Firms now in strong financial position to seize opportunities and withstand Brexit uncertainty ahead
The total amount of cash the Top 100 UK law firms have in their bank accounts hit £1.4bn last year, up 12% from £1.3bn the previous year, reveals research by Hazlewoods.
This most recent figure is 75% higher than the £818m the Top 100 firms had in reserve five years ago*.
Top 100 law firm bank balances rise to a total £1.4billion
The increase suggests that law firms have been careful to store up capital in the years since the recession, and now have a substantial financial cushion. Such high levels of reserves should put them in a better position to face the uncertainties posed by Brexit.
For example, they will have greater scope to put in contingency plans if clients move work overseas (e.g. in financial services) or to build capacity should workloads increase as clients require more advice on the legal impacts of Brexit.
Robust bank balances would also allow for future capital investment, so firms can take advantage of growth opportunities or implement new technologies to help increase productivity.
Law firms may have to invest much more heavily in technology as the drive towards implementing more sophisticated systems such as artificial intelligence (AI) gathers pace.
For example, law firm Keoghs is one of the latest to launch an AI tool to handle work previously done by junior lawyers to cut legal costs for insurers, while Slaughter & May has even recently taken a stake in an AI provider.
Andy Harris, Associate Partner, said: “Top 100 law firms are now in an increasingly strong financial position.”
“During the last recession, some firms came in for criticism for paying out too much to partners and not retaining enough of the firm’s earnings. However, these figures suggest they have taken a conservative approach to cash preservation in recent years.”
“After a decade of tight budgeting by clients, increasing their bank balances is a great achievement.”
“Brexit poses one of the biggest challenges to the UK economy since the Second World War, so it is reassuring to see healthy reserves in the bank for law firms to weather any potential turbulence ahead.”
“Law firms are also well-prepared to take advantage of new opportunities. Those who are weighing up expansion plans or investments in technology will be in a better position to give them the go-ahead when the time is right. Innovations such as AI and big data analytics are rapidly becoming business-critical.”
* Based on figures contained in their financial statements, excluding overdrafts and loans.