MHA 2017 Legal Benchmarking Report
Our 2017 MHA Legal Benchmarking Report reveals the UK legal sector is experiencing its third successive year of income growth. The review, undertaken by our MHA Professional Practices Group, indicates that profitability is at its highest level in three years.
- A year of growth in fee income across firms of all sizes, with growth of between 8% and 20% for firms with more than five equity partners.
- A worrying increase in lock-up days for all multi partner firms, other than those with 5-10 partners who have managed to keep control of their work in progress (WIP) and debtors. The 11-25 partner firms’ lockup increased by 31 days.
- Equity investment continues to be the favoured method of financing, making up between 63% and 72% of the overall finance in the year. Equity investment ranged from £87,000 to £215,000 dependent on the number of partners involved in the business. Last year equity investment ranged from £91,000 to £146,000 depending on the number of partners involved in the business.
- Practices with between 2 and 10 partners achieved an impressive 5% increase in net profit percentage this year.
- Inadequate succession planning continues to be a challenge for the sector.
- Income per equity partner has almost doubled in a year. It averaged at £750,000 in 2014 and 2015 and has jumped significantly to nearly £1.4m.
- Cost of professional indemnity insurance continues to increase.
- Total funding per equity partner increased by 30% for the larger firms.
Kate Arnott, Head of Professional Practices at MHA MacIntyre Hudson comments:
“While our report reveals growth across the sector, firms continue to face a challenging environment. The potential cost implications of the government’s new Apprenticeship Levy, Auto Enrolment, the National Living Wage and business rate assessments mean that firms will need to maintain control of expenditure if profitability is to be increased.
There is a level of momentum in new work generation from corporate and property sectors which we expect to continue, even after factoring in any negative impact from Brexit and the upcoming general election.
If firms are planning to grow income at similar levels in 2017, they must consider how to fund this growth. We have already seen lock-up increasing so plans need to be made now for additional bank finance or partner contributions before cash runs out."
If you would like to discuss options for benchmarking your firm in greater detail, or if you are considering your own strategic objectives for the future, please do not hesitate to contact us.
As a firm, our specialist Professional Practices team work with and act for a significant number of legal firms. We also regularly provide expert witness services, forensic reviews to support litigation proceedings and business valuations in matrimonial dispute cases; as well as advice on all audit and accounting issues surrounding commercial transactions.