Vale & West Chartered Accountants Blog

Competitive legal landscape resulting in innovation at the bottom

Start-ups, niche ‘boutique’ practices and sole practitioners are outperforming traditional law firms in terms of growth and profit per equity partner, new research has revealed.

The finding forms part of professional network MHA’s new 2019 Legal Benchmarking Report.

According to MHA, the study reveals how “the changing legal landscape” and a “fall in fee income” has sparked innovation throughout the sector.

In traditional small and medium-sized firms, for example, this had led to partners reducing expenditure and scrutinising profitability drivers, resulting in improved profit per equity partner figures.

But this has also resulted in the formation of brand new start-up law firms and niche boutique practices, where “decent fees can be generated from a very low overhead base”.

Likewise, sole practitioners have sailed past small and medium-sized firms in terms of fee income growth. According to the report, one-partner outfits recorded a 12 per cent growth in fee income in 2018, compared to a two per cent fall for two to four partner firms and a three per cent fall for firms with more than 25 partners.

Commenting on the report, Karen Hain, head of the Professional Practices sector at MHA, said the latest research “demonstrates the importance of prioritising profits and margins over fee income growth”.

“Firms that improve their efficiency will, in turn, benefit from greater profitability and financial stability, giving them a better chance of survival in this highly competitive and challenging market,” she said.

“Practices need to ensure they can react quickly to new work prospects as they arise, and this involves staff being ‘nimble’ and ready for challenges.”

She added: “Firms should be making changes now for a different future work environment and this starts by scrutinising their staffing mix, IT, management information and case management systems.

“Less paper and more flexible working patterns should be in every businesses DNA; successful businesses automate and gain efficiencies from maximising the use of technology and the latest software. They also sell the value of what they’re providing rather than base their fee on what it costs, avoiding an undersell situation, and pay attention to their lockup situation.”

To access the 2019 Legal Benchmarking Report in full, please click here.

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