The Law Society’s financial benchmarking survey is a smorgasbord upon which law firm owners should dine heartily if they want to run their businesses better. What to nibble on this year?
I was given a handy nudge by a launch event at Chancery Lane last week which was attended by senior industry figures.
First, the fillip to the bottom line emerging from rising interest receipts on client money is strictly temporary. And these are not nugatory sums. Across all the firms surveyed, total net interest income rose 1,000% to £27.5m in 2023. That is nearly £200,000 a firm. Not free money, exactly, but very nice to have nevertheless.
Much of that boon is set to vanish as the Bank of England cuts the base rate in response to inflation which is now below 4%. That said, it is still worth firms reviewing banking arrangements to ensure they are maximising receipts. Law firms are reluctant to shop around, it seems, but should ‘capitalise now before rates start falling again’.
You need to beware not only the BoE, but the SRA too. The regulator’s review of consumer protection, launched in February, is considering tighter controls on the circumstances in which law firms can hold client money. Earning interest on client money remains an ‘emotive’ subject, the event heard. What will the SRA do?
Firms remain reasonably optimistic about the trading outlook – growth was registered across all work types. But 2023/24 profits are certain to take a big hit from pay increases. Salary reviews which took place in the early months of last year, when inflation was still in double digits, will have yielded hefty rises.
The elephant in the room is tumbling productivity. Chargeable hours were running at well over 1,000 hours pre-Covid, one roundtable participant noted, but are now below 800. Notionally, a junior could be clocking up 1,300.
Fixed fees may have had a bearing here, but there appeared to be a consensus that there has been a culture change fomented by the hybrid working revolution. Don’t call it ‘woke’ – a better work-life balance is good for everyone. And yet targets are hardly inappropriate.
Many law firms still seem unsure how to manage what may well be a generational shift in attitudes to work.
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