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Big is beautiful for law firms as small struggle

SCOTLAND'S larger law firms have enjoyed another rise in profits but the smallest players suffered a decline, a survey of the profession has revealed.

The Law Society of Scotland's financial benchmarking survey for 2013, published yesterday, showed the overall profits of firms flatlined and thus remained well adrift of pre-recession levels.

The latest overall median annual profit per equity partner for Scottish law firms was £64,000 - as it was in 2012 - far below the £104,000 figure recorded in 2008.

Amid trading conditions described by Law Society of Scotland chief executive Lorna Jack as "highly competitive", the recent wave of merger activity involving firms north of the Border is forecast by experts to continue.

Among larger firms, defined as those with 10 or more partners, the latest median profit per equity partner was £197,000, up from £163,000 in the 2012 survey. But the latest profit figure is way adrift of the £223,000 level achieved by larger firms in the 2006 survey.

Median profit per equity partner for larger Scottish law firms tumbled to £136,000 in the 2009 survey, before rising to £178,000 in 2010, then falling to £144,000 in the 2011 study. Larger Scottish legal firms have now posted substantial rises in profit in two consecutive annual surveys.

The Law Society of Scotland highlighted improved profitability at major commercial firms in Edinburgh and Glasgow.

Among firms with between five and nine partners, the median profit per equity partner rose from £76,000 in the 2012 survey to £99,000. In the 2010 survey, it had dropped to £66,000, having been recorded at £107,000 in 2007.

Median profit per equity partner among firms with between two and four partners dropped to £64,000 in the latest survey, from £67,000, falling further behind the £108,000 figure recorded in 2008.

Sole principal firms fared worst of all in 2013, the Law Society of Scotland noted. The median profit per equity partner for these firms was £47,000, down from £53,000 and little more than half the £92,000 recorded in the 2008 report. And one-quarter of sole practitioners earned less than £27,000.

The Law Society of Scotland said the profitability of many sole principals in Edinburgh and Glasgow was particularly low.

The survey was based on information provided by 214 law firms, representing 17% of the total in the sector in Scotland. The profit referred to in the report is before tax and any allowance for salary.

The Law Society of Scotland noted that an equity partner's ability to take any income was dependent on the cash available, which could be limited if, for example, the firm was expanding.

Ms Jack noted some firms were "seeing growth as we begin to emerge from the economic downturn", but added: "It's clear that the effects of the recession are not over and the report confirms the difficulties that sole practitioners in particular have in sustaining a viable business as the market continues to change. All firms have been affected by tightened budgets across the private and public sectors and we continue to encourage our members to think very seriously about how they shape their business."

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