40% are sole practitioners
45% are in 2 - 4 partner firms
10% are in 5 - 10 partner firms and;
5% are in over 10 partner firms
I predict that the number of solicitors will fall to below 100,000 within 5 years but the number of firms will increase to over 12,000. An average of 8 per firm.
If gravity is the one law we all are forced to comply with, economic law comes a close second.
The law of supply and demand tells us that in an oversupplied market, prices will drop. The simple fact of the matter is that there are too many lawyers, so it naturally follows that those that remain in practice will start to earn significantly less in the immediate future than they do now.
The average salary of a UK solicitor in 2010 is £70,000 p.a. but of course it's not like that; in reality:-
sole practitioners earn £28,000
2 - 4 partner firms earn £33,000
5 - 10 partner firms earn £53,000
10 + partner firms earn £167,000
Of course, if we strip out the big London firms, then the average salary is much lower.
The question is, how low does it have to go before you decide that it's not worth it?
The answer to that is that at the moment, it's too close to call for a lot of practicing solicitors and there are some events coming up that will tip them over the edge. Such as:-
The Legal Services Act allowing new business models and competition
The Jackson Review (of personal injury lawyers)
Legal Aid Reforms
In addition there are:-
Tax bills due in January 2011 and July 2011
Increased indemnity premiums in England and Wales
Increasing amount of defaulting debtors
Changes in Personal Injury funding
Banks are restricting access to capital or demanding more security
In the last 18 months, numerous small firms have gone to the wall and other larger firms have failed such as:
Bus Merton LLP
Hammonds Direct LLP
Orchard Brayton and Graham LLP
Alexander Samuels LLP
The reason for my "cheery" prediction is because this is the tip of the iceberg.
Here are some of the other events that will expose more of the unprepared firms:
Inability to retain key staff
HMRC will harden their attitude to law firms
Banks will remove or restrict overdraft facilities
An increase in interest rates
Stress within the partner model
What can you do about it?
As a sole practitioner, you can start to outsource and go from £28,000 to £60,000+ by making a few changes to the way you run your business.
In a small and mid-sized firm you can also outsource but you can also merge or acquire other firms.
If you're in a 10+ partner firm then you need to look at your partnership model
and prepare for the future as you could be best placed to make the most of the carnage.
But after 4 years at university, a year doing a diploma, two years as a trainee,
£28,000 is a low amount of money...but it's what the market will pay.
If you want to increase it substantially, either join a bigger firm (if you can),
re-train (if you can) or start your own firm giving customers what they want.