City law firms have showed resilience to tough political and economic conditions this year as growth overtakes that of regional law firms, according to accountancy firm Crowe Clark Whitehill. The firm's annual Law Firm Benchmarking report shows that 92 per cent of city law firms have experienced growth, an increase of 27 per cent from 2016, with only eight per cent reporting a fall in revenue compared to 23 per cent last year. By contrast, regional firms have had a more challenging year: of the 80 per cent of regional firms that saw growth in 2017, only 28 per cent saw revenues increase by more than 10 per cent, compared to 33 per cent of firms in 2016 and 52 per cent in 2015.

Growth converted into profit

Many firms successfully converted turnover growth into profit, with Profit Per Equity Partner (PEP) increasing for 60 per cent of participating firms – including nearly 70 per cent of City firms, of which 38 per cent saw an increase by more than 10 per cent as compared with under 25 per cent for regional firms. Steve Gale, partner in Crowe’s London office, comments: 'The ability of firms to convert turnover growth into profit has been encouraging. Overall, City firms have had a better year than in 2016, with only 8 per cent reporting a fall in revenue compared to 23 per cent last year.' Ross Prince, partner in Crowe’s Midlands office, adds: 'For regional firms, we noted last year that sustained growth was becoming more difficult and this has indeed played out, with 20 per cent  of firms seeing a decrease in revenue this year.'  

Challenges 

Looking forward, city and regional firms have indicated very different emerging challenges and threats. While last year a larger proportion of City firms viewed affordability of staff as their main challenge, this has reversed and more than two thirds of regional firms now see internal staff issues as their biggest challenge. Brexit, government policy and the regulatory environment topped the list of City firms’ concerns with 48 per cent of firms anticipating Brexit as a net threat. Worryingly, 48 per cent  of regional firms believe Brexit will have little impact on them, with many firms operating a ‘business-as-usual’ approach.

Threats

New entrants to the legal market are a shared concern, with both city and regional firms agreeing that other professional service firms pose the biggest threat to market share. Louis Baker, head of professional practices at Crowe, concludes: 'City firms are understandably worried about the continuing political and economic uncertainty, with a quarter of City firms viewing Brexit as the biggest challenge to their future success, and nearly half citing it as a ‘net threat’.''Grappling with fierce price competition – including the threat of new market entrants, particularly the encroachment of other professional services firms into legal services – is also a key worry for City lawyers, while regional firms are more concerned about the talent pool, harbouring fears over the availability of high quality personnel.'

Annual report

The annual Law Firm Benchmarking report is produced by Crowe Clark Whitehill is in its sixth year and collects a range of information pertaining to financial years ending in 2017, with participants ranging from larger law firms with +£50 million in revenue, to smaller firms with revenue of less than £10 million. To download the report, click here.