 but improved from 2012 figures of £76,000.
Larger firms continue to achieve the highest profits per partner, although this year showed a drop from 2013 figures, which peaked at £197,000, to 2012 levels of £163,000 profit per partner.
There continue to be significant differences in profit per partner figures across the profession. Median figures for sole practitioner solicitors ranged from around £18,000 a year (representing a quarter of sole practitioners) to £91,000. For firms with 10 or more partners, profits per equity partner ranged from £120,000 to more than £300,000.
Alistair Morris, president of the Law Society, said: “The annual survey gives us a view of the overall financial health of the profession. In general law firms appear to be recovering in the wake of the downturn, although they are yet to reach the same levels of profitability seen in 2008.
“In recent years solicitors have experienced a period of unprecedented change. The economic climate, digitalisation and technology, globalisation and new entrants to the market have all contributed to this change and we have seen significant consolidation within Scotland’s legal sector, including cross-border mergers with UK and global law firms. We have also seen some high-profile firms fail, but these have been relatively few.
“There is increased optimism within the profession about the future and the report’s figures indicate a more buoyant legal market. However despite the overall rise in profits per equity partner, the survey has also highlighted very low profit per equity partner levels for some firms – as low as £15,000 for some sole practitioners in Glasgow. These very small firms often undertake legal aid, providing a key service within their communities, and it underlines the need for us to continue to press for an appropriately funded system to ensure that people can access the legal advice and services they need, regardless of their financial situation.
“The legal sector remains highly competitive and it is increasingly the case that solicitors require to be excellent business managers, as well as having the legal knowledge and skills clients expect, to run a successful law firm. The survey has shown once again that cash flow is a key issue. For many firms, getting paid promptly remains difficult so it is vital that they manage their cash flow and credit control and equally importantly, are clear with clients about the cost and billing arrangements.
“Many solicitors find the report a highly useful and important management tool which allows them to measure their own performance as well as benchmark their firm with other practices The Society can also offer training and support for its members on a whole range of business management and financial planning, including our business sustainability toolkit launched last year.”