SME firms growing despite recession, Law Society survey finds

The average fee income of small and medium-sized firms grew by 3.6 per cent last year, a survey of 166 firms for the management section of the Law Society has found.

Most of the firms in the survey, 89 per cent, had between two and 25 partners. Only five were sole practices and 13 had more than 25 partners.

Average profit per partner was up by exactly the same amount as fee income, 3.6 per cent, rising in both cases from two per cent in 2011. Average net profit now stands at £120,680 from a fee income of £558,780.

However, the average cost of an employed fee earner, including fixed share partners, increased by only 0.2 per cent, to £40,860.

The ratio of fee earners to partners grew to just under five to one, with spending on non-salary overheads per fee earner rising by only 0.4 per cent to £37,992. The ratio of fee earners to support staff remained the same, at 0.6 per cent.

The averages used in the society’s survey are all based on the median, the midpoint in the range, rather than the mean.

Solicitors were also asked about the future of their firms. Over 38 per cent thought their firm was very or fairly likely to merge with another within the next two to three years.

Twice as many thought it was likely that their firms would be sold to a third party, 17 per cent, compared to the eight and a half per cent who thought they were likely to join a network, such as QualitySolicitors.

Around a quarter said it was likely that non-lawyer partners would be brought in, and only a slightly smaller figure, 21 per cent, predicted that external investment would be employed.

Chris Marston, head of professional practices at Lloyds TSB Commercial, which sponsored the survey, said it demonstrated once again the “remarkable resilience” of the solicitors’ profession.

“In difficult economic conditions, it’s really impressive to see median income grow by 3.6 per cent, and a similar percentage growth in median net profit per equity partner.

“But the measure I like best is the profit after deducting a realistic notional partner salary and notional interest on partners’ capital. The resulting ‘super profit’ (or, to be blunt, real profit) has grown to almost eight per cent of fee income, from last year’s 4.5 per cent.”

Lucy Scott-Moncrieff, president of the Law Society, said there was no “one-size-fits-all approach” to help firms emerge from the recession or adapt to tough market conditions, but for many law firms, a “robust management system” underpinned their success.