Northern law firms are among the most efficient in the country in terms of fees generated per fee earner, new research suggests.
Firms in the North East and North West reported median fees of £155,000 per fee earner, higher than national average of £138,000 and only behind London firms at £201,000.
The findings of the latest Financial Benchmarking Report from NatWest and RBS showed Northern law firms had, on average, increased fees earned by 7% on last year — an above inflation rise which points to real growth in the sector.
There was median increase in profit per partner of 11% across North East and North West operators, as profit per equity partner stood at £112,000 — above the national median of £107,000.
The Financial Benchmarking Report is now in its third year and looks at the performance of law firms operating in the SME market with revenues below £35m.
Lisa Ford, head of Professionals Team North at NatWest/RBS, said: “It’s great to see that legal firms in the North continue to outperform many other regions in respect of fees per fee earner at £155,000 and gearing levels of 4.55.
“However, legislation changes associated with litigation work has applied a downward pressure on profit levels and as a percentage of fees profits were 20% in 2014 and a reduction of 4% on 2013.”
The report, compiled by a chartered accountant with the support of the bank, suggests that recovery in the law sector could lead to future cash flow issues as firms will require capital to fuel growth.
Steve Arundale, head of Professional Services at NatWest and RBS said growing profit margins was proving a “tough nut to crack” for the 339 firms surveyed.
He said: “The report covers performance during the year-end 2014; arguably, the economy started to improve during this period at a greater pace than in previous years.
“This was good news for legal firms who witnessed an increase in matter starts associated with corporate work and residential property. Not surprisingly, this year’s report details a healthy improvement in both revenue and profit levels, but improvement in profit margin appears to be a harder nut to crack.”
Ms Ford added: “It was a strong year for law firms in the North, which posted a 7% improvement in revenue levels in 2014 supporting a median profit improvement of 11%. But this impressive performance did not evidence itself through profit per equity partner which at a median level only increased by £5,000 to £112,000.”
Nationally lawyers showed optimism for the rest of the year ahead. 80% believed fee income would grow and 30% believed revenue growth would reach 10% or beyond.
Lock-up — unbilled work in progress — was recorded at 128 days, a significant increase of 20 days on 2013. This is in line with a traditionally higher demand for borrowings from legal firms in the North in support of litigation associated lock-up.