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Annual Law Firms’ Survey 2021: Facing the future with confidence

Our 30th annual summary of the financial results and trends from the past year #PwCLawSurvey

What we’ve seen this year

There have been many changes in the last 12-18 months. Many of us perhaps thought by the autumn of 2021 the pandemic would be behind us, but that is not yet the case.

One of the biggest challenges for law firms has been adapting to new working practices. With the majority of the last financial year resulting in staff working from home, law firms had to seek out new ways to operate for both fee earners and back office staff. The financial results indicate that, in the main, law firms have embraced change and recorded extremely positive financial results.

Going back to the spring/summer of 2020, law firms were extremely worried about what the future would bring and the impact of COVID-19, along with Brexit. Many firms predicted falling revenue and profitability, and it was clear that there was not much optimism in the sector. Fast forward 12 to 15 months and that view is very different. Optimism has replaced the pessimistic view many had of the future.

Law firms have experienced significant disruption and have fared well through tough times. Those that embrace and invest in the learnings will be well placed to meet the challenges that lie ahead, which is why this year’s theme is ‘facing the future with confidence’.

Kate Wolstenholme

“These are fast moving and exciting times. As we move forward out of the pandemic, we will see how firms best respond to challenges both old and new: securing sustainable, profitable growth; successfully embedding a hybrid working environment that aids talent retention; cyber security; capitalising on investment in technology; and delivering on ESG promises including diversity and inclusion targets, climate related goals, and social responsibility.”

Kate Wolstenholme Leader, Law Firms' Advisory, PwC UK

This year’s key themes

Global financial performance

Global law firms headquartered in the UK have delivered strong financial results over the course of the last year. All Top 10 and 78% of Top 11-25 firms delivered fee income growth, while all firms in these bandings achieved an increase in their reported profits.

Global profit growth has been supported by the reduction in costs across a number of areas. Notwithstanding this, the fact that international offices are achieving such returns is a positive and firms are seeing a return on investment into those international offices over the last 5-10 years. Continuing improvement in those offices, or at least maintaining the FY21 profitability levels, will be one of the targets for global firms over the next 5 years.

UK financial performance

All Top 10, 92% of Top 11-25, 78% of Top 26-50 and 63% of Top 51-100 firms achieved fee income growth. While not as positive, the trend of increasing net profit is similar with at least 72% of firms across the bandings reporting rises.

Generally, larger firms, who have more diversified revenue streams, have been able to pull more levers to ensure better growth and profitability in FY21. It is also evident that firms with the majority of fee income invested in practice areas such as corporate and banking fared better than those whose fee income is driven by private client and high volume legal work.

The positive results on fee income have been accompanied by cost savings on travel, marketing and other non-essential spend. Furthermore, there has been a reduction in bad debt expense and this no doubt arises from reversing cautious provisions made last year. All of this has resulted in impressive profit growth and for some, record profits.

People

The impact of COVID-19 has limited headcount movements across the legal sector, reflecting a cautious approach to hiring in a remote working environment. While Top 11-25 and 51-100 firms reported modest increases in overall headcount at 1% and 5% respectively, Top 10 and 26-50 firms reduced their headcount by 1% and 4% respectively.

Law firms are beginning to adapt their working practices and challenges continue around workforce planning; therefore, a circumspect approach to increasing headcount over the last year is understandable. Key influences on future headcount change will include access to a more geographically disparate talent pool as part of a hybrid working model, how office space will be used moving forward, and the continued progression in the use of technology to automate processes.

As COVID-19 forces all entities to reassess their working practices and with a blend of remote working here to stay, law firms need to be consistently mindful of ensuring D&I initiatives are considered in how they operate going forward. Evolving and adapting D&I strategies to cope with a post-pandemic world will enable firms to continue to make progress.

Financing

In last year’s survey, all bandings on average and the majority of law firms who responded to our survey reported improvements in year end lock up on the back of a cash drive following the onset of COVID-19 and related government measures. That drive appears to have continued, as the FY21 year end lock up has fallen again in Top 10, 11-25 and 26-50 firms by between 5 and 10 days across those bandings. Even though Top 51-100 firms experienced a 1 day rise to 120 days, this number is still significantly lower than the 133 days reported in 2019.

Following an increase in external funding last year, which was as a result of many firms drawing down on funding facilities as an immediate response to COVID-19, Top 50 firms have considerably reduced their reliance on external borrowing. The reasons for this are twofold: the pessimism at the on-set of COVID-19 was not realised with many firms outperforming expectations from March/April 2020; and positive debtor lock up performance has provided an alternative boost to liquidity.

The future of the office

The COVID-19 pandemic has caused many organisations, and in particular professional service entities, to think about the future use of their offices. While virtual working has not been a choice during necessary lockdown periods, many organisations, and the individuals concerned, have seen benefits from home working and are planning to retain it to a degree.

All firms that participated in our survey intend to retain a degree of virtual working once all COVID-19 restrictions are lifted. In the Top 10, 67% of firm's expect 21-40% virtual working, with the remaining 33% being at 41-60%. This pattern is reversed for firms outside the Top 10, with 41-60% being the most common level of expected virtual working. There are a small number of firms outside the Top 10 (9%) that expect staff to work virtually over 60% of the time.

As a consequence of the move to virtual working, many firms are expecting to reduce their office footprints in the future. Notably, 100% of Top 10 firm's intend to reduce their footprint and this compares to between 39% and 44% across the Top 11-100 bandings. Among Top 50 firms who expect to reduce their office footprint, the most common extent of reduction is expected to be between 11% and 20%.

Explore the data

Below you can review key results of our surveys from 2009 to 2021, and compare the performance of the Top 100 law firms over the last 12 years. Our explorer gives KPIs for law firms including fees per fee earner, profit margin, annual change in the size of Top 100 by fee income, and male vs female full equity partners.

To get our 2021 results with our full analysis, download this year’s report below.

Explore by selecting a date and range
KPIs
Fees per fee earner (£'000)
PEP (£'000)
Profit
margins (%)
Chargeable hours 1-9+ years pqe (hours)
Spend on business support
Secretarial
support
Training
& HR
Finance
function
IT revenue
Marketing
& BD
Other
support
functions
Summary P&L
Staff costs*
Property costs
Other costs
Net profit margin
Male vs Female full equity partners
Women
Men
Size of Top 100 by fee income
Top 10
Top 11-25
 
Top 26-50
Top 51-100
 
* inc. fixed share equity remuneration
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Contact us

Kate Wolstenholme

Kate Wolstenholme

Leader, Law Firms' Advisory, PwC United Kingdom

Tel: +44 (0)7740 923078

Leon Hutchinson

Leon Hutchinson

Director, Assurance, PwC United Kingdom

Tel: +44 (0)7739 449052

Tony Hodgson

Tony Hodgson

Partner, Consulting, PwC United Kingdom

Tel: +44 (0)7798 832312

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