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Why firms need to look beyond revenue growth and fix underlying productivity and profitability problems
Smith & Williamson's head of professional practices, Giles Murphy, on why firms need to get to grips with productivity, profitability and WIP
On the face of it, 2015-16 limited liability partnership accounts for the UK’s top 50 law firms show a positive headline, with revenues increasing on average 3.7% (compared with a prior year increase of 1.8%).
However, removing the impact of mergers, team hires and fee inflation, underlying organic growth in legal work is unlikely to have accounted for much, which is perhaps surprising given the relatively stable pre-referendum economic environment. With more uncertainty ahead, law firms need to look beneath the headline figures and ensure they have a strong base to enable them to deal with the challenges facing them.
Lawyers need to demonstrate the value they add
Compounding the issues above, revenue increases have not translated directly into operating profits, which only grew by 1.2% in the year. Only two of the top 10 managed to increase their own profit margins, with margins falling on average from 32% to 31% across the board.
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