Pictured above: Ken Garvie, senior manager, specialist
markets for Lloyds TSB Commercial in the West Midlands
A Law Society survey has revealed that legal practices in the
West Midlands are seeing an improvement in fortunes with an average
increase of 0.2 per cent practice fee income in 2010, following a
reduction of 6.5 per cent in the previous year.
The key findings in the Law Society Law Management Section's
annual profitability survey, sponsored by Lloyds TSB Commercial,
reveal the financial health of law firms.
Firms are also beginning to recruit again. The survey reveals
that the 200 participating firms reported total recruitment costs
of £2,141,614 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 says:
"The Law Society annual LMS Financial Benchmarking Survey is a
key tool for firms looking to assess the way they run themselves as
a business.
"For the profession as a whole it is a useful indicator of the
financial health of the sector. Although there are signs of
recovery, process is slow and firms will be looking at how they can
continue to grow as we emerge from the recession."
Now in its 11th year, the survey, which is produced in
association with Hazlewoods LLP, a medium sized, niche accountancy
practice specialising in advising the legal profession, is widely
regarded as the annual health check report for the smaller end of
the legal profession.
The Law Management Section of the Law Society, a membership
association designed to assist those in the management of legal
practices, invited members to complete the annual financial
benchmarking survey questionnaire and to provide two years' data,
allowing a direct comparison of both years' results on a like for
like basis.
Ken Garvie, senior manager, specialist markets for Lloyds TSB
Commercial in the West Midlands, says:
"In a year of unprecedented change for the legal profession, it
is pleasing to see another increase in the number of participants
in the survey. I am convinced that firms who are actively seeking
external comparators will be in the vanguard of success.
"In many ways this year's survey shows a steady, consolidating
scenario, but two things struck me. First was the increase in
median net profit per partner from £89,621 to £106,297
- a rise of 18.6 per cent. But more important for me was the
measure of profit after deducting a realistic notional partner
salary - at 7.3 per cent of fee income this is a terrific
improvement on the 2.3 per cent shown in the 2009 survey."
In light of the results, it has never been more important for
legal firms to work with a bank that truly understands their
profession. Ken Garvie, Lloyds TSB Commercial continues:
"Our specialist relationship managers are trained by the Law
Society as Lexcel Consultants and they have a real working
knowledge of the Legal Services Act and the challenges and
opportunities it brings. They are determined to work with our
solicitor customers to equip them for success in 2011 and
beyond."
Jon Cartwright, Partner at Hazlewoods LLP, added:
"This is the second year we have compiled the LMS Benchmarking
Survey, and it was very pleasing to see practices' financial
performance begin to correct itself following an extremely
challenging couple of years. We have some exciting plans for the
2011 survey, including the commencement of quarterly snapshots of
key financial data to make sure participants receive real value out
of it. We are really enjoying our role."
Other key findings included:
• Median fee income per equity partner of £455,650
(2009: £469,666).
• Median equity partner capital increased by 7 per cent to
£135,191.
• The median cost of a fee earner was £40,240
compared to £43,938 in 2009, a fall of 8.4 per cent.
• The ratio of partners to fee earners remains static - a
median of 1 to 4.
The survey helps firms plan for future financial objectives; big
profit increases require detailed understanding of financial
performance. Benchmarking against other firms helps firms face up
to the challenges of the new legal services environment, and
consider the benefits of external investment.