Lockup key to law firm success

Law firms need to improve their lockup times if they want to survive, says accountancy firm MHA.

The firm identifies lockup as a concern that is often ignored, and laments that there is too little recognition that chargeable time must be billed and collected promptly to maintain cash flow. According to its 2013 MHA Professional Practices Benchmarking Report, published this week, practices with 11–25 equity partners are the worst performing with an average of 148 days (nearly five months) lockup. It found the national average to be 127 days, and advised firms to aim for a lockup of 110 days.

The report—which looks at firms in Scotland, England and Wales—found that changes to legal aid and personal injury, together with the ongoing economic downturn, has resulted in marginal growth rates for a majority of practices.

Profit per equity partner (PEP) showed little growth, although 2–4 partner practices enjoyed a 27.1% growth spurt to £145,351 per partner between 2011 and 2012. 

Larger practices benefited from professional indemnity insurance costs equivalent  to two per cent of turnover, while smaller firms endured costs worth three per cent of their turnover. 

MHA highlight salary costs as another area that could be improved, and found 11–25 partner practices experiencing on average salary costs of 67% of fee income.

Karen Hain, MHA head of professional practices, says, “We are seeing an increasing move towards mergers and acquisitions among law firms. 

“This is perhaps due to an ongoing lack of growth in recent years.”

NLJ consultant editor David Greene, a senior partner at Edwin Coe, says: “As litigation, particularly in personal injury, has moved to contingency work lockup time has increased. 

“It will normally be compensated by the success fee but that compensation only works if the bill can be collected. Litigation services have always been a practice’s worst performer when it comes to lockup of time recorded but combined with lockup in debt it’s a real problem. 

“The idea of merger is fine but it could simply result in the combination of two problems into one.”