In the UK, 523 new law firms are planning to open in the next year as lawyers continue to leave larger firms to set up their own practices in a growing legal market, according to research by Hazlewoods, Chartered Accountants and Business Advisers who specialise in the legal profession.
The number of applications is up from the 514 made in 2017 to the Solicitors Regulation Authority (SRA). Applications in the last year represent 5 per cent of the current total UK legal profession. Hazlewoods says that the increase in new firms is in part due to the continued strength of the UK legal market. The profession is performing well despite the challenges caused by Brexit (eg in slowing corporate finance and M&A work for law firms). Recent research shows that the UK’s Top 100 law firms generated a record £24.1bn in revenue in 2017/18, a rise of 10 per cent on the previous year. In just the past year, almost 90 per cent of the Top 100 UK law firms saw fee income growth. Such a buoyant market for legal advice has encouraged many more entrepreneurial partners to take the risk of establishing their own law firms. Hazlewoods adds that some of the new law firms being set up are taking advantage of the “Tesco Law” deregulation of the legal market to use external investors as shareholders when setting up these new businesses. Andy Harris, partner at Hazlewoods, comments “At the moment the legal profession is developing into quite a hotbed of entrepreneurship and innovation.
Mr Harris explained, “New law firms are experimenting with new business models, looking to fill gaps that exist in the market, and they’re making more use of technology to give them a competitive edge.” He added, “Successful law firms IPOs are likely to encourage more lawyers to try build their own businesses as those IPOs show what can be achieved.” Hazlewoods also says that the barriers to entry of setting up a new law firm continue to fall, as technology costs tumble and the use of serviced offices become more acceptable amongst potential clients. Greater numbers of firms now outsource administrative functions such as cashiering, telephony, typing and document production, allowing them to concentrate on generating new work. Hazlewoods says many lawyers are now setting up deliberately niche firms that focus on one particular sector or single service line of work, such as employee benefits, group litigation or other areas of disputes. By having such a specific focus, these ‘mono-sector’ firms are often able to build up a following in high-margin areas of work.