Law firms tighten up as ‘Tesco law’ looms

Law firms are generally becoming more efficient, according to Crowe Clark Whitehill.

The boost to the sector follows the launch by the national audit, tax and advisory firm of an online benchmarking service for solicitors which ranks firms’ performance against their peers and highlights where they need to improve.

 It comes as Alternative Business Structures (ABS), dubbed ‘Tesco law’, comes into force towards the end of this year.

 ABS, which will enable non-lawyers to own and provide legal services, is seen by some as a direct and serious threat to the existing order. Many lawyers are concerned it will allow large corporations with substantial marketing budgets to unfairly compete against smaller high street practices, which may put many at risk of closure.

 Johnathan Dudley, Midlands managing partner at Crowe Clark Whitehill, said: “Never has it been more important for law firms to be at the forefront of profitability, turnover success and innovation.

 “They face unprecedented competition from all sorts of directions – the big supermarkets, other specialist retailers with established brands and infrastructures and even entrepreneurs setting out to commoditise the market.

 “Our online benchmarking service means they can see how they are performing against their peers, be aware of where they must improve and decide how they can best meet the coming challenge. For some, this could literally be a case of life or death. Law firms need to be doing their thinking now, before someone else does it for them with solutions that they will not like.”

 Open Measures, a development by Crowe Horwath International, makes it easier to compare and contrast, as well as share information across partners. Over 60 firms participated in the recent survey, ranging from three with a turnover of less than £1 million to one with a turnover in excess of £1 billion. They were asked, on a confidential basis, to input data based on recent annual results.

Overall, turnover increased by an average of 3.5 per cent. However, 35 per cent reported a decrease whilst 26 per cent grew theirs by over 10 per cent.

Average profit per partner, on an un-weighted basis, was £181,652 and for an equity partner £225,633.

Niche firms did particularly well, both in terms of profitability and growth. Full service firms did less well.

London firms were more profitable than those based in other major cities, which in turn were more profitable than those based in other locations.

Average fees per partner were £540,214, again on an un-weighted basis. Some 14 per cent had an average fee per partner of over £1 million.

Fifty-two per cent of firms reduced partner numbers over the year whilst 37 per cent were up.

Comparing percentage movement in turnover less percentage movement in total personnel, 58 per cent increased their efficiency whilst 40 per cent were down.

The average number of lock-up days (unbilled work in progress plus debtors but excluding VAT) amounted to 130 days. As a generality and perhaps surprisingly, smaller firms had less lock-up than many larger firms.

The benchmarking allows firms to quickly and graphically display how their performance compares with others. The assessment, where key performance indicators are analysed by size, discipline and geography, is free to participators.