City law firms report strong growth

The latest Law Firm Benchmarking report from Crowe reveals a significant divergence in performance between City and regional law firms in the UK legal industry as it approaches 2025. Partner profit pools for City firms surged by an impressive 12.12%, even amidst rising cost pressures; in stark contrast, regional firms saw a decline of 10.82%. This striking statistic underlines the financial resilience of City firms, which have achieved revenue growth averaging 10.84%. It appears that their success is attributed to tighter control over costs through operational efficiencies and better resource management.

In terms of cash flow efficiency, City firms also showcased an improved lock-up period, reducing it to 135 days. Conversely, regional firms achieved only a modest improvement of two days, raising their average to 140 days. Notably, the Work in Progress (WIP) days for City firms remain at a stable 35, compared to the significantly longer 71 days for regional counterparts. Debtor days further illustrate the contrast, with City firms at 101 days in comparison to 70 days for regional firms, revealing quicker billing practices in the City but a more robust collection process in the regions.

Despite inflation rates reaching 3.8%, nearly double the Bank of England’s target, legal firms’ revenues and fees have shown a positive trend. Regional firms led the way in revenue growth at 12.21%, while City firms grew by 10.19%. The increasing fees per partner across the board have been encouraging, with City firms reporting an 8.2% rise, bringing their average fees to £1.3 million, driven by high-margin work and resilient client bases. In comparison, regional firms experienced a 6% increase, with average fees per partner reaching £1.1 million.

The report highlights rising cybersecurity concerns, with 22% of firms experiencing a cyber incident within the past year. In response, 81% now employ dedicated cyber specialists. This focus on cybersecurity reflects a proactive approach towards risk management in an evolving landscape where safety is increasingly paramount. Furthermore, over 80% of firms have either implemented or are working towards a net zero plan, a marked increase from 62% the previous year, signalling a shift towards corporate sustainability.

Nicky Owen, Head of Professional Practices at Crowe, remarked on the resilience of the legal sector despite challenges, stating “The legal sector continues to show strength and resilience, with solid financial foundations and optimism for achieving future growth targets.” Meanwhile, Tim Kidd, Chief Executive of the ILFM, underscored the sector's adaptability, saying “The findings show that the legal sector continues to demonstrate resilience in the face of rising costs and shifting client expectations.” Business interests in private equity remain robust, though concrete investments are still anticipated to emerge in the coming years.