Stronger-than-expected law firm performance during the pandemic

Lawyers maintained services to their clients during successive shutdowns and many reported strong business performance for the first year of the pandemic, according to the Law Society of England and Wales Law Management Section’s financial benchmarking survey.

In its 21st year, the survey examines how law firms weathered the pandemic, providing a snapshot of performance from 2020 to 2021.

Law Society of England and Wales Vice-President Lubna Shuja said: “Law firms have demonstrated their resilience into 2020/21, using government lifelines to retain staff and equipping them to support customers outside of traditional desktop environments.

“This survey highlights the range of vital economic and social activities that lawyers have continued to facilitate during the pandemic. It also provides insight into the drivers of success as companies look to business in the new normal.

Overall, 69% of participants reported year-over-year growth in fee revenue in 2020, with 40% seeing double-digit growth. Many companies have performed well financially thanks to steady demand during the pandemic, lower costs and government support that has helped them avoid job losses.

Median practice fee income increased by 6.2% (the biggest increase in seven years) while median fee income per associate increased by 8.3% from £761,981 in 2020 to £825,331 £ in 2021.

Total salary costs as a percentage of commission income decreased by 2.9%. This was likely influenced by a range of factors, including the laying off of staff for much of the period, delays in awarding salary reviews and promotions, and the fee per employee increasing more than the increase salaries.

After two years of declines in financial partner profits, the median net profit per financial partner increased by 39%. This was due to a combination of an increase in fee income, particularly in residential transfer (+15.2%) and employment (+12.1%), furlough subsidies and other subsidies, as well as a reduction in personnel costs and other overheads (light, heating, repairs, etc.).

In particular, median non-salary overhead expenditure per employee (everything except salary costs) decreased by 2.2%. This is largely due to reduced recruitment, marketing and other premises costs.

IT spending has increased as companies quickly had to allow their staff to work from home during national shutdowns, in many cases accelerating existing plans.

While the short-term financial impact of these measures was felt in 2021 results, companies expect to see longer-term financial benefits on other traditional overheads.

Analysis of data on overhead costs and profitability as a proportion of fee income suggests that for several years law firms have adapted the way they work and the way they derive value from their investments.

Companies are increasingly willing to invest in human capital growth, while controlling other costs more tightly to maintain profitability.

Impact of COVID-19

  • 83% of participants said they had laid off at least some of their staff at some point in calendar years 2020 and 2021. The proportion of support staff furloughed was higher than the proportion of employees
  • 13% of businesses surveyed had used grants from local authorities, with an average amount received of £27,000

Regarding taxation:

  • 79% of companies have postponed the payment of their VAT debt
  • 12% of businesses were able to agree a payment deadline with HMRC to defer or spread payment of PAYE/NIC due on monthly wages
  • 44% of sole practitioners or LLP partnership/corporate partners have deferred tax payments
  • 12% of public limited companies were able to negotiate deadlines for reimbursing their corporation tax bills
  • 74% of participating businesses had borrowed money through the Bounce Back Loan Program or the Coronavirus Business Disruption Loan Program.

Overall, many companies participating in this year’s survey recorded higher than expected performance levels for 2021. The challenge for many companies will be to sustain the increased levels of profitability over the months and years coming.

Key to this is getting the most out of staff, efficiently delivering the best possible customer service and charging accordingly, while ensuring working capital is managed.

Paul Bennett, Chair of the Law Society’s Law Management Section, said: “The pandemic has posed enormous challenges for law firms in terms of supporting clients during the most difficult time since the 1940s.

“Some law firms have had exceptional results, others have struggled – to some degree it probably depended on the industry or client group they were supporting.

“Companies that have good customer service habits, good practices that have engendered trust at a critical time in history, and the ability to offer the right expertise at the moment have done well. Therefore, we celebrate those who have prospered.

“Good management should be welcomed, lessons learned shared to help other businesses and of course those they have supported will recognize outstanding support from trusted professionals.”

Becci Wicks, Regional Director for London at Lloyds Bank Commercial Banking, said: “The Law Society’s annual benchmarking survey always provides an insightful temperature check on how businesses are doing, which is even more important now that ‘they are considering new opportunities as a result of the restrictions. lifting.

“It is a privilege to once again sponsor the survey and support the sector as it strives for future growth. These latest results reveal the resilience of the sector which gives cause for optimism for the future.

“We look forward to staying with law firms over the coming months and providing them with the funding and guidance they need to realize their ambitions.”

Notes to Editors

* Super profit is the profit in addition to a return on the partner’s capital invested in the practice, a benefit received for the additional risk they face as business owners rather than employees.

Read the full investigation report

A webinar on the survey results will take place at 10 a.m. on Friday, April 29. Find out more and reserve your place

Companies wishing to express an interest in taking part in the 2021/22 survey can contact [email protected]

The 2022 Financial Benchmarking Survey is written and produced by the legal team at Hazlewoods LLP for the Law Society’s Law Management Section and sponsored by Lloyds Bank Commercial Banking.

In its 21st year, the survey for 2021 collected financial data from 206 companies, with a combined revenue of over £1.1billion, making the survey one of the largest of its kind. type in England and Wales.

The report contains financial data from the last two fiscal years: 2020/21 (2021) and 2019/20 (2020) from April to March and provides insight into how organizations can use the data to improve their performance.

Main findings of the report

  • While the number of paid employees was similar to the prior year, personnel costs were down – the median cost of a paid employee (including fixed associates and associate notional salaries) decreased by 2%
  • The number of support staff decreased by 2.5%. The median cost of support staff – including secretaries, reception, HR and accounts decreased slightly from 18.6% to 18.1% of fee income
  • Median non-staff overhead expenditure per employee (all but payroll costs) decreased by 2.2%. This is due to lower marketing, recruitment and other premises costs
  • Net profit margin increased from a median of 18.9% to 23.8%. As a result, the median net profit per associate (before notional salary) for participating practices has increased – from £146,417 in 2020 to £203,199 in 2021, an increase of 38.8%
  • Moreover, the median “super profit”* per finance partner was £102,097 (net profit figure adjusted to include cost to finance partner and notional interest on partner capital), a 93% increase on 2020 figures. all revenue brackets saw an increase in super-profit, although the change in the median of companies in the £5-10 million revenue bracket was lower than the median for the bracket turnover of 2 to 5 million pounds sterling.
  • The total number of blocking days at the end of the year (WIP and debtors combined) decreased from 142 days to 135 days and the partners’ median share capital (combined total of capital account, current account and tax reserves) increased increased by 13.2% to £225,250
  • The median hourly cost of an employee (based on 1,100 billable hours per year) was £110.63, the median charge per hour was £122.54
  • The median cost of an employee, including fixed associates and associates’ notional salaries, fell by 2.6% from £57,894 in 2020 to £59,438
  • Of the 206 firms from England and Wales participating in the research, the regional breakdown was as follows:
    • East: 18
    • Greater London: 42
    • Midlands: 33
    • Northeast: 6
    • North-West: 14
    • Southeast: 30
    • South West: 46
    • Wales: 8
    • Yorkshire: 9

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Press office contact: Ruth Murphy | 0208 049 3879