Recent research has revealed that despite the economic pressures of high inflation, a significant number of law firms have reported robust financial performance. Four out of ten firms managed to increase their revenues beyond the rate of inflation in the last financial year, with an overwhelming majority anticipating further growth in the current year.
The study, conducted by accountancy firm Crowe, highlights a trend where regional law firms have been particularly proactive in recruiting, increasing their fee-earning staff by 9.5%. In contrast, City law firms have focused more on recruiting partners. Crowe noted that larger firms were better equipped to withstand economic challenges, owing to their diverse services and effective partnership models.
It was observed that while inflation had reached a peak of 11%, 39% of law firms surpassed this rate of revenue growth, with City firms forming a majority in this category. The report indicated that smaller firms, with revenues below £10 million, struggled more, with many experiencing growth below inflation rates or even declines.
On staffing, the report found that seven out of ten firms increased their headcount last year, with an overall average increase of just over 4%. In terms of financial performance, regional firms saw an increase in average partner fees by 5.9%, reaching £995,000, while City firms experienced a slight decline of 1%, bringing their average to £1.04 million.
The cost structure between City and regional firms also showed notable differences. Staff costs as a percentage of turnover were stable at 37% for City firms and 47% for regional ones. Average costs per employee increased to nearly £80,000 in the City compared to £44,000 in regional areas.
The modes of working showed divergence, with three-quarters of regional firms expecting employees to work from the office for the majority of the week, unlike City firms where only half had such requirements. Additionally, there was a notable trend of increasing partnership capital; approximately one-third of firms had raised these levels in the past year or planned to do so.
Cyber security has become a critical focus, with 79% of firms prioritising it significantly. However, less than a third offer regular training to enhance staff awareness, posing a potential challenge in safeguarding against cyber threats. Nicky Owen, head of professional practices at Crowe, commented on the adaptability of firms facing economic pressures and technological changes, highlighting the need for controlled spending and improved cyber resilience.
The legal sector’s ability to adapt and thrive even amidst economic challenges underscores its resilience. The future looks promising, with expected revenue growth and strategic adaptations in recruitment and technology indicating a forward-looking approach.
