The 2018 annual Financial Benchmarking survey – commissioned by the Law Society of Scotland jointly with Clydesdale Bank – shows some interesting yet equally worrisome changing trends. The general results of the survey highlighted that, in simple terms, the more partners a practice has, the greater the prospect for increased profitability per partner.
The survey, which took place between February and April 2018, broadly indicates the “premier league” practices (generally based in the cities) have rising turnovers and, more importantly, improving bottom lines. The survey was completed by 86 firms – a slightly lower participation rate against the previous year – representing 8% of firms throughout Scotland.
Small Firms in Scotland
The vast swathe of the profession comprises small firms of one to four partners, and there are some alarming statistics which highlight that sole practitioners saw a 4% drop in their income compared with last year (£50,000 in 2017 compared with £48,000 this year). Similar reductions were also seen among firms comprising of five to nine partners (3% decrease on 2017’s figures).
Readers, however, should not be alarmed. The survey does not herald the end of the small firm which has been – and is likely to continue to be – the backbone of the profession providing quality, legal and professional services throughout Scotland. According to the Law Society of Scotland, small firms have “continued to thrive” this year and are in “robust financial health”. This was evident from the median profit margin whereby sole practitioners had the highest median of 46% profit margin against medium firms with 31%.
Since 2014, there has also been an upward trend of capital per partner in small firms; now sitting at £99,000 compared with last year’s figure of £86,000.
Medium Firms and Profitability, Glasgow
Medium firms in Scotland (consisting of ten or more partners) saw an exponential jump of approximately 38%, with profit per partner averaging at £172,000.
What seems clear from the findings is that rather than size being the most significant factor, improved management to bring changes in working practices as well as refining your business model to focus on higher levels of fee income and profitability is the answer.
Prospects of High Street solicitors withering on the vine is remote, however, equally true is that those who are not prepared to change with the times embracing technology, changes in working practices, charging properly for work done and operating more effectively and efficiently will continue to suffer and show a similar decline of the type heralded in the report.
Contact our specialist team today
McKinstry Practice Management is a bespoke management consultancy specialising in assisting firms with two to ten partners. If you would like first-class legal guidance on profitability, succession planning or merger & acquisition, contact us today via the online contact form.