UK law firms are making more money than ever before but profits are being squeezed by a significant increase in staff costs, according to a joint survey by The Lawyer and accountants Coopers & Lybrand.

The message is that firms need to manage business more efficiently if they are to improve financial performance.

Robert Martin, senior management consultant at Coopers, explained: “Less profitable firms spend much more proportionately on secretaries than on professional staff. If managing partners wish to increase profitability, they have to address their staffing ratios.”

Management consultant David Temporal, of Hodgart Temporal, said: “Many firms need to undertake a fundamental review of how business is done in order to maximise their fee-earning potential.”

In its survey Coopers points out that 55 per cent of the top 1,000 firms in England and Wales attract less than £250,000 in fee income per partner, a relatively low figure according to Martin.

Another key finding is that 10 per cent fewer firms than a year ago can boast profits per partner over 25 per cent of the fees which he or she receives.

The survey finds that the squeeze on profits is coming from increasing staff costs with only 40 per cent of firms reporting staff costs of less than 40 per cent of fees, compared with 53 per cent last year.

Coopers expressed surprise that so many firms still have no business plan or strategy covering the next three to five years. The report says: “For nearly a third of the profession not to have a documented view of where their firm is going is exceedingly worrying.”

The absence of clear business plans may partly explain why fewer firms than expected increased partner numbers last year. In 1995, 43 per cent said they would boost partner numbers but only 27 per cent did so.

Nevertheless, the survey found that 70 per cent of respondents increased profits last year with the big London firms benefiting most from the boom in mergers and acquisitions.

The most profitable firms tend to spend twice as much time on marketing and are more likely to appoint a marketing professional.

Looking to 1997, firms are again predicting a rosy future with about 60 per cent expecting to increase profits per partner and overall partner numbers. Firms in London and the North West are most bullish about partner numbers while prospects are the least attractive in the South West and Wales.