Buoyant property market good for law firms

Auckland's buoyant property market has helped Auckland legal businesses improve profitability. Photo / Thinkstock

The overheated Auckland housing market is causing concern for many, but for law firms the bubble is proving to be a bonus.

Survey results released yesterday by accountancy firm Moore Stephens Markhams Auckland show transactional work resulting from the city's buoyant property market has helped Auckland legal businesses improve profitability over the past few years, NZ Lawyer reported today.

The firm surveyed 20 Auckland small-to-medium sized firms and found firms were experiencing the highest level of profits in nearly a decade, Moore Stephens Markhams director Sam Bassett told NZ Lawyer.

Auckland equity partner net incomes have increased significantly across the board, the survey found.

The top five most profitable firms reporting net equity partner incomes ranging from $624,000 to $1.07m, with nearly half reporting incomes of over half a million dollars.

A growing trend of firms having non-equity partners was also helping drive profitability, Mr Bassett told NZ Lawyer.

"Over the last few years we have seen, from our work with legal firms and reinforced by this survey, that the lock step partnership formula is still a popular choice not only for succession planning but also expanding the business."

Mr Bassett said the location of profitable firms was intriguing.

"I think the interesting thing was that the city firms have been doing better than the suburban firms, and that really surprised me.

"Thinking it through, I think it is probably because during the recession, the suburban firms had that lower overheads are that were able to get their house in order -- they weathered the storm better than some of the central city firms.

"Obviously, now the city firms have bounced back -- particularly the boutique litigation firms that have their structure right."

Common characteristics shared by profitable law firms:

•Average gross fees per equity partner in excess of $1.2m

•Partner charge out rates of $400 plus

•Staff salaries to gross fees generally 30 to 35 per cent

•Partnership of two or more equity partners with at least one non-equity partner

•Overheads (excluding interest and salaries) to gross fees of 25 per cent or less

Source: Moore Stephens Markhams director Sam Bassett