Cash-flow problems are worsening for law firms according to findings from the Law Society’s Law Management Section (LMS) Financial Benchmarking Quarterly Survey.

The survey of law firms ranging in size found that 40% of firms were experiencing more cash-flow pressures than in the previous quarter.

Firms’ responses to these increased pressures varied considerably. Partners in 12% of the firms surveyed had introduced new capital into the practice to ease cash flow, and a similar percentage have restricted partner drawings. A third of practices reported that they were operating within 25% of their overdraft limit, while one in six were operating within 10% of their overdraft limit on a regular basis.

Of the 51 participating firms, one third of practices were considering a merger with another practice, and almost of all of these were actively speaking to other practices.

While fee income was down compared to the previous quarter, it was slightly up on the same quarter last year.

Law Society President Lucy Scott-Moncrieff said: “In a climate where access to funds from the banks or elsewhere is limited, legal practices are going to have to look at other ways to make savings and release cash.

“The full survey reveals what areas of the business firms have made changes to in order to ensure cash flow. The underlying message is that effective and business management is essential, especially at a time like this. That might seem obvious, but achieving it can be anything but; the LMS helps firms identify the best way to manage those costs.”

This was the first quarterly LMS Financial Benchmarking Survey, and is open to all legal practices to participate in. Those firms that do participate in the quarterly survey receive the full report. The annual survey, which has been running for 12 years, has historically been open to LMS members only, but anyone can participate from this year onwards.

For more information, including a comprehensive list of LMS products and services, visit

The LMS Financial Benchmarking Survey Quarterly report is sponsored by Lloyds TSB and is carried out in association with Hazlewoods LLP.