More IT Investment needed for Law Firms

Cost of premises is increasing yet firms are still not investing in IT and remote working, highlights MHA Legal Benchmarking Report

The latest annual legal benchmarking review from MHA, the UK-wide group of accountancy and business advisory firms, points to encouraging signs of growth for a second year, most notably through an upturn in the Property and Construction Sector.

The review, undertaken by MHA’s Professional Practices Group, indicates a much more positive outlook across most firms, helping to ease the considerable financial pressures experienced in recent years.

The MHA Report highlights:

• A year of growth in fee income across all size firms, with growth of between 13% and 27% for firms with more than five equity partners.
• A direct increase in business in the Property and Construction Sector. We have actually seen a shortage of lawyers in the Property Sector, as the demand for their services took off so rapidly.
• A lack of investment in IT accompanied by an increase in premises costs.
• Across our different sized firms, the comparative lock up days this year to last has ranged from five days worse to 13 days better, with the more than 25 partner firms making the 13 day improvement.
• In 2015 equity investment ranged from £91,000 to £146,000 dependent on the number of partners involved in the business.
• External finance makes up between 20% and 38% of the overall finance invested in practices with the remaining amount being equity partner investment.
• All firms have been under pressure to make higher pay awards to retain current staff. Also, the impact of automatic enrolment pension schemes is now showing in the increased spend on staff.
• We expect 2016 to continue to be difficult for this sector.
• We expect further pressure on staff pay scales into 2016.
It is concerning to see that the much improved fee income has not translated into increases in net profit. Most firms have had to recruit new staff to cope with their workloads and many have seen their salary costs increase, as well as being faced with the costs of auto enrolment pension schemes and increasing premises costs.

Karen Hain, Head of the Professional Practices sector at MHA explains: “A significant downward pressure on net profits is the high costs of keeping premises. It is clear from our review that firms have not downsized their premises, with the larger practices actually expanding. To make any significant inroads into premises cost savings, firms will need to make substantial changes to their way of working, such as hot desking, home working or paper free working. The lack of change in working procedures is echoed by the lack of real investment in IT spend.”

Indeed, productivity and time management are also key to a profitable business and a number of efficiencies can be gained through the use of technology and improved processes.

Karen went on to say: “As we look ahead, we expect 2016 to continue to see succession planning as a key risk for law firms. Difficult questions need to be considered about future strategy, so that changes can begin to be made. Firms also need to review their funding structures to understand their cash requirements, which usually fall under pressure during periods of growth. They must have plans if additional funding becomes necessary, as traditional banking routes may be restricted. ”

If you would like to understand more about any of the issues raised or would like to discuss them with a member of the MHA Professional Practices team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in touch with your local representative. A copy of the final report is also available from Hannah Farmborough .