The study by leading national accounting firm Crowe Horwath and the Australian Legal Practice Management Associations (ALPMA) shows that the average profitability of firms has risen slightly to 9.5 per cent (from 9.4 per cent), while growth forecasts have dropped an average of 2 per cent, from an average of 11 per cent last year to 9 per cent this year.
Crowe Horwath Partner – Professional Practice Advisory, Andrew Chen, said across all tiers, economic conditions of the past 12 months have led to a contraction in the size of firms, particularly at a partner level, and growth outlooks for the remainder of 2014 are also being revised.
“Firms have shrunk to fulfil profitability commitments to partners and they’ve had to make some tough decisions accordingly. Paring back growth forecasts is a natural consequence of this,” he said.
Mr Chen said smaller firms were more nimble than larger ones and more able to adjust to change in growth expectations.
“Emphasis is being placed on getting more out of less and firms are beginning to see that their efforts are generally paying off,” he said.
ALPMA President, Tony Bleasdale, said the results showed that firms were effectively managing their cash flow and costs to protect partner profitability in a challenging environment.
Mr Bleasdale called on law firms to adjust their focus on strategies that will drive growth.
“Cash is king in this environment, and the study shows firms have improved their working capital
management which is a good start,” he said.
But Parramatta lawyer Steven Brown from Etienne Lawyers argued that the strategy was flawed.
“There is no doubt that firms profits have shrunk,” Mr Brown said. “But Mr Bleasdale’s call on law firms to adjust their focus on strategies that will drive growth is not altogether correct.
“If you cannot see that spending money will produce increased revenue returns that will lead to increased profits the effort is wasted, as is the expenditure of the cash.
“There is no point in growing if to grow does not produce increased profits.”
