The state of law firm finance in 2026: Insights from the Crowe Benchmarking 2025 report

In 30 episode of the Empowering Law Firm Leaders podcast, Mark discusses with Amy Bruce, marketing director at Osprey Approach, the operational pressures shaping firm performance, the behaviours that underpin stronger financial management, and the cultural and structural changes firms need in order to thrive in an increasingly competitive and tech driven market.

In this conversation, Mark Adderley, Director at Crowe UK and council member of the ILFM, shares expert insight into the financial realities facing today’s law firms, the widening performance gap across the sector, and the strategic shifts leaders must make to build resilient, future ready practices.

In this conversation we cover:

• The widening performance gap between city and regional firms
• The profitability pressures driven by inflation, talent competition, and rising operational costs
• Practical steps firms can take to strengthen margins and reduce financial waste
• The behaviours and habits of high-performing, well-governed practices
• The growing importance of specialist non fee earning roles

The growing gap between city and regional firms

One of the most striking findings from the benchmarking report is the widening divergence in profit performance between city and regional practices. As Mark explains, the difference is driven by “a multitude of factors” and “there’s not one specific thing you can pinpoint that city firms do really well that regional firms really struggle with.” He stresses that pressures are being felt “both top and bottom line” across the entire sector.

A major driver of the divide is the type of clients each market serves. City firms, Mark notes, are generally working with corporate clients who are “slightly less price elastic” and therefore less sensitive to fee increases because “they’re passing it on to their own customers or clients in turn.” By contrast, regional firms often work with far more price aware individuals and businesses. As Mark puts it plainly: “We are price sensitive. We will shop around.” This is particularly acute in conveyancing, which he describes as “a tough competitive market and an area where regional firms handle significant volumes.”

Rising costs are adding further pressure. Mark highlights how firms are being hit by inflation across the board: “Costs are increasing… there’s pressure everywhere.” Recent economic shifts mean that firms renewing long-term contracts are facing unwelcome surprises: “A number of firms signed into longer-term energy deals… they’re coming up to renew probably at the worst possible time.” Even property costs are adding strain, with “rent prices” and “investor yields” both increasing.

The talent market is also shifting in the city’s favour. Hybrid working has made it easier for city firms to hire regional talent: “People wouldn’t want to travel into London every day for five days. Now, in a hybrid environment, they can work for two or three days in the city.” As a result, “they’re taking the really good solicitors that would have worked in the regional firms and putting them into the city,” which only intensifies competition and drives up salary expectations.

Looking ahead, Mark is realistic about whether the gap will close. His view is straightforward: “Do I see it closing? Probably not.” Despite shared pressures, the structural advantages of larger firms – scale, client base, and investment capacity – mean the disparity is likely to remain.

Strengthening profitability beyond simply ‘doing more’

With fee growth alone unable to counter rising costs, many firms are searching for practical ways to improve profitability. Mark warns against the instinct to “just do more work,” observing that everyone is busy, but not always busy in ways that add value. He suggests leaders start by simplifying processes rather than layering on additional activity: “Don’t overcomplicate what you’re doing… strip out any waste that you’ve got in the process.”

This is not about visible “cost‑cutting,” which can unsettle teams and risk unwanted attrition. Instead, firms should focus on hygiene factors – core operational disciplines that drive consistency and financial clarity. As Mark explains: “I am a big fan of a hygiene factor… the key factors that ensure good compliance and management within a business.”

One such factor is accurate time recording. Many firms underestimate how much time is written off simply due to insufficient data: “If you think a job’s costing you £3,000 in WIP and with proper time recording you realise it’s actually costing £4,000 – that is waste you’ve identified.” Prompt billing is another: clients forget value quickly, so invoicing should happen while the work is fresh in their minds.

Embedding these habits into appraisals can institutionalise good behaviour. Clear objectives around lockup, billing efficiency or WIP management give people something to work towards over time: “Even though it may end up costing you more in a performance related bonus… the benefit will be greater than the cost.”

What high performing firms do differently‑ifferently

High performing firms – whether city or regional – tend to share cultural and operational traits rather than structural ones. The most successful treat governance and compliance as integral to business growth, not administrative overhead. As Mark puts it: “They let fee earners do fee earning and let business people run the business.”

This includes investing in specialist leaders such as finance directors, compliance heads or governance experts. Where full‑time roles aren’t feasible, part‑time consultants remain highly effective: “They’re not necessarily expensive if you use them strategically.”

Culture is equally important. Strong performers demonstrate openness, transparency and psychological safety. Hierarchical firms – where people are “scared to go into the managing partner’s office” – create environments ripe for mistakes or concealment. In contrast, a “zero blame culture” encourages early reporting and collaborative problem-solving.

Technology adoption also plays a role, but only when applied deliberately. Rather than buying the latest innovation, successful firms start with strategy: “They’re identifying their business issues… and finding the right tool to do it.” This ensures tech enhances processes rather than complicating them.

The rise of specialist non fee earning roles‑‑roles

The report also notes growing investment in specialist operational roles such as cyber security, marketing, data and business development. Mark sees this as a natural evolution: “We are really seeing a drive towards firms having these non fee earning roles sat at the top table.”

Alternative business structures have paved the way for chief innovation officers, CTOs, CFOs and CMOs to take on true leadership positions. This brings diversity of thought that purely solicitor led boards often lack: “A room full of solicitors… all think in a similar way. You need that left right type thinking.”

Remuneration models for these roles are still developing, but the direction of travel is clear: broad, multidisciplinary leadership teams are becoming essential for sustainable growth. Even smaller firms can benefit by utilising fractional support, ensuring access to expertise without overstretching budgets.

Governance and compliance vulnerabilities: where risks are growing

While traditional SRA compliance continues to matter, Mark flags cyber risk as today’s biggest vulnerability. Firms face dual threats: attacks on their systems and the risks associated with AI misuse. “You’ve got the risk that the fee earners start to use AI inappropriately… hallucinating and quoting false case law.”

Even more concerning is data security when using external large language models. Uploading bundles or sensitive documents to publicly accessible AI tools create exposure: “If you haven’t got the right protocols… that data is exposed.”

Many firms are mitigating this by using secured, locked down AI environments and mandating annual training or certification for staff. This is crucial because firms hold two highly valuable assets: “client money” and “client data” – both prime targets for attackers.

Regular penetration testing, risk register reviews and disciplined governance processes are essential. In Mark’s view, firms that integrate cyber resilience into their wider strategic planning are best placed to manage the evolving threat landscape.

Using benchmarking to drive meaningful improvement

Benchmarking can be a powerful tool, but only when used intelligently. Mark cautions firms not to overreact to comparisons: “Take it with a pinch of salt… you’re making sure you’re comparing apples with apples.” Differences in work type, client profile or practice areas can make raw comparisons misleading.

Instead, he recommends focusing on the areas where a firm is underperforming against peers, as these often reveal quick wins. Human nature draws leadership towards the positive scores, but “it’s very easy not to focus on the 40% you’re tracking behind.”

Productive benchmarking requires constructive, honest discussions at board level. It also benefits from peer conversations – within appropriate competition and confidentiality boundaries. As Mark puts it: “It’s good to know we’re all in it together.”

Above all, firms should aim for improvement, not perfection: “Don’t focus on the last 5%. Get the 95% you can do relatively easily.” Small, manageable changes can cumulatively transform performance.

A path to financial resilience for SME law firms

The legal sector is currently being shaped by rising costs, shifting client expectations, and growing operational pressures that demand stronger financial discipline and more modern ways of working. From improving lockup and embedding hygiene factors, to strengthening governance, embracing specialist roles, and adopting technology with intention rather than impulse, firms have a real opportunity to streamline their operations and build long-term resilience.

Despite the challenges, Mark remains confident that firms focusing on “doing the basics well”, removing unnecessary complexity, and fostering open, supportive cultures are already seeing stronger performance. His reflections make clear that sustainable success comes from clear processes, empowered people, and strategic thinking rather than reactive measures. By using benchmarking as a tool for improvement and embedding smarter financial habits across the business, law firms can take meaningful steps towards a more resilient, future ready practice.Watch the full interview with Mark Addrerley now to discover more advice and guidance on the state of the legal sector’s finance. You’ll hear Mark’s exclusive insights into the stats from the 2025 Crowe Financial Benchmarking report.