The West of England’s small and medium-sized law firms are among the most profitable in the UK having achieved an average 26% increase in their margins last year, new research has revealed.
The continued expansion of the region’s legal sector now places it second only to London for profit growth, according to the report by NatWest.
It shows that firms in the West of England achieved a median 9% rise of profit per equity partner (PEP) to £115,000 in 2015 – second only to the 10% posted by London’s firms. 
This is a continuation of the region’s positive performance – PEP has risen sharply from £70,000 in 2013. NatWest’s latest Legal Benchmarking Report also shows that Bristol firms grew their fee income by an average of 6% last year – considerably above inflation.
The research, now in its fourth year, looked at the performance of law firms operating in the SME space with revenues below £46m.
NatWest South West & Wales corporate & commercial banking, regional director Chris Rowden said: “It’s great to see firms continuing to grow – and compete with those across the country. However, they need to be aware of demands around labour and cashflow to remain competitive.
“The more positive firms are now looking ahead and recognise that if they could now increase fees by 10%-15% without any real increase in expenses, then most of the additional fee income will be pure profit and results would be very healthy. This is going to be achieved by a real focus on fee earner productivity.”
Profit margin in the South West also grew slightly from 25% to 26% – ahead of the UK median performance of 24% and close to the long-term average of 25%.
Confidence is still strong despite dipping slightly for the next year with 44% of firms predicting fee growth to rise by 10% in the next year, compared to 56% last year.
Nearly 400 firms took part in this year’s research, which was produced with Robert Mowbray of legal consultancy Taylor Mowbray.
NatWest head of professional services Steve Arundale said: “Overall, 2015 was another positive year for firms, with most measures of performance continuing to improve. Signs indicate that the legal profession has now implemented the necessary changes to earn at historical levels.
“However, it will remain a question if firms going to be happy with this level of profit. Early indications suggest that 2016 could carry some performance challenges for many firms. Business levels witnessed in 2015 could be described as the new, post-recession norm with many firms struggling to deliver growth levels achieved in the previous two years.”
The full report can be downloaded here
