Member Article

Legal Sector under increasing financial pressures

The legal sector is coming under increasing pressure from market conditions and regulatory changes, according to a research.

In their annual survey of legal firms, PwC found that firms are being forced to reconsider their operating methods, both in terms of service delivery and their own infrastructure in order to maintain profitability.

Profits in the top 10 firms ranged from between 50% to 25%, while net margins for North East firms were, on average 15%. While this was consistent with the previous year, 2011 has seen a deterioration of working capital, particularly amongst firms who struggle to get bills out quickly.

David Thurkettle, PwC director and leader of the professional partnerships advisory group in the North said:

“Surprisingly this year, despite market conditions, head count has started to drift up again. Utilisation rates for professional staff have been flat or even in slight decline. Equally surprising, given the focus on support costs, has been the renewed upward trend in the numbers of back office staff for many firms.”

In order to cut costs, many larger firms are scaling down business support functions. resulting in outsorcing in business and legal processing.

David believes that this could provide North East businesses with a good opportunity, as many economically bouyant firms in the South East begin to “North Shore” their activities to the region.

He continued: “Pricing pressures are here to stay so firms are now looking at different pricing models but most are still highly reliant on the hourly system.

“This is an area where firms have a chance to differentiate themselves among their key clients and we would expect to see more of this trend in an increasingly competitive market.”

Many firms remain optimistic about future growth, but David is warning that they must not be overly optimistic in their predictions

He concluded: With global economic conditions having worsened since we completed our survey, we recommend firms consider the impact of different economic scenarios for 2012 and beyond and prepare a ‘Plan B’.“

This was posted in Bdaily's Members' News section by Ruth Mitchell .