Firms making a profit, but caution needed
The anticipated financial impact on UK law firms has not materialised, with most firms making a profit since the first lockdown, a survey reveals
The research was carried out by independent accountancy firm network MHA which revealed 91 per cent of firms surveyed reported making a profit since March 2020. Of those making a profit, 18 per cent reported profit growth of more than 20 per cent between March and December 2020.
MHA found that profits have been driven by fee income recovery and cost cutting efforts.
In an initial survey of 100 firms last May, just 14 per cent of firms said covid-19 either had no impact or a minor impact on fee income, while 38 per cent said it was having a major impact on fees.
The situation then improved for many, and in a subsequent survey last December (of 87 firms) just 9 per cent of firms reported that the pandemic was having a major impact on fees. Almost half of firms said there had been no or a minor impact on fee income.
Last year’s widespread pessimism across the industry has given way to renewed optimism, a reflection of what the MHA identified as “strategic adjustments” made by firms in response to the pandemic.
Since last summer, well over half of firms surveyed (58 per cent) adapted their approach, such as revising their service offering and office locations, and reducing expenditures and staff numbers.
Unsurprisingly, redundancies took place – 53 per cent had made people redundant by December because of the pandemic, although nearly 73 per cent had recruited across the same period.
Karen Hain (pictured), MHA’s head of professional practices, said the results demonstrate that UK firms have been able to adapt their commercial operations in the second half of 2020 and overcome the challenges of covid-19.
She commented: “The wildly pessimistic expectations many of us had at the beginning of the first lockdown have thankfully not come to pass and profits and legal fees have now stabilised and even increased for many firms.” She said many firms made “immediate decisions to reduce expenditure generating additional profits”.
According to MHA, 87 of law firms had utilised the government job retention scheme by May 2020 and Hain commented that furlough payments reduced outgoings leading to better profits than expected.
But she sounded a note of caution: “Whilst the results of the survey are promising, we shouldn’t lose sight that cash remains king. Debts due from clients has disappointingly increased and it is imperative that firms do not lose the benefit of the improvements in hours logged, expenses reduced, and better profits, by not collecting their unpaid bills faster.”
Responding to the research, Viv Williams of Viv Williams Consulting said: “This survey indicates some optimism amongst the participants against a background of furlough, redundancies and general cost-cutting.
“We have also seen a buoyant conveyancing income stream partially based on the Government stamp duty holiday which is due to end next month. Additionally, private client and, sadly, probate has also generated good income.”
He said there is no doubt firms have been working exceptionally well during the second half of 2020, but added: “We are now entering a new phase with the vaccine program accelerating, yet stamp duty could well have an impact on conveyancing income. A lot depends on what the rest of 2021 holds for us – will we see a recession?
“The more retail and leisure failures we see, the more we’ll see increased unemployment and buyers' ability to purchase legal services.”
Williams added: “We must remain cautious and plan for what could be ahead. However, it's nice to see some optimism for a change.”