Working capital and finance

2013 Annual Law Firms’ Survey

Following a number of well-publicised law firm insolvencies during the year, the legal sector is coming under increased scrutiny by the banks and funding is an ever more important area of focus for managing partners and finance directors.

The news in June 2013 that around 30 of the Top 200 law firms have entered ‘intensive engagement’ with the SRA over financial difficulties has heightened concern. Firms can expect their banks to be seeking reassurance that sound financial and working capital management is in place.

  • Law firms continue to apply greater focus to lock-up performance at the financial year end. Across the Top 100 bandings, the difference between year-end and average lock-up was between 10.3% (Top 51-100 firms) and 18.6% (Top 10 firms).
  • An average Top 10 firm could potentially release £7.6m of working capital through achievement of an 110 day total lock-up benchmark or up to £16.9m through matching the performance of the 1st quartile (100 days).
  • UK lock-up performance remains significantly better than of international offices.
  • There has been an increase in the number of law firms making capital calls on their partners.
  • Once the change in partnership models is removed from Top 10 firms, the average capital account balance for a full equity partner has increased by 9.1% to £384k.
  • Of all bandings, Top 11-25 firms continue to be most dependent on external finance, with 24% of their finance being sourced externally.