City optimistic but mood of apprehension remains
Confidence about the future is running high in the City, but regional law firms remain cautious, according to Smith & Williamson research.
The firm found that three-quarters of London’s law firms—but only half of regional firms—say they are optimistic about the year ahead. This is an increase overall on last year, when just over half of all law firms claimed a positive outlook on business prospects.
Medium and smaller firms are most concerned about the economy, while pressure on fees and recruitment and retention are the main concerns for larger firms.
“What we are seeing is a steady but cautious return of confidence, as firms’ management is still affected by the sudden and severe nature of the recession,” says Giles Murphy, head of the professional practices group at Smith & Williamson.
“Competition for work is still reported to be high, but fewer respondents are worried by a fall in demand for their services (down from 30% last year to 15% this year). And while cash flow issues are still providing difficulties for 25% of firms overall, last year 40% reported cash flow problems.”
More than a third of larger firms have made, or are making, a capital call on partners. Only 15% of medium and smaller firms have made the decision to do this.
While 29% of larger firms have decided to retain more funds within the business, 42% of medium and smaller firms have done so.
“Few firms have been immune to recent financial pressures and many have looked to boost their balance sheet,” says Murphy.
“Larger practices appear to favour seeking capital injections from their partners. By contrast, the medium and smaller practices, who cite cash flow as one of their top five issues have looked to pay less of the profits they earn to partners.”
The survey was conducted among 126 law firms, including 63 from the top 100.
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