However, this year’s Law Firm Survey reveals a subtle shift, with law firm leaders downgrading their outlook from ‘Very confident’ to ‘Reasonably confident’. This reflects the challenges that firms have had over the last twelve months – trying to achieve increases in revenue that cover increases in costs, while navigating an uncertain economic and political landscape.
While the ‘war for talent’ may have eased slightly in the last 12 months, good law firms will always want to recruit and retain good people. The percentage increase in wages and who gets what, is an annual challenge, but in an environment where inflation has rapidly risen (but is predicted to fall just as rapidly) the challenge is perhaps not to get the number right but just to ensure you don’t get it too far wrong. Of course, failing to pass on these increases to clients (and we know how difficult that can be) means margins and profit shares will be squeezed.
As a result, firms have increasingly bent over backwards to accommodate the needs of employees. Much of this is a positive long term investment in the wellbeing of employees, but once practices have been established it is often difficult to rein them in. Businesses across all sectors are now asking whether the flexible working that has been broadly handed over to employees, has gone too far. Unsurprisingly, our survey shows that ‘working from home’ is preferable where someone has work that requires focus and isolation. But given so much of what professional services delivers is done through team working and collaboration, there is a question over whether more office attendance is needed – and not just on Tuesday, Wednesday and Thursdays.
Finally, if you happen to have a March year end, then congratulations on who made that choice (no doubt many years ago). For others in the market, the prospect of having to pay partners’ tax earlier means that a useful funding source will be lost. Perhaps surprisingly, only 9% of firms believe they will need additional funding, suggesting that firms have sufficient cash resources to deal with this - although almost two thirds have said that they will improve lock up to help fund the accelerated cash flow. Given the legal industry is arguably the worst performing sector on lock up management there is plenty of opportunity here, but will this happen in reality? Without improvements in lock up, balance sheets for the non-March year ends will become weaker in the next year or so, just at the point where firms will need a healthy financial position to deal with all of the other pressing issues.
Annual Law Firm Survey 2023
Navigating the storm: riding out the turbulence and grasping the opportunities in the months ahead