The Law Society of Scotland’s latest financial benchmarking report shows that fortunes are improving for the country’s smaller law firms.
The annual survey of firms’ financial performances of 2013-14 has found an overall increase in profits per equity partners from £64,000 to £69,000.
The organisation says smaller firms make up just over a quarter of the Scottish legal market and found they performed better during 2014. Firms with 2 to 4 partners saw a rise in profits per partner of £10,000 to £74,000, while those with 5-9 partners earned £92,000 each – a drop from £99,000 the previous year, but up from £74,000 in 2012.
Larger firms continued to achieve the highest profits per partner, although they have seen a decrease from £197,000 to £163,000.
The survey has also highlighted “significant differences” in profits per partner across the profession. Median figures for sole practitioner solicitors ranged from £18,000 a year to £91,000. In comparison, those with ten or more partners ranged from £120,000 to more than £300,000.
The survey questioned 185 firms, or roughly 16% of the Scottish legal market, making it one of the largest of its kind in Europe.
Alistair Morris, president of the Law Society, said: “The annual survey gives us a view of the overall financial health of the profession. In general law firms appear to be recovering in the wake of the downturn, although they are yet to reach the same levels of profitability seen in 2008.
“In recent years solicitors have experienced a period of unprecedented change. The economic climate, digitalisation and technology, globalisation and new entrants to the market have all contributed to this change and we have seen significant consolidation within Scotland’s legal sector, including cross-border mergers with UK and global law firms. We have also seen some high-profile firms fail, but these have been relatively few.
“There is increased optimism within the profession about the future and the report’s figures indicate a more buoyant legal market. However despite the overall rise in profits per equity partner, the survey has also highlighted very low profit per equity partner levels for some firms – as low as £15,000 for some sole practitioners in Glasgow.
“These very small firms often undertake legal aid, providing a key service within their communities, and it underlines the need for us to continue to press for an appropriately funded system to ensure that people can access the legal advice and services they need, regardless of their financial situation.
“The legal sector remains highly competitive and it is increasingly the case that solicitors require to be excellent business managers, as well as having the legal knowledge and skills clients expect, to run a successful law firm. The survey has shown once again that cash flow is a key issue. For many firms, getting paid promptly remains difficult so it is vital that they manage their cash flow and credit control and equally importantly, are clear with clients about the cost and billing arrangements.
“Many solicitors find the report a highly useful and important management tool which allows them to measure their own performance as well as benchmark their firm with other practices The Society can also offer training and support for its members on a whole range of business management and financial planning, including our business sustainability toolkit launched last year.”