It’s no secret that the legal profession has been facing a host of challenges in recent years, including layoffs and consolidation at many large firms and a steep decline in enrollment at many law schools as students who graduate are confronted with astronomical debts from their student loans and grim job prospects.
And yet, a number of law firms have been doing relatively well, particularly smaller ones, according to a recent report from the financial information company Sageworks. The company believes there is an opportunity for accountants to provide professional services to law firms. For every bankrupt Dewey & LeBoeuf, there's an Atticus Finch in waiting.
Approximately 70 percent of law firms have less than 20 employees, and these smaller firms may be especially good targets for potential new business, according to the report. Private law firms are seeing net profit margins of nearly 17.5 percent over the last five years, along with margins of 20.15 percent in the last 12 months.
“Current and quick ratios hover just below 3 and 2.5 respectively, indicating strong financial health, and sales growth has increased 8.8 percent in the last year, 3.5 percentage points higher than the five-year average," said Sageworks. "Similarly, the average employee generated nearly $41,000 from October 2012 to October 2013, an increase of more than 20 percent from the 2012 fiscal year. Profit growth has also greatly increased, at 19.9 percent in the last 12 months, nearly double the five-year average of 10.6 percent.”
Sageworks sees several reasons for the financial success of these law firms, in contrast to the problems faced by many other firms. Typically, law offices require relatively minimal startup costs, and can function on lean budgets with few staffers and little overhead. There are also not that many specialized materials or equipment needed for these offices to function, although it helps to have lots of leather-bound volumes sitting on polished mahogany bookshelves to impress potential clients.
Law offices, especially smaller legal offices without internal HR and financial departments, represent pretty good targets that accountants can court for new business and business development. The U.S. Bureau of Labor Statistics anticipates that the legal profession will increase by 11 percent from 2010 to 2020, and that demand for legal work will continue, especially in today’s litigious society.
For its report, Sageworks looked at financial statements that ended in the 12-month time period from October 2012 to October 2013. Sageworks also has a lot of other industry-specific data for CPAs available like the one on the legal profession.