Legal survey of 121 firms: upturn in optimism
Legal sector: survey reveals an upturn in optimism
- 58% of law firms are confident about the year ahead
- 55% cite ‘pressure on fees’ as a key issue
- 84% have reduced staff costs, or are in process of reducing them
- 41% have less favourable bank terms than a year ago
- 63% say time between invoice and payment has deteriorated since last year
- 25% say the relationship with their bank is more difficult than a year ago
Independent research involving 121 law firms – of which 59 are from the UK’s legal top 100 - reveals an upturn in confidence. 58% of firms report that they are ‘very confident’ or ‘reasonably confident’ about the next 12 months, whereas the equivalent figure last year was just 50%.
How confident are you about a positive business outlook for the legal sector over the next 12 months?
| 2006 | 2007 | 2008 | 2009 | |
| Very confident | 1% | 31% | 20% | 4% |
| Reasonably confident | 57% | 67% | 69% | 46% |
| Not very confident | 37% | 1% | 9% | 40% |
| Not al all confident | 4% | - | - | 3% |
| Other/don't know | 1% | 1% | 2% | 7% |
| 100% | 100% | 100% | 100% |
The survey was carried out by Smith & Williamson, the accountancy and investment management firm.
“The rise in confidence since last year suggests that law firms are seeing the first signs of an upturn, even though swathes of the economy are struggling with recession. However with more than half of firms (55%) claiming pressure on fees and 40% stating that managing cash flow is an issue, it will be a long time before firms return to the heady days of 2006 when 98% of law firms described themselves as ‘confident’ about the year ahead,” said Giles Murphy, head of assurance and business services at Smith & Williamson.
Key issues: the economy, pressure on fees, fall in demand
Although the survey suggests that confidence is starting to return, the economy remains the primary concern for the legal sector but appears less of a worry than last year. As shown below, pressure on fees is the second most important issue while managing a fall in demand ranks as the third most serious issue for the sector.
Key issues:
1 - economy (66% say it is a key issue, but last year 76% said it was a primary key matter)
2 - pressure on fees (55%)
3 – managing fall in demand (42%)
4 – managing cash flow (40%)
“Managing cash flow is also a concern – which is supported by the view that 63% of respondents say the time between invoice and payment has deteriorated in the last year.
Just over a quarter of participants (26%) say the relationship with their bank has become more difficult over the last year, while 41% of participants report that borrowing terms are less favourable than last year. 42% of firms have ‘recently’ increased bank borrowings, and of these, just over one third have done this through increased personal loans for partners / members.
“Historically, law firms have been thinly capitalised, operating broadly as a full distribution model, with banks being keen to provide working capital support. With the latter likely to be less forthcoming in the future, firms may start to move away from the full distribution model and will accordingly have to manage partners’ expectations over the need to build up reserves within the firm”.
Firms take steps to minimise the impact of the recession
In light of these financial pressures, the survey explores how firms are dealing with the economic downturn. The vast majority (84%) have either reduced staff costs or are in the process of doing so and a further 11% are considering this. Interestingly, 25% have outsourced certain functions or are in the process of doing this, while a further 43% are considering this.
“It appears that the recession has caused the vast majority of firms to focus on the traditional areas of cost cutting, in the form of headcount reduction, but also more innovative solutions in the use of outsourcing, albeit only a quarter have to date set up an outsource arrangement.”
Background on the survey
Carried out during September and October 2009
- Participants were managing partners, FDs or similar
- 121 different law firms represented, of which 59 from the legal top 100
- 75% of firms structured as an LLP
Size of firm
21% of respondents from firms with100+ partners/members
28% “ “ 50 - 99 partners
27% “ “ 26 - 49 partners
22% “ “ 11 - 25 partners
2% “ “ 1 - 10 partners
Giles Murphy, head of assurance and business services and a member of Smith & Williamson’s Professional Practices group.
Email Giles Murphy
Press queries:
Kate Harrison, tel 020 7131 4228 or Jess Koslow, tel 020 7131 4264
Disclaimer
By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details correct at time of writing.
Note to editors
Smith & Williamson is an independent professional and financial services group employing around 1,500 people. The group is a leading provider of investment management, financial advisory and accountancy services to private clients, professional practices and mid-to-large corporates. The group operates from offices in London, Belfast, Birmingham, Bristol, Dublin, Glasgow, Guildford, Maidstone, Salisbury, Southampton, and Worcester.
Smith & Williamson Limited
Regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. A member of Nexia International
