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Surge in suburban and city fringe legal firms’ profitability

Surge in suburban and city fringe legal firms’ profitability

The face of Auckland’s legal scene appears to be changing, with suburban and city fringe firms becoming more profitable than those in the city’s CBD traditionally thought to be the powerhouses.

This is one of the key findings of the latest financial performance survey released by accountancy firm, Moore Stephens Markhams Auckland.

“We believe the strong property market is helping to drive this trend and it shows that smaller general practice firms located outside the city centre, who monitor their overheads and work efficiently, can perform exceptionally well financially,” says Sam Bassett, a director with the accountancy firm that has been running the survey amongst Auckland legal firms since 2006.

Another strong trend was an increase in non-equity partner income in response to the significant contribution these partners play in maintaining equity partner incomes. “Non-equity partners are expecting to be well rewarded for their efforts and we note that, in some firms, non-equity partners are leaving and taking their clients with them if they do not clearly see a path to full partnerships,” Mr Bassett said.

“Overall, the non-equity partner model seems to be working, assisting with succession and overall financial growth of firms.”

The 2017 survey highlighted a huge variance in performance of the 22 participating firms, which are located across Auckland. The participating firms ranged from two sole practitioners to one firm with 12 partners. Overall the number of equity partners included in the survey totalled 80, compared to 73 in 2015 and 46 in 2013.

There has been a slight increase in turnover and profitability since the 2015 survey. The top five firms ranked by profitability reported net equity partner incomes ranging from $609,000 to $1,250,000 (2015: $624,000 to $1,070,000).

Ten out of the 22 firms (45 percent) reported equity partner income greater than $500,000, compared to eight out of 20 firms (40 percent) in 2015.

Salary costs are significantly higher across the board since the firm’s 2013 survey, Mr Bassett said. In particular, non-equity partner, senior solicitor, and practice manager salaries have increased, with the more profitable firms paying staff more.

“Firms that are not in the top five (based on profitability per equity partner) should be looking at strategies to bring their financial results to within the top firms range to ensure ongoing success.”

An initiative of a legal industry business development unit of the chartered accountancy group, the regular Moore Stephens Markhams survey, conducted in the Auckland marketplace, covers topics such as practice profitability, efficiency, work type, hours, salary comparisons, and professional indemnity insurance.

The survey report and accompanying data is available for a fee of $575 (Incl GST) and copies can be sourced from Moore Stephens Markhams Auckland office.


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