Law firms in East Anglia have seen an overall increase in profitability over the past year but may still need to refocus their approach to ensure long-term financial stability, according to a new report.

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Research by the Law Society’s law management section shows that fee income for legal firms increased by an average 4.1% in 2013, and that the average profit per equity partner rose by 3.6% to £121,731.

The annual Financial Benchmarking survey, now in its 14th year, also reveals that more practices in East Anglia have converted to a Limited Company or Limited Liability Partnership status while there has been a fall in equity partner capital.

In more than one fifth of the participatiing firms (21%), partners’ total drawings, including income tax, exceeded profits in both 2012 and 2013.

Other findings from the survey include stability in ratios of fee earners to support staff and a slight reduction in “lock up” work in progress and debtors combined.

The survey, which is sponsored by Lloyds Bank Commercial Banking and produced by Hazlewoods LLP, a medium-sized accountancy practice specialising in advising the legal profession, is widely recognised as an annual “health check” for the financial stability of small to medium sized law firms, providing an opportunity for firms to evaluate their performance against regional and national comparisons.

Hazlewoods’ director Andy Harris said the results showed that many firms were continuing to exercise tight control over spending where possible, even though staff costs were beginning to increase again.

Carl Woodwards, senior manager at Lloyds Bank Commercial Banking in East Anglia, said: “This year’s survey shows some positive trends, including growth in fee income and profits. It was pleasing to see some firms improving their working capital management, too.

“We are beginning to see some positive indicators that bode well for the economy in 2014, and solicitors are likely to get busier with a revival in house move transactions and rising levels of confidence among their business clients. However, solicitors in East Anglia will need to maintain financial discipline for sustained success.”

Nick Fluck, president of the Law Society, said: “It’s encouraging that law firms’ profits continue to modestly rise, but there’s no one-size-fits-all approach that will help firms to adapt to the tough conditions facing the sector today.

“The survey provides an invaluable insight into management structures which can help firms to formulate strategies and allocate resources to ensure financial stability.

“The law management section of the Law Society helps firms to share good practice and advice, playing a key role in helping law firms steer their way through challenging economic conditions.”

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