THE LAW Society of Scotland’s latest financial benchmarking survey shows a growing gulf between the fortunes of the country’s largest and smallest law firms, with those in the 10-plus partner bracket benefiting from increased work volumes while sole practitioners appear to be struggling.
The survey found the median profit per partner figure at the 86 firms that responded had risen from £69,000 when the first survey was conducted last year to £79,000 this year, a rise of 14 per cent.
Read more: Harper Macleod turns stagnant turnover into rising profit
Despite the increase, the figure is still some way off the pre-recession median profit figure of £104,000 recorded in 2008.
In addition, within the latest figure there was only a rise in the median for the group of firms with 10 or more partners, with the figures for groupings of firms of smaller sizes all decreasing.
Sole practitioners, for example, saw a 4% fall from £50,000 to £48,000, while for firms with two to four partners the figure fell from £82,000 to £79,000. For those in the five to nine partner bracket the median dropped from £96,000 to £94,000. The median figure for firms with 10 or more partners, on the other hand, was up by 38%, from £125,000 to £172,000.
While the report noted that the figures suggest that “sole principals continue to operate at the margins of commercial viability”, Law Society president Alison Atack said the results indicate that “the Scottish legal sector is in pretty robust health overall, which is encouraging”.
“From the firms taking part, we can see that there has been a marked improvement in the profits per partner for larger firms, particularly those operating in the property sector,” she said.
“The survey results have shown that the participating two to four partner firms are performing well, although it would seem that some of their slightly larger competitors, while also performing well, are not necessarily benefitting as much as might be expected from economies of scale.
Read more: Burness Paull pays out staff bonus as profits rise
“In contrast the findings indicate that the smallest firms are finding it tough in the current economic environment. Small firms can include those providing legal aid-funded advice and we will continue to monitor this.”
While the report found that firms in the two to four and five to nine partner brackets in particular were cash positive with low amounts of debt, Sue Carter, head of professional services at Clydesdale Bank, said that profit remains the key metric that “the most successful firms” focus on.
“The net profit percentage remains a key indicator of how well firms are performing and the fact that profit per partner for two to four and five to nine partner firms has remained relatively static, suggests they have perhaps suffered most from increased overheads, including salaries,” she said.
“There are positive indicators in the report, including the overall increase in the median profit per partner figure.
“However the day-to-day challenges of generating new and profitable fee income, managing working capital and succession planning remain priorities.”
Although just eight firms in the 10-plus partner bracket participated in the survey, the trend for growing profits at larger firms has been reflected at the very top of the profession, with most of the limited liability partnerships that have reported results for the last financial year seeing an increase in profitability.
Shepherd & Wedderburn, for example, posted a 6% rise in turnover for the year to the end of April coupled with a 12% rise in partner profits to £22m.
It was a similar picture at Brodies, Burness Paull, Harper Macleod and Morton Fraser. In the 12 months to the end of April Brodies attracted revenues of £68.6m – 3% more than the £66.7m it generated in 2016/17 - with the amount of profit available for distribution among partners rising by 3.5% to £32.9m.
Read more: Shepherd & Wedderburn rewards staff after bump in financials
At Burness Paull turnover was up by seven per cent to £57.6m, while profits, which fell by 2% in the previous year, rose by 8% to £23.8m. Meanwhile, Harper Macleod saw partner profits increase by 4% to £10.2m despite a 1% fall in revenues and Morton Fraser saw a 9.5% rise in turnover come with a 13% rise in partner profits.
Burness Paull, Morton Fraser and Shepherd & Wedderburn rewarded staff with bonuses in recognition of their contribution to the increase in profitability.
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