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Nearly half of City law firms report lower partner profits

'Many firms are investing for the future', says Steve Gale

18 August 2015

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By Manju Manglani, Editor (@ManjuManglani)

UK law firms are increasingly looking to build long-term sustainability by reinvesting in their business.

Crowe Clark Whitehill's research has found that, while 85 per cent of responding firms reported higher revenues in the past financial year, nearly two fifths provided lower profits per equity partner (PEP).

Commenting on the news, audit partner Steve Gale told Managing Partner: "This year we have seen many firms taking on more staff and potentially partners to service new revenue and there being a lag until full utilisation is achieved. There has also been a pressure on salaries as the economy strengthens.

"Finally, many firms are investing for the future, including in technology, to provide a sound platform for future sustainable business."

The survey received responses from 58 law firms, of which 28 were City firms and 30 were regional firms.

Just over a quarter of firms reported overall lower profit pools, including 30 per cent of regional firms and 21 per cent of City firms.

Partners felt the impact of this in their profits, with PEP down in 38 per cent of law firms. City firms were the hardest hit, with nearly half (46 per cent) reporting lower partner profits, compared to just under a third (30 per cent) of regional firms.

Among the firms that reported higher PEP, regional firms performed the best. Forty-three per cent increased PEP by more than 15 per cent, compared to only a quarter of City firms.

City and regional firms reported a consistent level of growth in headcount, up four per cent on average. Partner levels were up by just under three per cent in City firms, compared to a one per cent increase in regional firms, on average.

Firms reported generally consistent year-on-year levels of lockup days, suggesting that better financial management processes are being implemented.

Commenting on the core traits of a financially-healthy business, Gale said this is "a firm where management take decisions that are focused on sustainable profitability and are prepared to invest for the future and where partners remain focused on generating cash".

The research suggests that further mergers are ahead in the mid-market in 2015/16. Nearly a third (30 per cent) of regional firms said they consider merger to be 'likely' in the coming year. By comparison, just over a tenth (11 per cent) of City firms said a merger is likely.



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