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Leave or remain? Five reasons to still pursue a partnership in the legal sector

Leave or remain? Five reasons to still pursue a partnership in the legal sector

Achieving partnership status was previously regarded as the ultimate ambition for thousands of solicitors in private practice. However fluctuating profit margins, unenviable working hours and current levels of political and economic uncertainty has prompted many legal professionals to contemplate their futures.

The seven-year itch

The Law Society of Scotland's (LSOS) 1Profile of the Profession survey, published in December 2018, has highlighted some revealing insights into the current mood of solicitors. From the 2,746 respondents, just over half (54%) conceded that they have considered leaving the profession in the last five years. Broken down by length of service, the LSOS's figures range from 30% of trainees to 69% of those qualified between six and ten years. By gender, the latter statistic represents 60% of men and a more disconcerting 73% of women.

When asked to elaborate on their apparent 'seven-year itch', a trend used to describe a period in which many solicitors reach a career crossroads, three main factors were cited. At 71%, work-life balance was the most popular answer put forward as to why some would turn their back on the legal sector, followed by better pay or new opportunities elsewhere (49%) and a lack of opportunities within the profession (32%).

Risk vs reward

The journey from salaried employee to becoming an equity partner and eligible to share in a practice's profits can take several years of hard work and dedication. New partners initially experience a significant impact on their personal finances due to having to make a significant capital contribution upfront, in addition to their tax status changing through becoming a self-employed worker and an owner in their firm.

Despite 2018 being a strong year for the legal industry, the LSOS's findings suggest that an increasing number of solicitors are evaluating the potential rewards of elevating their careers against the downsides of remaining in their current role. The following article will consider whether legal professionals have reasons to feel optimistic about the future and whether becoming a partner is still a calculated risk worth pursuing.

Becoming a partner still adds up - according to a benchmarking survey produced by the 2Law Society Law Management Section (LMS), average annual income levels for employed fee earners at UK law firms range from £35,000-£75,000 with the median salary being £42,000. However, findings from the LSOS's Scotland's 2018 Financial Benchmarking Survey suggest that partners can earn considerably more. The LSOS's figures show an increase in the median profit per partner figure (this is before any salary drawings) to £76,000, up from £69,000 in the 2017 survey. Furthermore, larger firms with more than ten partners showed a significant improvement in the median profit per partner to £172,000, a 38% increase on the 2017 statistics.

What is more difficult to measure is how much more partners have to go above and beyond to benefit from the greater revenue rewards on offer. From fee generating responsibilities to their required levels of financial and time commitments, each partner's role in a firm will vary. If offered an equity partnership, it's essential to know how much money you will be initially required to put in, how frequently you will be asked to make ongoing capital contributions and how you will fund this.

The gender pay gap is narrowing - the LSOS's Profile of the Profession research offers some welcome news for women working in the legal sector. The report discovered that the median pay gap has almost halved compared to the same findings produced in 2013, from 42% to 23%. This was measured by comparing the midpoint of the median category of earning for male and female respondents, which gave respective figures of £55,000 and £42,500.

While the balance is shifting in the right direction, the survey highlights that a higher proportion of male solicitors spent six years or less as a senior associate before becoming a partner which suggests that female solicitors currently have to wait longer to fulfil their career aspirations. Overall, just under three-quarters of male respondents did not have to put themselves forward to be a partner, compared to 68% of female respondents. Further analysis by gender uncovered that similar proportions of male and female solicitors in the survey felt achieving partner status was 'somewhat important', with a higher proportion of males admitting becoming partner was 'very important'.

Technology can enhance work-life balance - work-life balance, or rather a distinct lack-of, was the most common reason offered by 71% of the LSOS's respondents as to why they have considered leaving the legal profession. Achieving a better work-life balance was also referenced as the most important goal for approximately a third of male and female solicitors in the next five years, followed by promotion or progression and gaining an increased salary.

Modern technology can help to alleviate stress for under pressure solicitors who are being forced to work longer hours to mitigate the impact of greater client demands, increased competition and squeezed profit margins. Cloud-based solutions, mobile devices and legal apps, as well as the emergence of artificial intelligence applications are enabling the next generation of business savvy partners to address workload challenges head-on while driving revenue growth and profitability.

Practice management software can seamlessly connect desktop, tablet and smartphone devices to provide secure access to client critical files, financial data and billing information from any location to transform efficiency. Artificial intelligence technology further boosts productivity by allowing lawyers to type a question into a mobile app when researching historical cases and legislation. The required details are made available in seconds, replacing the need to spend hours wading through paper-based files and journals to locate critical case information.

Technology is evolving rapidly but the speed of innovation needn't be a barrier for legal practices who wish to compete with bigger rivals. Flexible and tailored asset finance solutions allow the cost of IT investments to be spread over a period from one to five years and cover software, hardware and associated implementation, maintenance and support costs. This ensures partners can quickly adopt emerging technologies without impacting their cash flow by purchasing new assets upfront which could soon become outdated.

Proposed reforms to Scottish business rates dropped - solicitors in Scotland who are pondering whether to start their own out-of-town practice, and existing law firms looking to relocate or expand into new premises outside of major city locations, have received a welcome boost. 3The Scottish government has recently announced that it has dropped plans to allow local authorities to impose a business rates supplement or levy on predominantly online or out-of-town businesses. A proposed 10% surcharge on business rates charged on long-term vacant properties has also been shelved in a move to encourage properties back into productive use.

For every business working from rented accommodation, there is a point where it may be more advantageous to purchase your own premises and this can also provide a lucrative retirement nest egg for partners. Owning a commercial property can be a springboard to develop and grow your firm and comes with several advantages over financing a purchase from capital. These include agreed monthly payments making cash flow forecasting easier and the interest portion of the repayments is tax-deductible.

Whether fixed rate or variable rate, not all commercial mortgages are created equal. High street lenders can be somewhat risk averse and more self-employed professionals are turning to alternative finance providers who can offer greater flexibility.  Specialist lenders, such as Wesleyan Bank, will offer loans up to 85% of the property's value for owner-occupied trading premises with loan amounts from £100,000 to £5m over a term of ten to 25 years. Whichever finance provider you opt for, make sure you can have detailed conversations with them so that they fully understand your business, its history and your personal aspirations.

Alternative finance providers offer long-term support - law firms of all sizes have an increasing reliance on equity partners to contribute greater levels of fixed capital to underpin a practice's long-term financial health and ensure investment in both technology and people. This is despite many firms battling a reduction in fee income, rising staff costs and the escalating threat posed by cybersecurity attacks.  Balancing external funding and capital effectively has never been more important. This has prompted forward-thinking firms to move from short-term loan financing and bank overdrafts to seek longer-term partnerships with flexible and specialist financial providers to fund their business and alleviate the pressure on their personal finances.

Equity partnerships enable partners to own the firm, share in the profits and have a greater say in how the business is run to maximise their income levels. But in doing so, equity partners assume greater financial risk and are required to make capital contributions based on the equity interest they hold. Bespoke Equity Purchase loans allow individuals access to funding of up to £250,000, over terms of up to 15 years, providing new partners with a manageable means of buying into a practice. In addition specialist alternative lenders, such as Wesleyan Bank, can also offer multiple solutions including interest only, unsecured and secured options to ensure that the loan you take is right for your own individual circumstances and can help to preserve vital working capital to grow the business.

Taking a partnership position will present challenges and rewards but could be the best decision you ever make. Finding a trusted and reliable finance partner to support your career ambitions, whatever your borrowing needs, can enable you to capitalise on opportunities to develop your business and avoid being another unwelcome statistic of the 'seven-year itch'.

If you'd like to speak to one of our team about how a finance solution could support your next career move or an upcoming investment, call us on 0800 980 9348 or email us at bankcommercialsales@wesleyan.co.uk

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