Law firms are too caught up in boomtime mentality to look into the future, or so the latest survey on the state of the profession would seem to indicate.
While profitability is up, firms are facing pressures from increasing staff costs and declining staff retention. Even more worrying, the level of commercial and skills training offered to staff has gone down although professional and technical training remains high.
The seventh annual "Financial Management in Law Firms" report, carried out for this newspaper by Pricewaterhouse Coopers, revealed that firms had made little preparation for the expected downturn in the legal market which some estimate could happen as early as next January.
It also discovered that many firms had not considered how they would deal with the phasing out of Profit Related Pay (PRP), despite the fact that the first year of reduction in PRP has already started. The importance of staff benefits should not be underestimated in the battle to win and retain recruits. Indeed, this is one area where firms can win brownie points. Too often firms forget the importance of looking after their staff, the chief asset of any practice.
The survey revealed other interesting traits such as firms which economised on floor space achieved the best financial results. However, despite major investments in IT, 85 per cent of firms do not know the level of cost savings which investment in IT has made for them. The survey points out that while the past year may be viewed with satisfaction by firms, the rapidly changing marketplace will pose both threats and opportunities.
Like any business, the firms which will succeed are those which identify their core profitable focus, build a business plan around it and invest in IT, financial and human resources management. Focusing on the financial aspects of this is critical to the success of firms, which is why benchmarks are provided in the report.
As uncertainty increases over the legal marketplace, firms would do well to take these points on board. Firms may not be able to predict the future, but they can prepare for it.