2017 Legal Benchmarking Report reveals third year of successive growth across the sector

Posted On May 8, 2017 By mhauk

Our Legal Benchmarking Report 2017 reveals the UK legal sector is experiencing its third successive year of income growth.

The review, undertaken by our MHA Professional Practices Group, indicates that profitability is at its highest level in the last three years.

Report Highlights:

  • A year of growth in fee income across all size firms, with growth of between 8% and 20% for firms with more than five equity partners.
  • This year has shown a worrying increase in lock-up days for all multi partner firms other than the firms with 5-10 partners who have managed to keep control of their work in progress (WIP) and debtors. The 11-25 partner firms’ lockup increased by 31 days.
  • Equity investment continues to be the favoured method of financing, making up between 63% and 72% of the overall finance in the year. Equity investment ranged from £87,000 to £215,000 dependent on the number of partners involved in the business. Last year equity investment ranged from £91,000 to £146,000 depending on the number of partners involved in the business.
  • Practices with between 2 and 10 partners achieved an impressive 5% increase in net profit percentage this year.
  • Inadequate succession planning continues to be a challenge for the sector.
  • Income per equity partner has almost doubled in a year. It averaged at £750,000 in 2014 and 2015 and has jumped significantly to nearly £1.4m.
  • Professional indemnity insurance continues to increase.
  • Total funding per equity partner increased by 30% for the larger firms.

The full Legal Benchmarking Report 2017 is now available.

Karen Hain, Head of the Professional Practices sector at MHA explains:

“While our report reveals a sector in financial health, with performance in 2016 pointing to a positive outlook for the future, firms continue to face a challenging environment. With potential cost implications from areas such as the government’s new Apprenticeship Levy, pension Auto Enrolment, the National Living Wage and business rate assessments, firms will need to maintain control of expenditure if profitability is to be increased.

“There is a level of momentum in new work generation from corporate and property sectors in the economy at present. We expect this to continue, even after factoring in any negative impact from Brexit talks or with the up and coming general election. Competition in the sector is ‘hotting up’ with firms needing to be able to resource new work quickly and efficiently.

Karen went on to say: “If firms are planning to grow income at similar levels for 2017, they must consider how to fund this growth. We have already seen lock-up increasing so plans need to be made now for additional bank finance or partner contributions before cash runs out.”

If you would like to discuss any issues raised in the report in more detail or you would like to speak with a member of our team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Professional Practices team