Business confidence amongst law firms in the region is at an eight-year high, according to the 20th annual survey of law firms by accountancy and investment management group Smith & Williamson.
The vast majority of the 98 participating firms, drawn from the UK’s top 250, felt confident about the year ahead.
Smith & Williamson, which has its South Coast office in Southampton, heard how respondents are scaling up and planning to invest, demonstrated by this feedback:
· 69% of practices are planning to increase investment in IT
· 42% are planning to set up new service lines
· 29% expect to take on new office space
However, three-quarters think competitive pressures have risen since last year, with pressure on fees the greatest challenge and maintaining profitability the second most pressing issue.
.
Richard Green, the managing partner at the South Coast office, advises professional practices, including legal firms, on how their businesses can become more efficient and profitable.
He said: “The only time we have seen business confidence in the legal sector surpassing the current level was in 2006, when it reached 98% as the economy was peaking before the onset of the six-year recession.
“The importance of the legal sector to the UK economy and here in the Solent region cannot be overstated. The legal sector employs 340,000 people and reportedly generates nearly £21 billion per annum, equivalent to 1.6% of GDP.
“Whilst business confidence has been a long time in the making, there are a raft of economic dangers which might clip wings.
“Looming large is the prospect of rising interest rates, renewed uncertainty from Europe and signs of cooling in the UK property market – not to mention potential political uncertainty in the UK due to an election next year.
“Managing cash flow is an issue which firms cite each year, but this could take on renewed importance in the coming months given the sobering backdrop.
“Besides, the period between now and the end of January is generally when law firms face their greatest financial pinch points.”
Richard also observed how, in 1996, 38% of firms were considering how to limit liability; this year 84% of participants are LLPs.
Meanwhile, 63% of respondents to this year’s survey say the new tax rules affecting salaried partners, effective from April this year, apply to them.
Only 22% of firms accepted that some of their partners will be treated as “deemed employees” for income tax purposes under the new rules.
Richard said: “With LLP status now the norm among professional practices, we are seeing significant tightening of the tax rules.
“With the possibility of further changes, this could alter the way firms are structured. A consequential impact could be the way partners are remunerated, bringing long-term implications for career progression and succession planning.”
