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Benchmarking survey finds steady profit picture despite revenue falls
A survey of Scottish law firms has shown overall profit per partner levels in 2019 similar to those of the previous year, with firms based in Glasgow and Aberdeen seeing the biggest rises in profits per partner.
A total of 58 law firms across Scotland took part in the Law Society of Scotland's financial benchmarking survey 2019, with highest participation rates from sole practitioners and 2-4 partner firms. The findings show overall profitability (before any equity partners' drawings and tax) at a median of £76,000 per partner, similar to the 2018 report, and £7,000 higher than in 2017.
Glasgow-based firms which took part in the survey had a median profit per partner at £148,000, representing a significant 38% increase on the previous year’s figure of £107,103. The findings indicate that these firms are managing costs, including salaries, effectively to increase profit levels, as the median total income per partner dropped by around £36,238.
For Edinburgh-based respondents, total income per partner fell more dramatically between 2018 and 2019, from £319,231 to £229,976. However, controlling of salaries has meant that the reduction in income per partner has not led to a commensurate drop in profit per partner.
Outside the central belt, the median profit per partner for those firms taking part in Aberdeen, Dundee and Perth was £91,175, an increase of £17,093 on the previous year. The findings showed a fall in income, of £13,238, but participating firms in these cities appear to have mitigated the impact of this on their profit per partner figures.
John Mulholland, President of the Law Society of Scotland, commented: “Uptake of the financial benchmarking survey was lower this year than previously, with highest participation rates among our smaller firms of one to four partners. While this means the findings don’t apply across the entire profession, they can be a useful marker for high street practitioners in helping them to assess how their firm is performing.
“The legal market remains highly competitive. While some firms have reported increases in their turnover and profits, we are aware that economic conditions have remained challenging, particularly for high street firms including those carrying out legal aid work. This has been reflected in the 2019 report’s findings of a drop in the total income per partner figure among the respondents. More positively, the survey findings have indicated that, despite the reduction in income, firms are working to manage their outgoings as the overall profitability per partner figure remains in line with the previous year and is substantially higher than the financial benchmarking report published in 2017.
“It’s vital that solicitors develop excellent business management skills in addition to their legal knowledge. I hope our members make use of the findings to help inform their decision-making as they plan for the future.”
Sue Carter MBA, UK Head of Professional Services Sector, Clydesdale Bank, added: “With income per partner lower than the previous year across all regions, this suggests costs continue to be well controlled, as median profit per partner remained in line with the previous year. However the day-to-day challenges of generating new and profitable fee income, managing working capital and succession planning remain priorities.
“The findings can help solicitors develop their strategic thinking and future planning, allowing them to assess what is working well and what may need to change within their business to boost performance.”