Almost 8 in 10 firms had stable or rising profits in FY20
Australia’s law firms have come out richer post-pandemic, with further growth expected in the current financial year.
The latest CommBank Legal Market Pulse, has found almost eight in 10 law firms reported stable or rising profits in financial year 2020 compared to FY19, with a mean profit increase of 7 per cent across the sector.
Further growth of 5.5 per cent is expected in FY21. Among these firms, almost three in four also found maintaining cash flow to be easy or manageable.
Belinda Hegarty, national head of professional services, Commonwealth Bank, said the Australian legal sector remains in great shape despite the operational and financial disruption brought about by coronavirus.
“While there is a lack of visibility around future business conditions and uncertainty among clients adding to fee pressures, a focus on people, technology and prudent cost controls are putting them in good stead as the recovery gets underway,” Ms Hegarty said.
“We expect to see a continued focus on digital transformation that has followed years of investment in technology within the sector. This will help firms meet client expectations that legal services need to be delivered faster, more cost-effectively and add greater value than in the past.”
The report revealed a buoyant financial performance across the sector has allowed firms to largely retain their workforce. When comparing firms’ staffing mix in January 2020 to their future intentions, the report revealed practically no change across all roles.
As businesses seek to manage costs and drive efficiencies amid economic uncertainty, most firms are reporting that clients are more focused on fees.
The majority of the firms surveyed agree that the pandemic has accelerated these client trends of intensifying the pressure on expectations of lower fees, the relentless push from hourly billing to alternative fee arrangements, and expectations of more work for lower fees.
Furthermore, clients expect services to be delivered efficiently and more cost-effectively. They understand that technologies such as e-discovery and data analytics are widely accessible to legal firms, and firms have lifted adoption to drive efficiency and innovation.
The report revealed remaining connected with both staff and clients required much more effort though, and amid low visibility around future market conditions, business planning and forecasting emerged as their biggest challenge.
Alongside a focus on people, more than three in four firms are looking to step up their investment in technology over the next 12 months, with digital transformation remaining a top focus for firms. This will support the 93 per cent of firms expecting to offer more flexible and remote working options and 89 per cent that plan to deliver more service digitally.
Firms’ ongoing investment in people and technology indicates that the sector is positioning itself for the gradual rebound in business conditions and workflow. The report showed that while confidence fell sharply following the onset of the pandemic, firms expect short-term uncertainty to give way to a strong rebound over two years.
The top challenges firms reported they faced this year include winning new business and negotiating prices with clients as the two biggest challenges they faced, whilst keeping staff utilised was also crucial.
While many in the sector are adapting well to the coronavirus, with 21 per cent of firms reporting a year-on-year fall in profits, the report showed that some firms are more resilient to disruption than others.
To understand the traits of more resilient firms, the report examined five criteria as an indicator of firms’ ability to withstand the pressure of changing operating and market conditions. These included profit growth, maintaining cash flow, managing staff utilisation, adapting to remote work and firms’ ability to compete.
The report found that just 38 per cent of firms met all five criteria of resilience. These firms were not only more confident about business conditions than their less resilient peers but stood out for their plans to invest in their workforce’s training and development and to reward their contribution through higher salaries and placing emphasis on the income of equity partners, as well as a core focus on technology.
“Coronavirus has been a defining event for the legal industry,” Ms Hegarty said.
“More resilient firms have clearly led the way in adopting technology. They better understand its potential to help deliver services faster, simpler and cheaper, and to create new products and services.
“Years of steady investment in this area saw these firms smoothly switch to working remotely and delivering services digitally. Very few less resilient firms could claim the same.”
This comes as Lawyers Weekly, in partnership with Momentum Intelligence, has revealed the firms deemed most attractive by legal professionals across the country.