Top firms reduce debt, cut staff costs and increase capital in response to downturn
As major law firms continue to wrestle with the sustained downturn in Western economies, many are moving to strengthen their financial hand in response, according to public documents. Accounts filed by CMS Cameron McKenna, Eversheds and SNR Denton in the past two weeks have highlighted a concerted push to pay down debt and often draw on increased partner capital.
January 24, 2013 at 07:03 PM
3 minute read
As major law firms continue to wrestle with the sustained downturn in Western economies, many are moving to strengthen their financial hand in response, according to public documents.
Accounts filed by CMS Cameron McKenna, Eversheds and SNR Denton in the past two weeks have highlighted a concerted push to pay down debt and often draw on increased partner capital.
The limited liability partnership (LLP) accounts for 2011-12 also confirm a raft of measures to help firms contain costs, with many continuing to trim staff numbers.
In the 12 months to the end of April 2012, Eversheds' partnership borrowings fell from £20m to just £639,000, though cash in hand and at the bank reduced from £20.4m to £4.8m in the same period.
This was matched by a 14% increase in profits per equity partner (PEP) and a rise in capital contributions to £5.4m – more than 300% – in 2011-12, which Eversheds put down to growth in partners joining the equity and existing equity partners moving through its compensation bands.
Despite a rise in staff spending, non-partner staff also decreased by 3.2% from 2,548 to 2,468.
CMS showed a similar strategy in increasing capital contributions while paying off debts, with partners contributing £7.7m of capital to the firm's business last year, while bank overdrafts and loans due within one year fell from £15.7m to £5.2m.
Support staff numbers also fell 13% from 573 to 475, with staff costs down from £76.7m to £72.7m.
Meanwhile, filings for SNR Denton indicate a £7.1m reduction in staff costs in 2011-12, with UK headcount dropping by almost 10%.
Together with a hike in members' capital contributions to £5.9m from just £1.3m in 2010-11, the figures go some way to explaining a 42% drop in the UK LLP's bank loans and overdrafts, which fell from £22.8m to £13.2m during the year.
CMS finance director Andrew Richards told Legal Week: "The legal sector is not immune from what is happening generally in the current climate.
"It is not surprising to see trends such as reducing debt and increasing capital to maintain discipline and rigour in managing balance sheets."
Giles Murphy, head of professional services at Smith & Williamson, commented: "The first question is whether law firms are reducing their debt voluntarily, or whether they are under pressure from the banks.
"There may be situations where the banks get nervous about the business. But in another sense, funding from banks for professional services is getting more expensive."
"The full distribution model is dead; those days are over."
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