11 May 2011

Signs of recovery as smaller firms halt income slide and boost partner profits

Smaller law firms have halted the decline in fee income, while partner profits rose significantly last year, Law Society research has found.

They saw an average increase of 0.2% in practice fee income in 2010, following a reduction of 6.5% the previous year, according to the law management section’s annual profitability survey of smaller practices.

Median net profit per partner at the 200 participating firms rose 19% from £89,621 to £106,297, while the measure of profit after deducting a realistic notional partner salary came in at 7.3% of fee income, against 2.3% in 2009.

Chris Marston, head of professional practices at Legal Futures Associate Lloyds TSB Commercial – which sponsored the publication – said that though “in many ways this year’s survey shows a steady, consolidating scenario”, the increase in the measure of profit was “a terrific improvement” to report.

The benchmarking survey also showed median fee income per equity partner of £455,650 (2009: £469,666), while median equity partner capital increased by 7% to £135,191. The median cost of a fee-earner fell 8% to £40,240 (2009: £43,938), while the ratio of partners to fee-earners remains static – a median of 1:4.

Firms are also beginning to recruit again. The practices polled reported total recruitment costs of £2.1m to recruit 1,022 people, while the average spend on non-salary overheads per fee-earner dropped to £35,551, down from £41,959 in 2009.

Law Society president Linda Lee said: “Although their are signs of recovery, that process is slow and firms will be looking at how they can continue to grow as we emerge from the recession.”

The survey is produced in association with accountants Hazlewoods. Partner Jon Cartwright said: “It was very pleasing to see practices’ financial performance begin to correct itself following an extremely challenging couple of years.”

The report will be sold at £75 to members of the section and £150 to non-members.

By Legal Futures

Tags: finances, financial management, Law Society

One Response to “Signs of recovery as smaller firms halt income slide and boost partner profits”

1. Your headline could be a little misleading, Neil, in suggesting that the survey involves ‘smaller firms’. It’s all relative I suppose, but the profile of the 200 participants of this survey looks like this: -

   Sole practitioner 8
   2-4 partners 56
   5-10 partners 63
   11-25 partners 58
   25+ partners 15

   In a highly fragmented profession where 85% of firms have 4 or fewer partners, I’d say this looks like an assessment of the mainstream.

   As sponsors of this survey we’d love to see more firms taking part, and I’d be really interested to know what the barriers are to participation. Feedback on this survey is always very welcome.

Chris Marston on June 24th, 2011 at 12:52 pm