Profits driven by fee income recovery and cost cutting, despite pandemic
A new survey from the MHA has revealed that 91% of UK law firms have made a profit since March 2020*. The majority of firms have seen their fee income substantially recover since the initial Covid-19 lockdown (in March 2020), dispelling the pessimism expressed by the legal sector in May 2020.
Almost 50% of UK legal firms reported either ‘no’ or a ‘minor’ impact on their fee income as a result of Covid-19 in December 2020, a dramatic improvement from May 2020 when this was just 14% of firms. In December 2020, only 9% of law firms in the UK said the pandemic was still having a major impact on fees, down from 38% in May 2020.
Although a majority of law firms still reported a decrease in fee income in December 2020, 91% made a profit since the first lockdown in March 2020. Of those profit-making firms, 18% reported profit growth of over 20% between March and December 2020. In addition, the percentage of those reporting drops in fee income of over 20% fell from 50% in May 2020 to 9% in December 2020.
Karen Hain, Head of Professional Practices at MHA, said:
“These results demonstrate that legal firms across the UK have been able to adapt their commercial operations in the second half of 2020, and overcome the challenges brought by Covid-19. The wildly pessimistic expectations many of us had at the beginning of the first lockdown have thankfully not come to pass and profits and legal fees have now stabilised and even increased for many firms.
“Even though law firms generated lower fee income since March 2020, many made immediate decisions to reduce expenditure, generating additional profits. Government support also played a role. We reported in May 2020 that 87% of firms utilised the Coronavirus Job Retention Scheme and the furlough payments reduced outgoings and led to better profits than expected.”
The MHA survey also casts a light into the strategic adjustments firms have had to make to respond to the impact of the pandemic, with 58% of respondents having had to adapt their strategic approach, such as by revising their service offering and office locations, reducing expenditures and staff numbers, since summer 2020. Indeed, 53% of firms made redundancies between March and December 2020 while on a positive note 73% of survey respondents recruited new members of staff in the same period. It was found that the majority of redundancies were made to support staff and across non-profit areas of businesses.
Working practices across the sector have also changed since the first lockdown, with 77% of firms now expecting their employees to spend either three days or fewer in the office. Remote working did not negatively impact on working hours, with 63% of businesses seeing an increase in productivity.
Karen Hain added:
“Looking ahead, 2021 offers firms an opportunity to continue to reorganise, streamline and go forward as a leaner and fitter business, placing a greater emphasis on employee welfare, particularly on how and where they work. Working from home has shown even the most traditional of firms that they can operate effectively via remote working. With this survey indicating a greater desire from employees to continue to work remotely for part of their working week, the onus will be on employers to embrace this new way of working to support and retain their staff once restrictions are lifted in the months ahead. “Whilst the results of the survey are promising, we shouldn’t lose sight that cash remains king. Debts due from clients has disappointingly increased and it is imperative that firms do not lose the benefit of the improvements in hours logged, expenses reduced, and better profits, by not collecting their unpaid bills faster.”
*100 law firms of all sizes across the UK were surveyed in May 2020 and 87 in December 2020 as part of this analysis. The full results of the May 2020 survey can be accessed here. Key findings and headline figures for the December 2020 survey are available via infographics here
Find out more
Visit our Professional Practices sector page to find out more.
