North East law firms show signs of increasing financial stability

Regional law firms were among national study which pointed towards rising practice incomes and appetite for investment

Lee Rycraft
Lee Rycraft

Law firms in the North East are showing stronger signs of financial stability than they were last year, according to a significant study.

There has been “dramatic rise” in the proportion of practices operating profitably, according to research from the Law Management Section’s 2015 Financial Benchmarking Survey, sponsored by Lloyds Bank Commercial Banking and compiled by Hazlewoods LLP.

One in six of the 159 firms surveyed were likely to seek external investment for expansion, and a similar number were likely to bring in one or more non-lawyer owners, under the alternative business structures made available to firms in 2011.

Median practice income increased by 8.7% compared to 2013, with most geographic regions and most work types seeing growth.

Lee Rycraft, relationship director at Lloyds Bank Commercial Banking in the North East, said: “The Financial Benchmarking Survey is a respected indicator of what constitutes best practice for law firms, enabling staff in the North East to see the progress of their firm and industry trends.

“In a positive 12 months that has seen median practice income increase across the country, with further growth expected in 2015, it is also encouraging to see a change in attitude with the reduction in the number of firms where partners’ drawings exceed profits.

“Understanding what success looks like is crucial for local firms to plan ahead and deliver their objectives, and these results indicate a positive outlook within the sector as economic confidence continues to grow across the country.”

A third of practices said they were likely to merge with another in the next two to three years — continuing the theme of consolidation seen last year.

For the first time in several years of the research, the ratio of fee earners to equity partners increased by 6.4%.

Median profit per equity partner increased for the fifth year running, by 16.9%, to £144,567.

There was also confidence from respondents, demonstrated in a predicted median fee income growth of 3.3% for 2015.

Law Society president Andrew Caplen added: “We are encouraged to see continuing economic growth for our members’ firms. Although financial stability can never be guaranteed, this is positive news given the challenging economic conditions of recent years.

“The Law Society’s Law Management Section helps firms stay on top of changes in the market and is a forum for sharing good practice within the profession.”

Andrew Harris, director of Hazlewood LLP, said: “We were pleased to be able to report improvements in all of the key measures of financial performance. The results for many are finally back to where they were six or seven years ago.

“It was also very encouraging to see that practices seem to have taken on board the whole issue of financial stability, and are paying much closer attention to issues such as cashflow, lock-up and working capital.”

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