Australian law firms healthy despite persistent competition and disruption

Australian law firms healthy despite persistent competition and disruption

A new study into Australian law firms has revealed the Australian legal sector is healthy despite persistent problems.

The seventh annual ALPMA Crowe Horwath Financial Performance Benchmarking Study indicated law firm profitability remains strong despite increasing disruption and a more competitive market.

Profit margins remain strong, sitting between 54 and 64 per cent for the financial year ending 30 June 2017. Close to two in three (64 per cent) of participating firms met or outperformed their expectations.

Dion Cusack, president of the Australasian Legal Practice Management Association, says growth is strong despite the slow economy.

"Despite the sluggish economy, client pressure and increasing competition, three quarters of firms surveyed expect to grow in 2018 by at least 10 per cent, with the majority of growth being generated from new client prospects," says Cusack.

Average revenue per partner increased to $1.4 million with the partner earnings gap narrowing between firms of different sizes.

Partners are investing in new technology and recruiting new partners to maintain a strong financial position, says Andrew Chen from Crowe Horwath, who led the research.

"Barriers of entry for new law firms are low and firms are shedding profits per partner to invest in a new breed of firm and in the next generation of partners," says Chen.

Cusack says investment is on the rise across the board.

"The study showed that Australian law firms are shifting their focus from cost savings to investing in their firms and people. There is also little interest in offshore resourcing or contract based labour in the current environment," says Cusack.

In terms of threats to law firms, most participants (57 per cent) perceive the retirement of partners as the greatest threat to growth.

Other threats include the emergence of online legal services and continued demand from clients for better value.

"A quarter of participating firms have partners retiring within 18 months, it's important that firms ensure they have a strong succession plan in place to counter this risk," says Chen.

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