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Sole practitioners can ‘navigate economic turbulence more effectively than larger law firms’

With the number of sole practitioner firms increasing last year, will smaller firms fare well during a potential recession? These firm owners are confident they will.

user iconLauren Croft 06 July 2023 SME Law
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As revealed in the 2022 Annual Profile of Solicitors NSW report recently, the number of solicitors practising in NSW is now bigger than ever, with more than 40,000 solicitors now practising in the state and more private practices than ever before.

As at October 2022, when the report was compiled, there were 38,265 solicitors with a practising certificate in NSW. However, in the first quarter of 2023, the NSW solicitor population passed the milestone of 40,000.

Over two-thirds of NSW solicitors were working in private practice (68 per cent) and one-fifth were working in the corporate legal sector (21 per cent). The remaining 12 per cent were working in the government legal sector.

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Sixty-two per cent of private practices were sole practices — an increase of 1 per cent since last year. Two-fifths of private practice solicitors were principals (38 per cent), while 62 per cent were employees.

President of the Law Society of NSW Cassandra Banks welcomed the growth of 3 per cent in the number of solicitors with NSW practising certificates since the 2021 profile. However, in conversation with Lawyers Weekly, she said that smaller firms were likely to be experiencing “high anxiety” in the current economic turbulence.

“I think everybody is already feeling it. I don’t think legal work is necessarily going to dry out. But whether people can pay their fees is another thing. The ongoing funding of legal aid is something that each Law Society president advocates for an increase in funding is also critical. I think every business is going to be doing it tough soon,” she said.

“People need to be really careful about how they operate their business, and fingers crossed, we don’t enter into recession, but not looking good. It’s going to be a wait and see. But obviously, the Law Society will provide as much support as we can to sole practitioners and small businesses, and I mean, everyone within the profession, but we know that it’s going to be really hard felt for those smaller firms and sole practitioners.”

Following this, Lawyers Weekly spoke to four sole practitioners to get their take on whether the number of micro firms and boutique practices will start to stall or decrease in the current market — and whether those who would be looking to step out of bigger firms to start their own will stay with a potential recession on the horizon.

Macfarlane Law principal Emma Macfarlane started her sole practice in September 2020 — and she said that although the economic environment was “in a state of flux”, it didn’t deter her and a number of others.

“If you’re driven enough by other motivators, a turbulent economic climate isn’t necessarily a deterrent. It should, of course, be a consideration dependent on personal circumstances. We experienced economic turbulence during the COVID-19 pandemic period, and I observed an increase in sole practitioner start-ups during that period,” she noted.

“Whilst a climate of economic uncertainty will deter some practitioners from taking the leap from secure employment or partnership within a firm to commencing their own practice, there will be a number of other practitioners who remain drawn to the ability to create a flexible, boutique practice around their expertise and lifestyle.

“Additionally, the ability of senior lawyers to gain access to equity within the firm they work within may prove more challenging during a recession, and there may be a tightening of salary increases. Those factors may encourage some partners and senior lawyers to set up their own practice.”

Greenleaf Legal principal solicitor Amanda Elias echoed a similar sentiment — and started her own firm as a senior lawyer in a large international top-tier law firm. She said that there “was no great incentive” compelling her to stay post-COVID and that, in her experience, senior lawyers would be the most likely to leave, even amid a recession.

“I would say partners are less likely to branch out on their own amid turbulent times compared to senior lawyers. Partners hold a higher position within a law firm, typically have an ownership stake, and enjoy greater stability, financial security and resources within the firm,” she explained.

“Partners would generally have more incentives to remain within their existing firm structure during turbulent times due to the benefits and stability associated with that position.”

Tarr Law principal Hayley Tarr also started her firm during the COVID-19 pandemic — just eight days before, in fact. Although this was a turbulent time, Ms Tarr said there are “pros and cons to any market” and that it will always be “scary to start your own firm”.

“There are too many variables to reliably predict. Even if the number of new firms dwindles, it is possible that firms [that] would otherwise have grown out of the sole practitioner phase (taking on staff) will take longer to do so, given cautiousness around economic projections and staff shortages at present. So, there is potential for the number of sole practitioner firms to stay the same, or even grow,” she said.

“In my situation, I didn’t feel like I had any other real choice. But, for others that feel that they have options, they may take a more cautious approach in times of financial turbulence and decide to stay where they are as opposed to risking starting their own firm. I think the reality is that if you want to make a success of a sole practitioner firm, you can, no matter what the economic state of the country at the time. You just have to commit, work hard, run it lean, and hang in there.”

ClearSky Legal principal lawyer Michael Hung also opined that if a recession was to hit Australian shores, sole practitioners would find it more challenging than most.

“Whilst being a sole practitioner brings a tremendous amount of autonomy and flexibility in respect of the delivery of legal services, sole practitioners have always been susceptible to cyclical business fluctuations. If our country does go into an economic recession, where businesses and individuals cut back from spending, I’d expect that potential sole practitioners will think twice before entering into the arena, and existing sole practitioners may find it more challenging than usual to sustain their business,” he said.

“I’d expect that amid turbulent times, partners or senior lawyers may be more cautious when deciding whether to branch out on their own. Having said that, if the potential sole practitioner has a unique value proposition to offer to the market, then macroeconomic conditions become less of a concern. In 2014, having spent seven years working as a corporate lawyer in top-tier law firms, I decided to take the plunge and set up ClearSky Legal, bringing top-tier legal services to individuals and growing businesses, who really crave expert advice and personalised services. Time has proven the success of this business model, and I am grateful for the support and loyalty of my clients.”

Despite a potential recession, however, the number of sole practitioner firms is unlikely to decrease due to economic turbulence, according to Ms Elias, who said this comes down to the personalised service offering, flexibility and cost-effectiveness smaller firms can offer.

“Sole practitioners have the advantage of being nimble and adaptable to changing economic conditions. We can quickly adjust our business strategies, fees and practice areas to meet the evolving needs of clients and the law. This flexibility allows us to navigate economic turbulence more effectively than larger law firms with rigid structures and hierarchies.

“During times of economic uncertainty, clients may seek cheaper legal services. Sole practitioners often have lower overhead costs compared to larger firms, enabling us to offer competitive rates to clients. This cost advantage can attract clients who are looking for affordable legal representation without compromising on quality,” she explained.

“Sole practitioners are also known for providing personalised attention and building strong client relationships, particularly in the community. In times of economic turbulence, clients may prioritise our individualised service and close collaboration. Sole practitioners can capitalise on this demand by offering tailored solutions and maintaining a client-centric approach, which can differentiate us from larger firms.”

Ms Macfarlane agreed with this notion — and emphasised that in times of economic uncertainty and cost-cutting, sole practitioners will have an advantage.

“I do not believe the number of sole practitioner firms will stall or decrease leading into or during a recession. I believe the contrary to be true. The uncertainty created by a recession will cause many clients to desire better and quicker access to legal advice whilst also being cost-conscious,” she added.

“Sole practitioner firms will be appealing to those clients because our model gives clients direct access to specialised advice at a price that is generally more competitive than our private practice colleagues. Being smaller and more agile means that we are well-placed to customise our service offering and resources around the economic climate and client needs.”

Lauren Croft

Lauren Croft

Lauren is a journalist at Lawyers Weekly and graduated with a Bachelor of Journalism from Macleay College. Prior to joining Lawyers Weekly, she worked as a trade journalist for media and travel industry publications and Travel Weekly. Originally born in England, Lauren enjoys trying new bars and restaurants, attending music festivals and travelling. She is also a keen snowboarder and pre-pandemic, spent a season living in a French ski resort.

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