Latest research from the Law Society’s Law Management Section has revealed that law firms in South and West Wales have generally experienced increases in profitability, but also suggests a need for firms to refocus on ensuring their long-term financial stability.

The key findings from the Law Management Section’s annual Financial Benchmarking survey, which is sponsored by Lloyds Bank Commercial Banking, reveals the health of law firms across the UK.

The survey shows that fee income for legal firms increased by an average 4.1 per cent in 2013, and that the average profit per equity partner rose by 3.6 per cent to £121,731.

Now in its 14th year, the survey also revealed that whilst a greater number of practices in South and West Wales have converted to a limited company or LLP, there is a fall in equity partner capital with some firms overdrawing profits.

The survey, which is produced by Hazlewoods LLP, a medium-sized accountancy practice specialising in advising the legal profession, is widely recognised as the annual health check for the financial stability of small to medium law firms, providing an opportunity for firms to evaluate their performance against regional and national comparisons.

Robert Evans, relationship manager at Lloyds Bank Commercial Banking in South and West Wales, said: “This year’s survey shows some positive trends, including growth in fee income and profits. It was pleasing to see some firms improving their working capital management, too. We are beginning to see some positive indicators that bode well for the economy in 2014, and solicitors are likely to get busier with a revival in house move transactions and rising levels of confidence among their business clients. However, solicitors in South and West Wales will need to maintain financial discipline for sustained success.”

Nick Fluck, president of the Law Society, said: "It's encouraging that law firms' profits continue to modestly rise, but there's no one-size-fits-all approach that will help firms to adapt to the tough conditions facing the sector today. The LMS survey provides an invaluable insight into management structures which can help firms to formulate strategies and allocate resources to ensure financial stability.

"The Law Management Section of the Law Society helps firms to share good practice and advice, playing a key role in helping law firms steer their way through challenging economic conditions."