Law firms have shown increased resilience as demand for legal services remained strong over 2020 and 2021, with 81% of UK firms recording financial results which either slightly or greatly exceeded their expectations, according to new data from audit, tax, advisory and risk firm Crowe.
The sector’s resilience is underpinned by strong average revenue growth of 5.9% (7.2% for the City; 3.8% for Regional firms), while average profit per equity partner (PEP) rose for most firms, by 17% for City firms and 28% for those in the Regions. Half of City firms saw an increase in PEP of more than 10%, while three quarters of Regional firms saw an increase of more than 10%.
Ross Prince, Professional Practices Partner at Crowe, said:
"A stark contrast in headcount numbers reinforces the Regional focus on cutting costs. The all-City firm headcount grew across all headline categories – partners, fee earners and support teams – while Regional firms saw headcount fall, suggesting either previous excess capacity or potential caution over future workload.”
People matters dominate the broader risk outlook for 2022, with ‘availability of people and the skills we need’ and ‘retention of key people’ cited by 100% of our respondents as a high priority risk. ‘Health and wellbeing’ was also highly ranked, while ‘cybercrime and fraud resilience’ and ‘data integrity and protection’ lead the non-people-focused risk factors.
In terms of external risk factors, price competition in the legal market was the top concern, with 80% expecting price competition to increase significantly and almost three quarters (73%) saying that a law firm’s brand will be a significant factor in winning new clients amidst this price squeeze.
Despite these risks, law firms remain bullish about 2022, with 82% of regional firms, indicating a very positive or positive outlook for their firm, dropping slightly to 71% for sentiment around the broader legal market.
Louis Baker, Head of Professional Practices at Crowe, said: