Top 50 LLP accounts: revenue or profit?

This year’s analysis of the UK’s top 50 law firms’ audited financial statements (where they operate as UK LLPs or companies) for the year ended in March or April 2023 appears to show the UK legal market in rude health. 

Total revenue for the top 50 firms was just under £24 billion, up 8.54% on the previous year. It was only in 2020/21 that the top 50 broke through the £20 billion barrier and based upon recent trends it will surpass £30bn in the next few years or so.

However, over the years that we have undertaken this research, inflation has been in low, single digit figures, meaning that any growth over around 2-3% has been ‘real’ growth. During the period of these results, UK inflation peaked at over 11% - so does growth of 8.54% mean that UK law firms have merely stood still or even gone backwards?

Costs have certainly been rising in law firms as a result of increasing salaries, high energy costs or other areas where additional investment has been required, such as cyber security. If these costs have risen faster than revenue, operating profit margin will decline and ultimately this means firms will have become less efficient. This feeds into the level of cash held by firms, which peaked during the pandemic, but has come under pressure ever since.