City law firms have showed resilience to tough political and economic conditions this year as growth overtakes that of Regional law firms, according to national audit, tax and advisory firm Crowe Clark Whitehill.
Crowe Clark Whitehill’s annual Law Firm Benchmarking report shows that 92% of City law firms have experienced growth, an increase of 27% from 2016, with only 8% reporting a fall in revenue compared to 23% last year. By contrast, Regional firms have had a more challenging year: of the 80% of Regional firms that saw growth in 2017, only 28% saw revenues increase by more than 10%, compared to 33% of firms in 2016 and 52% in 2015.
Many firms successfully converted turnover growth into profit, with Profit Per Equity Partner (PEP) increasing for 60% of participating firms – including nearly 70% of City firms, of which 38% saw an increase by more than 10% as compared with under 25% for Regional firms.
Steve Gale, Partner in Crowe’s London office, comments:
“The ability of firms to convert turnover growth into profit has been encouraging. Overall, City firms have had a better year than in 2016, with only 8% reporting a fall in revenue compared to 23% last year.”
Ross Prince, Partner in Crowe’s Midlands office, adds:
“For Regional firms, we noted last year that sustained growth was becoming more difficult and this has indeed played out, with 20% of firms seeing a decrease in revenue this year.”
Looking forward, City and Regional firms have indicated very different emerging challenges and threats.
While last year a larger proportion of City firms viewed affordability of staff as their main challenge, this has reversed and more than two thirds of Regional firms now see internal staff issues as their biggest challenge.
Brexit, government policy and the regulatory environment topped the list of City firms’ concerns with 48% of firms anticipating Brexit as a net threat. Perhaps worryingly, 48% of Regional firms believe Brexit will have little impact on them, with many firms operating a ‘business-as-usual’ approach.
New entrants to the legal market are a shared concern, with both City and Regional firms agreeing that other professional service firms pose the biggest threat to market share.
Louis Baker, Head of Professional Practices at Crowe, concludes:
“City firms are understandably worried about the continuing political and economic uncertainty, with a quarter of City firms viewing Brexit as the biggest challenge to their future success, and nearly half citing it as a ‘net threat’.”
“Grappling with fierce price competition – including the threat of new market entrants, particularly the encroachment of other professional services firms into legal services – is also a key worry for City lawyers, while regional firms are more concerned about the talent pool, harbouring fears over the availability of high quality personnel.”
The full Benchmarking report hub is available to view online here.
Law Firm Benchmarking 2017