Law Update: Well-managed firms pull ahead

Good financial management is allowing a minority of law firms to draw away from their competitors, according to a nationwide survey by the chartered accountants and management consultants, Coopers & Lybrand, commissioned by The Lawyer magazine and published this week. The survey, of 900 firms, follows a similar survey last year.

'The results validate the concerns Coopers & Lybrand was expressing after last year's survey,' says Brian Woods Scawen, the corporate finance partner at Coopers leading the survey. 'Namely, that those firms that do not acknowledge the chain reaction of good financial management, increased profitability and capacity to invest will be left in the traps, while those that do will be on course to succeed in the difficult new market conditions.'

The differential in financial performance will become self- fulfilling, says the survey. 'The firms with good financial management will provide the core information to formulate the vision into plans and to identify the priorities for investment and the level of investment that will generate best returns. The poorer performers will continue to spiral downwards unless they take urgent action to improve.'

Standards of financial performance are largely independent of size. Instead, success is determined by a firm's ability to understand its markets, develop an appropriate strategy and implement the required actions. Control over staff and property costs is an important factor, however. The best performing firms in the survey operate on a ratio of qualified staff to partner of three to one or better, and on a support staff ratio of at least one secretary to two fee earners. One quarter of firms have less than 250 square feet per fee earner, while at the other extreme, 27 per cent of firms have more than 350 square feet per earner.

Firms exceeding cost benchmarks of 40 per cent of fees for staff costs and 10 per cent of fees for property costs are likely to earn below standard profits, the survey says. More than 70 per cent of the firms surveyed expected increased profits in the next year and 47 per cent expected to employ more staff.

Cooper believes that the optimism is largely misplaced. 'A sizeable proportion of the firms are likely to have their prospects dashed by their own poor financial management,' says Mr Woods Scawen. 'They will lag behind. Urgent action is needed now by the poor performers if they are to catch up and compete.'