NatWest Legal Benchmarking Report

NatWest recently issued their 2017 Legal Benchmarking Report including financial data from 269 small and large firms, including 82 Scottish firms and a combination of partnerships, LLPs and companies.

Despite the economic and political uncertainties experienced in 2016, not least the impact of Brexit, legal firms have in general achieved improved performance under most financial measures.

Fee growth has exceeded inflation and this has facilitated an increase in profitability. However, the report also highlights that fee increases have resulted from an increased workforce with the level of efficiency or average billable hours reducing to 3.9 hours per day, per fee earner.

Average fee growth is 5% (although only 3% for Scottish firms) with average profit per equity partner rising from £111,000 in 2015 to £120,000 in 2016, representing in an increase of 8%. Again, the profit per equity partner for Scottish firms is slightly lower at £110,000.

Although fee and profit trends are largely positive there is always room for improvement and complacency can jeopardise financial performance in future periods. It is acknowledged that in general firms understand professionalism and most firms score well on this measure. However, financial targets and goals are often not fully achieved due to firms not scoring so well in relation to being commercial. It is imperative that regular and appropriate financial information is available to allow management and decision makers to proactively develop strategies for profit improvement.

The report further highlights that the best way of increasing profitability is by improving productivity and this includes capturing effort and improving efficiency. Capturing effort is influenced by the firm’s time recording policy and ensuring that all client related time is recorded. Efficiency can be positively influenced by work being undertaken at the correct level, knowledge sharing, timescale planning and benchmarking performance.

Cash flow management is also benchmarked and the impact of “lockup” in the form of work in progress and debtors is monitored. The median for the lockup period is 113 days which is an increase of 4 days on the previous year.

The report concludes with a table to record your own firm’s financial data to allow this to be compared with the benchmarked data of the upper quartile firms. This may confirm expectations for successful firms or provide incentives for other firms to aspire to the standards already being achieved by their peers. You can find the report here.

EQ can assist your firm by ensuring that key performance indicators are monitored and that appropriate strategies are developed to drive efficiencies and improve profitability and cash flow management.

Should you wish to discuss your own firm’s performance relative to the NatWest Legal Benchmarking Report please contact Mark Gibson, Head of EQ Professions via mark.gibson@eqaccountants.co.uk.