AN “unsustainable” partnership model is driving small firms to the brink of collapse as profit margins tumble, Optima Legal has warned.
An “unsustainable” partnership model is driving small firms to the brink of collapse as profit margins tumble, Optima Legal has warned.
The volume powerhouse said firms would need to adapt their models and invest in technology if they are to survive the enactment of the Legal Services Act.
Optima partner Anthony Ruane told The Lawyer: “Law firms that adhere to the traditional partnership model, seeking short-term gain and unacceptable profit margins, are finding that this approach cannot be sustained in the current market.”
The fact that Leeds firm Fox Hayes was placed into administration last week, he said, was a clear sign of the financial pressure on firms.
“Margins are so small at the end of the chain that it cannot be sustained on a partnership model,” he insisted. “They fail to invest in the long term. Our model is better than that.”
Ruane said firms were queuing up to offload their volume businesses on to Optima because of growing tensions between volume and commercial practices.
“The market’s consolidating,” he said. “Most firms have grown to the appropriate size but their capacity has decreased.”
It is Optima’s economy of scale and flexibility, he added, that has spurred its growth to the point where turnover stood at £34m at the end of the 2007-08 financial year.
Optima has just unveiled a £6m investment programme that will be used to fund an ongoing acquisition spree. ;The ;investment programme comes as the firm picked up a number
of new clients, including providing ;remortgage advice to National Australia Bank’s ;customers ;and repossession advice to Britannia Building Society.