IT investment key to law firm growth
Substantial changes to how law firms work would see net profits rise, says expert
Greater investment in IT would help law firms to cut costs and increase net profit, the MHA Legal Benchmarking Report 2016 has found.
The report indicated that the most profitable law firms were taking advantage of IT efficiencies to increase productivity and time management, while less efficient firms were paying the price.
In 2015, spending on IT ranged from 1 to 2 per cent of fee income, similar to 2014, while average spending increased 0.2 per cent across the legal profession.
The level of spending on business premises running costs last year varied between 6 and 13 per cent of fee income, with larger firms paying 3.2 per cent more as a result of rent increases and other running costs.
Meanwhile, the net profit of law firms ranged between 16 and 29 per cent, with only sole practitioners seeing an increase compared to 2014 - from 25 per cent to 29 per cent.
Karen Hain, head of the professional practices sector at MHA, analysed the findings: '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.'
Overall, the report gave a more positive outlook as firms of all sizes recorded growth of fee income last year; those with more than five equity partners saw fee income rise between 13 per cent and 27 per cent.
However, Hain warned of the risks ahead: '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.'