Confidence among law firms in the South West is at its highest since 2006, according to new research, with a third planning to open new offices next year.
However, most also say that competition has got tougher with cashflow management a particular challenge.
The snapshot of a sector undergoing fundamental change emerges from the 20th annual survey of the top 250 UK law firms carried out by Smith & Williamson, the accountancy and investment management group which covers the South West from an office in Bristol.
Some 96% of the 98 law firms taking part in the research, including 20 from the South West, were confident about the year ahead. However, doubt is cast on how sustainable this confidence is.
Nearly three quarters (71%) of the South West firms think competitive pressures have risen over the past year, with pressure to manage cashflow seen as the biggest challenge facing firms in the region.
However, 33% are planning to open another office next year – more than twice the national average – as they look to expand into new markets.
At the same time, 79% of South West practices expect to increase investment in IT and 42% plan to set up new service lines.
Ian Cooper, head of the professional services practice group at the Bristol office of Smith & Williamson, said: “The legal services market plays an increasingly important role in the South West’s economic makeup and nowhere more so than in Bristol where there is an ever growing number of big name firms.
“It’s sometimes said that there are now more lawyers in Bristol than the local market can support so increasingly firms are fishing in national and international waters or establishing themselves as niche market specialists.
“Interestingly, 33% of South West-based survey respondents plan to open a new office in 2015, against just 16% from other parts of the UK.
“With the recession now behind them, law firms are understandably feeling bullish about their prospects. The only time we have seen business confidence surpassing the current level was in 2006, when it reached 98%, just when the economy was peaking before the onset of the recession.
“However, competitiveness is an ongoing issue. We are seeing a number of Bristol firms grasping the nettle and trying to address these pressures by developing and investing heavily in various strategies.”
Looming large over these initiatives was the prospect of rising interest rates, potential political uncertainty in the UK with an election next year and troubles abroad, said Mr Cooper.
“Managing cashflow is an issue which firms cite each year, but this could take on renewed importance in the coming months given this sobering backdrop. Besides, the period between now and the end of January is generally when law firms face their greatest financial pinch points.”
The survey also shows that law firms are also keener than ever to limit their liability. In 1996, 38% of firms responding to Smith & Williamson’s survey were considering how to limit liability. This figure tended to rise in the ensuing years and today, 74% of the South West’s respondent firms are registered as LLPs.
