The Shard
Law Firm Benchmarking: City firms
The Shard
City firms have experienced a more challenging year than in 2017, with 10% reporting a fall in revenue compared to 8% last year, though the proportion of firms achieving growth of more than 10% remained strong.

For those firms that saw an increase in turnover, 40% saw an increase of more than 10%, which is a jump compared to one third seen last year.

Overall however, City firms have seen a slowing in the pace of growth, with an aggregate revenue increase of 6.5% across all participants compared to almost 8% last year. This slowdown has clearly been felt by some equity partners as 35% of firms reported a fall in PEP. The wider story was more positive however, as the average PEP across participants increased by 8%.

In conjunction with the increase in PEP, we have also seen firms increasing headcount, especially among fee earning staff. This sends a clear message that partners are keen to ensure they have sufficient resources to meet future challenges and potential opportunities.

Good news for City firms as professional indemnity insurance (PII) premiums fall

After a couple of years of unpredictability, average PII premiums as a proportion of fee income fell, albeit by a small margin, from 1.8% to 1.6%. The effects of this trend appears to have been quite positive with more than 45% of participants reporting a fall this year, compared to only 20% of participants last year. There has been a clear emphasis on firms to look closely at their risk management approach and perhaps this is feeding through to premiums. However, with recently reported instability in the PII market, it remains to be seen whether this trend will continue.

Increase in debtor days contributes to rise in lock-up

Lock-up continues to be a challenge for many firms, with average total lockup increasing to 155 days this year, compared to 151 days in 2017, and reversing the fall reported between 2016 and 2017.

city firms 

 

While the value of time locked up in work in progress has remained static, it is an increase in debtor days that has given rise to this increase. It is important that firms do not become too relaxed about reminding clients about outstanding payments, and finance teams, fee earners and even partners need to appreciate that the process doesn’t end with simply sending a client a bill. City firms in particular should take note that they trail regional firms with lock-up management, especially the recoverability of debtors, with the gap widening to 50 days this year.

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Brexit uncertainity

Fewer than 20% of City firms have changed their view over the impact of Brexit on the market. This year’s survey saw only 6% of firms viewing Brexit as an opportunity, with the majority viewing it as posing a net threat to their business.

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Our professional practices team advises law firms of all sizes on their growth plans, always tailoring our advice to best suit their needs.
Louis Baker
Louis Baker
Partner, Head of Professional Practices
London
Steve Gale
Steve Gale
Partner, Professional Practices and Head of Audit
London
Ross Prince
Ross Prince
Partner, Audit
Midlands