Scots law firms see profits per partner fall amid call for efficiency drive

Law firms in Scotland are being encouraged to maximise efficiency after new research shows profits per partner slumped by more than a quarter over ten years.

John Anderson, entrepreneurial services partner with French Duncan, pointed to fierce competition in the legal sector. Picture: Corbis

The median profit per partner in Scotland’s legal sector fell by almost 27 per cent in the period, from £104,000 in 2008 to £76,000 last year, according to accountant and business advisory firm French Duncan.

Practices of all sizes experienced the decline, although the metric almost halved at sole principals – law firms with a single partner – plummeting from £92,000 to £48,290 over the ten-year spell.

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A 2018 report by the Law Society of Scotland, one of the documents forming the basis for the French Duncan study, said: “The income and profit results suggest that firms are generating higher revenues through increased volumes of work, but that the work is less profitable.”

It added that firms with ten or more partners are better able to absorb the less profitable contracts without it affecting profits per partner in the same way as smaller practices.

The median capital per partner has fallen substantially among the smallest and the largest legal firms in Scotland.

This dropped from £225,000 in 2008 to £96,545 in practices with ten or more partners, and from £63,000 to £23,276 for sole principals.

Firms in between these two sizes demonstrated similar median capital levels across the ten-year period. The profitability of firms in Scotland was lower than the rest of the UK, and a Royal Bank of Scotland survey released last month showed that the median profit per partner across the UK was £108,000 in 2018, £4,000 more than the average for Scottish practices.

The latest findings prompted calls from French Duncan for legal firms to tighten up on productivity and financial management.

It also pointed to fierce competition in the legal sector, which has seen the collapse of firms such as Morisons, which entered administration earlier this year.

John Anderson, entrepreneurial services partner with French Duncan, said: “The legal sector has faced some serious financial issues over the last decade and the market remains fiercely competitive.

“It is essential that all of Scotland’s law firms ensure that they have systems in place to maximise their efficiency, maintain strong cash flow, and increase profitability.”

He added: “This involves implementing strong ‘good housekeeping’ practices and maintaining a sound grasp of the basic financial issues facing the sector.”