Law Society of Scotland survey shows improving fortunes for smaller firms

Results from the Law Society of Scotland’s new financial benchmarking survey, published this week has shown that profits per partner (profit before tax and allowances for equity partner salaries) for the respondent firms have remained relatively static since the previous Cost of Time survey in 2014, at £69,000.

The figures also indicate that firms with two to four partners are closing the gap on slightly larger firms of five to nine partners, with regard to profitability per partner.

The Financial Benchmarking Report 2017, published in association with Clydesdale Bank, has shown that 2-4 partner firms’ median profits rose by 11 per cent to £82,000 per partner and that respondent firms of this size were largely in good financial health, with good bank balances and low debt.

There has also been an increase in profitability for sole practitioners taking part in the survey, from £41,000 to £50,000 since 2014. Median profits for sole practitioners in Glasgow were low at £40,000, although they represent an improvement on the 2014 figure of £26,000.

The survey’s findings have highlighted some of the pressures facing firms in the five to nine partner bracket, with just a four per cent increase in median per-partner profits of £96,000.

The findings also showed median bank balances were overdrawn by £2,000, falling from a credit balance of £30,000 in 2014. This result may reflect the financial health of the sample of five to nine partner firms that participated in the survey, but is notable nevertheless.

Bigger firms of more than 10 partners which responded showed the highest profits per partner at £125,000. The differences in the respondent group since 2014 may account for the drop from £163,000 that year. The survey findings for 2017 have also highlighted the high staffing costs, at around 43 per cent of total income, indicating that these firms are not achieving the economies of scale that might be expected.

A total of 100 firms (nine per cent of all Scottish law firms) took part in the Law Society’s redesigned financial benchmarking survey. The interactive, online report, developed with leading technology systems and services provider Tribal, features additional metrics to the previous Cost of Time Survey, and allows firms to access individual, confidential online reports on their financial performance. They can also compare themselves with other law firms in Scotland. All results have been anonymised to ensure confidentiality.

Firms can view and compare:

The new system will allow solicitors to analyse trends for their firm, and their performance against other firms year on year.

Graham Matthews, President of the Law Society of Scotland, said: “The overall figure for profit per partner is similar to those in 2014, but we are yet to see a return to the 2008 pre-recession median profit levels of £104,000, highlighting the serious impact of the lengthy downturn on Scotland’s law firms.”