Law Society of Scotland 2018 financial benchmarking survey

Category: Professions - Posted On: Sep 24 2018

86 Scottish law firms took part in the 2018 survey, representing 8% of all firms in Scotland. Although a disappointing response level, this is still sufficient enough to give a general indication of the financial performance of the Scottish legal sector.

The results are encouraging for 10+ partner firms with a median profit per partner of £172,391 representing a large increase of 38%. Unfortunately this positive trend was not replicated for smaller firms, including 5 – 9 partner firms, who experienced a reduction in median profit per partner from £96,330 to £93,526.

Other than for sole principals, the average fee income per partner has increased significantly. The median increase for 10+ partner firms is 25.6% to £509,541. This has allowed larger firms to benefit from economies of scale, resulting in improved profit per partner figures. However, for smaller firms higher average fee income has not resulted in increased profit suggesting an increase in less profitable income streams.

Recovery percentages based on normal staff and partner charge out rates have a median rate of 80.9% for 10+ partner firms but over 99% for all other firm sizes. This large variance may reflect the lower charge out rates of smaller firms but is possibly also a reflection on the time recording and practice management systems used by firms.

Cashflow management and control of work in progress and debtors (‘lock-up’) is paramount for the successful operation of firms and also influences the level of capital and debt required. Work in Progress for 10+ partner firms had a median rate of 18.6% (or 68 days) whereas the rates for smaller firms were much lower, ranging between 6.2% and 9.5%. 10+ partner firms also disclosed average debtor days of 71, meaning that total ‘lock-up’ is 139 days.

There appears to be an increase in the level of capital per partner for firms with fewer than 10 partners. The median capital for 5 – 9 partner firms has increased from £67,000 in 2016 to £119,000 in 2017, although this is likely to have been influenced in part by the change in survey participation.

The survey results highlight a reduction in Legal Aid income for firms of all sizes, with 10+ partner firms recording no Legal Aid income in 2017 and only modest levels in 2016. This suggests that firms are finding it increasingly difficult to justify taking on Legal Aid work.

Although the median profit per partner for all firms of £76,000 exceeded the reported results from 2017 and 2014 surveys, this is largely due to the improved reported performance of 10+ partner firms suggesting that challenges remain for smaller firms to maintain and grow profit levels.

You can read the full Law Society Benchmarking report here. 

EQ can help you to review and benchmark the financial performance of your firm. To find out more, please contact our dedicated Professions specialists, Mark Gibson on 01592 630055 or Angela Haig on 01307 474274 should you wish to discuss your particular circumstances.