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NatWest has published its fifth annual legal benchmarking report, focusing on SME-sized firms.
Last updated: 10 Oct 2019 2 min read
Economically, 2015 and the majority of 2016 were positive years for the legal sector, with high levels of consumer and business confidence, especially prior to Brexit. The financial performance of SME-sized legal firms is usually closely aligned to that of the economy and, as such, average revenue growth of 5% is not a surprise. The combined average growth rate over the last two years of 11% is very positive when compared with many other industries.
The report is based on the financial performance of 269 legal firms in the financial year ending in 2016, and focuses on four main areas that reflect firms’ performance:
Median fee per fee earner was £136,000, down from £144,000 in the previous year.
Median fee per equity partner was £539,000, up from £480,000 in the previous year.
Profits have increased, driven primarily by a significant increase in gearing from 3.20 to 3.94.
Median profit per equity partner was £120,000, up £9,000 from the previous year.
The median profit margin dropped to 23%, showing that the growth in profit per equity partner was due to an increase in volume of work.
Median lock-up was 113 days, an increase of four compared with last year. The upper quartile point is 73 days and the lower quartile point is double at 154 days.
Larger firms found it increasingly difficult to manage lock-up. Median lock-up for small firms was 84 days, for large firms it was 131 days and for very large firms it was 142 days.
Law firms remained cautious about carrying debt and the median bank balance was £94,000. Total client money balances were typically 129% of annual billings, or about £2.3bn for the sector. It is clearly important that firms do everything possible to ensure that these funds are kept secure and that there is a focus on cyber security.
24% of firms experienced a fraud-related loss or cyber-attack in the last year.
Professional Services, Leadership and Management, Reports