UK: MHA survey highlights profitability challenge for law firms

Jon Woolston, managing partner of Larking Gowen

Jon Woolston, managing partner of Larking Gowen - Credit: Archant © 2013

A new report highlights the difficulty faced by some law firms in maintaining profitability.

According to the study, compiled by MHA, an association of nine UK chartered accountants firms which is represented in East Anglia by Larking Gowen, larger firms are the most affected while smaller firms of two to four partners appear to be bucking the low profitability trend.

Using data gathered from firms across England, Wales and Scotland the report identifies that the changes to the structure of legal aid and personal injury has put many firms under increasing pressure.

This, coupled with the on-going impact of the recession, has resulted in marginal growth rates for a majority of the practices benchmarked.

There is also evidence to suggest the legal sector has been slow to grasp the nettle of efficient working, particularly in terms of improving cash flow. The report shows the average time between the commencement of work and the collecting of the fee from the client is 148 days.

Ratios of staff costs to fee income also continue to be high at an average of 67 per cent for 11 to 25 partner firms.

Jon Woolston, managing partner at Larking Gowen, said, “We are seeing an increasing move towards mergers and acquisitions amongst law firms. This is perhaps due to an ongoing lack of growth in recent years.”