Quarterly pulse survey report: Q1 (January to March 2022)

To complement insights from the annual survey, we developed a quarterly pulse survey to provide a timely barometer of business conditions for small and medium sized solicitor firms.

This paper reports on firms’ experiences of quarter one (Q1, January to March 2022). 87 firms participated. 

Main points from Q1 survey 

• General activity levels in Q1 remained muted compared to early 2021. 36% of firms reported an increase in fees issued compared with 58% in Q2 and 52% in Q1
• A higher proportion of firms (33%) reported increases in chargeable hours compared to Q4 2021, but not to the same level as reported in Q1 and Q2 2021 of 46% and 52% respectively
• Q1 saw 33% of firms reporting growth in matter starts (compared with 29% in Q4)
• Participants continued to report a cooling in residential property, with 77% reporting a static or declining position in matter start numbers
• Q1 results reflect a broadly static level for headcount both at a fee-earner and support-staff level
• 72% of firms reported a static or decreasing position in their cash levels compared to Q4 2021, which perhaps primarily reflects income tax payments in January 2022
• 73% of firms expect their cash position to remain static or decrease in Q2 2022
• Business confidence appears more subdued compared to Q4 2021. In Q1, 44% of firms anticipate the next year will deliver increasing fee levels (49% in Q4 2021) and 35% of firms anticipate the next year will deliver static or declining profits (42% in Q4 2021)
• Professional indemnity insurance (PII) costs, economic downturn and cash flow were the most frequently cited challenges for the next 12 months. Just 3% of firms in Q1 2021 were concerned with PII costs compared to 62% in Q1 2022

Income, expenditure and new work 

77% of firms reported fees issued either remained consistent or were higher than the previous quarter.

Around half of firms reported the number of chargeable hours recorded had remained static.

Over one quarter (28%) of firms offering residential conveyancing services saw a decrease in the number of new matter starts in Q1, which appears naturally linked to the end of the stamp duty land tax relief scheme.

57% of firms reported an increase in total expenditure, compared to 27% in the last quarter and 29% at the same point last year.

It seems most likely that this reflects the increasing costs of reopening offices at higher capacity level and a return of business development and direct client-facing activity.

Staffing (working arrangements and pay)

Headcounts remained stable.

A larger proportion of firms in Q1 2022 (18%) expected standard inflationary pay rises to be over 5%, compared with Q4 2021 (12%).

Almost two-thirds (63%) of firms estimated their total payroll costs increase for 2022 will be less than 5%, which reflects a surprising expectation given the inflation in the general economy at present.

51% of firms reported that over 50% of their fee-earners are operating under hybrid working arrangements.

43% of firms reported that over 50% of their support staff are operating under hybrid working arrangements.

Headcount

Proportion of fee-earning and support staff working in some form of hybrid arrangement

Standard inflationary payrise expected in 2022

Estimated total payroll cost increases in 2022

Cash position

28% of participating firms reported a better cash position compared to Q4 but 20% reported a worse position.

27% of responding firms anticipated a better cash position next quarter.

Business confidence

Businesses were confident in their outlook for the next 12 months, with around half predicting an improvement in firm’s fees (44%) and profitability (35%).

However, 25% of respondents expected profitability to decline in the next 12 months.

Business challenges

PII costs (62%), an economic downturn (47%) and cash flow (37%) were the three most frequently cited challenges for firms in the coming year.

In Q1 2021, economic downturn, cash flow and succession planning were the challenges cited.

Participating firms in Q1

A big thank you to the 87 firms who took part in the Q1 pulse survey.

This survey provides insight into how your firm compares with other SMEs in the sector.

Paul Bennett, chair of the Law Management Section, said:

”The Law Management Section pulse survey is intended to support the profession with some detailed data collection on current issues every quarter. We are delighted with the level of response and would encourage firms to participate next time and to help us grow the survey so they have the chance to help shape the knowledge of the current issues.”

Q1 compared to 2021

Additional insights can be gained by looking for changes between the quarterly surveys.

Some caution needs to be applied as the number and profile of participating firms may differ between quarters.

In Q1, most firms had turnover of up to £2 million, compared to 70% in Q1 2021. This difference may have an impact on aggregated findings.

As further data is collected, analysis will be conducted to look at differences by size of firm and for any seasonal effects.

The following charts compare data from:

• Q1 2021, comparing change between January to March 2021, with the previous quarter (October to December 2020)
• Q2 2021, comparing change between April to June 2021, with Q1 2021
• Q3 2021, comparing change between July to September 2021, with Q2 2021
• Q4 2021, comparing change between October to December 2021, with Q3 2021
• Q1 2022, comparing change between January to March 2022, with Q4 2021  

These charts suggest that over the last five quarters:

• growth rates in fee levels, matter starts and chargeable hours have notably reduced, albeit that Q1 2022 reflects an upturn on Q4 2021
• expenditure levels quarter on quarter have showed a steady profile of increasing, primarily assumed to be the result of both inflationary salary pressures and offices returning to normal operating costs as people have returned to work
• growth in headcount of fee-earners and, to a lesser extent, in support staff has cooled
• the percentage of firms reporting improved cash positions have steadily declined quarter on quarter (as have expectations for the subsequent quarters)
• confidence (in terms of firms expecting a growth in fees and profits over the next year) have steadily declined

Percentage of firms reporting an increase (Q1 2021 to Q1 2022)

Percentage of firms reporting an increase in fee-earner and support staff headcount

Percentage of firms reporting an increase in cash position and anticipated cash position for the next quarter

Percentage of firms predicting an increase in firm’s fees and profitability