Briefcase: Opening the books, practice managers, the usurpers and more

Opening the books
Accountant Sam Bassett is either a tiger for punishment or a sainted gift from God. His firm, Moore Stephens Markhams, has been working on its survey of mid-size law firms for seven years in a teeth-drawing exercise requiring an opening of the books for the lawyers surveyed. This is the sort of open Sesame exercise generally only achieved through a Law Society audit.

But perseverance and a large degree of trust from his large legal client base has permitted Sam and his team to obtain an array of key data including salary, rent, professional indemnity charges, charge-out rates, work in progress (WIP), overhead items and the like. The result is the latest Auckland legal practitioners’ performance survey, which was based on 18 firms in the Auckland region and providing a motherlode of information for any small-to-medium sized legal business regardless of where they are situated.

Among the key findings in the report, which is available for purchase from Moore Stephens Markhams, is the so-called “de-equalisation" of law firms whereby non-equity partners (NEPs) have increased their numbers, their salaries and their contribution to overall profitability for their firms. The growth of NEPs is a relatively recent occurrence among smaller firms, although it has become significant among the larger practices.  Apart from sharing a fixed percentage of firm profits, the NEPs are more incentives and their firms lock in a succession plan.

Practice managers worth their weight
Another key finding in the survey is the growing role of practice managers, who have been increasingly embraced by smaller firms and with considerable success. Firms that run themselves as a business, generating appropriate efficiencies in both overhead items and matters like recovering WIP, are invariably more profitable. Smaller firms have focused more on their work flow, billing and debt collection, which has greatly helped profitability.

And there is money in small firms, the survey shows. The top five firms surveyed, which had partners of from two to six partners, had incomes ranging from $487,000 to net incomes over $600,000. NEP salaries ranged from $107,000 to $285,000.

The clarion call to specialise has been somewhat negated by the Moore Stephens survey. The smaller, suburban High Street firms, which have suffered from a downturn in conveyancing work, have generally increased profitability since the last survey. Results show some high profits for small suburban firms with a GP client base.

The usurpers
Among the challengers to the domination of the larger law firms are the “usurpers,” who include the specialised boutique practices that have created some high powered (and highly profitable) firms, but also provincial practices that work with lower overheads and wages to redirect litigation work from Auckland to the “mother ship.” The survey itself carries a spreadsheet displaying statistics on a firm-by-firm basis.

John Bowie is publisher of LawFuel