Profits, Pricing and Progress
Harbour commissioned Hayhurst Consultancy to speak independently to 100 leaders at the top 200 law firms to understand the growth challenges they are facing, and what plans firms are putting in place to overcome them. Harbour’s research also includes in-depth views from practitioners at a range of leading firms who add their insights and reveal the thinking of their own firms, adding context and colour to the wider survey results.
Half of respondents cited economic uncertainty as the most significant barrier to growth in the next 12 months – just 5% of law firm leaders say they do not anticipate their firm facing any growth challenges in the coming year.
However, law firm leaders do indicate a strong desire for growth. Firms cite developing new and existing clients, recruitment, and M&A (including acquisition of a complementary non-legal business) as their key priorities over the next 12 months – 42% of respondents predict that 2024 is going to be one of the busiest years for law firm M&A activity.
Respondents also have confidence in the upcoming year’s trading. Some 56% of respondents expect increased turnover, and 60% higher profits, in 2024, though it is interesting to note respondents seem more optimistic about their own firm’s performance than the market as a whole: 43% think (and only 16% strongly) that 2024 will be a strong year for law firm growth.
Other barriers to growth cited include partner resistance to change, market consolidation, the expense of talent attraction and retention, and a lack of access to external investment capital.
Two-fifths of respondents said persuading partners to make investment in the firm from their own capital, or seeking external investment, was one of the top three barriers.
The findings of the Harbour White Paper underline the challenges for firms in balancing their finances – at one end, partners are cautious about using cash reserves or their own capital to invest, while at the other end cash flow is squeezed by clients looking for more time to pay their bills (36% of respondents said they were offering clients longer payment terms), and clients seeking flexible fee arrangements. Four in 10 also said they thought that clients are increasingly shopping around for better rates.
The White Paper says: “Even as law firms have become more entrepreneurial, their underlying partnership structure can reassert itself when it comes to profits and investment – the reality remains that most firms distribute most, if not all, of their profits in the traditional manner.”
Whilst there might be good reasons for doing so, it does mean investing in the growth of the firm needs to be done in a different way.
Download a copy of the Harbour Whitepaper below:
