Legal sector must continue to focus on cost reduction and process improvement.
Recently there have been a series of legal sector surveys that have continued to emphasise the need for firms to adopt, or to continue with, a focus on cost reduction and process improvement during 2013.
The Law Management Section (LMS) Annual Survey, which examines the financial health of law firms across the UK, confirmed that Practice fee income increased by 3.6% in 2012, compared with more modest growth of 1% in 2011, and average net profit per equity partner climbed from £112,549 to £114,853, a rise of 2%.
More interesting were the survey results which revealed that the number of support staff per fee earner remained steady at 0.61 and the median spend on non-salary overheads per fee-earner was £37,992, compared with £37,831 in 2011, a nominal increase of 0.4 per cent.
Naturally, this real terms fall in costs is to be welcomed – but at Expense Reduction Analysts, we’d view anything but an actual reduction in non-salary overheads as a failure.
Legal market management recruitment consultancy Totum found that a fifth of firms expected to increase salaries for business support professionals by more than 3% in 2013.
And finally, BDO found that almost half of law firm partners think they should be paid more than they currently are. 69% of partners expected average profit per equity partner to increase over the next three years.
BDO goes on to suggest that such expectations will drive further merger and acquisition activity in the forthcoming year, concluding that, “If the majority of partners think they should be paid more, then the only way to pay more is if the firm generates more turnover and more profit.”
Of course, at Expense Reduction Analysts, we don’t necessarily agree that turnover growth is the only way, and we would suggest that legal sector firms place greater importance on establishing smarter spending strategies from the boardroom down, to ensure that they remain competitive over the next twelve months and beyond.