Fee income of SME firms has 'stayed the same or gone down'

The fee income of most small and medium-sized law firms has stayed the same or gone down in the last two years, a survey for NatWest has found.

Only 45 per cent of 127 partners in firms with turnovers of between £2m to £30m reported an increase.

In response, 71 per cent of firms told researchers from Huthwaite Legal that they were looking to cut administrative costs and 43 per cent the number of staff they employed.

The sensitivity of the subject was shown by the fact that 51 partners refused to answer any questions about cost cutting.

Further down the hit list for saving money were office space (34 per cent), staff remuneration (17 per cent), followed by training and marketing.

Most partners said fees charged by hourly rates made up the biggest percentage of their overall fee income, but 30 per cent said fixed fees were the biggest earner.

Steve Arundale (pictured), head of professional sectors for commercial banking at RBS NatWest, said some of the reports of “very strong earnings” by law firms recently had been linked to international income streams.

“Some firms with national streams have been going backwards, for various reasons,” Arundale said. “They could have retired some of their older partners or be facing reduced workloads in some of the regions.

“I think it’s a wider economy thing. Towards the end of last year some firms had to readjust their finances, based on what was happening in Euroland. Looking at the way firms are performing now, there has probably been a slight improvement. Overheads and drawings may have been adjusted to where revenue is.”

The survey showed widespread scepticism among lawyers about the impact of business development and marketing, with 12 per cent rating it as “very effective”, compared to the 30 per cent who described their time-recording system in a similar way.

Twice as many partners said their colleagues were “mildly motivated” to give time to business development as those who said they were “very motivated”.

Arundale said lack of faith in and enthusiasm for business development reflected the fact that in recent years lawyers have not had to “work particularly hard” in this area.

“That position has changed quite dramatically,” he said. “There is probably an oversupply of solicitors in the market, perhaps by 10 per cent.

“Some lawyers have not adapted very readily to finding or creating new work. They do not like to be seen as ‘selling’, but the ability to promote a firm is selling.”

The high level of mergers and acquisitions among smaller law firms was reflected in the 62 per cent of partners who said their firm had made or received approaches in the last 12 months.

Only nine out of 120 partners said they would definitely not be involved in merger discussions in the next two years, while 33 said they thought it was “unlikely”.