Law firms are missing out on growth prospects by neglecting their financial reports, according to a new legal sector report from Grant Thornton.

Stepping up to the mark, the firm’s review of the UK’s top 49 firms’ financial statements - nine of which are represented in the Midlands - revealed a worrying lack of detail and, in some cases, serious errors or omissions,

This is according to one of the report’s co-authors - Birmingham-based Martin Ramsey who is a professional practice specialist.

He said: “Professional firms have traditionally been very coy about disclosing financial information and this is supported by our research.

“The majority of firms we reviewed still adopt the principle of ‘less is more’, with many disclosing the absolute bare minimum that their auditors will allow.

“Firms need to think about the ever increasing number of stakeholders using their published financial information and consider how a greater clarity and depth of reporting could have a positive impact on the business.”

Mr Ramsey believes many firms are missing an opportunity to stand out. He said “Annual accounts are the only document produced by a firm which sit on the public record, but so few take the opportunity promote any of the positive messages they include within their websites. I believe that many managing partners consider this information as ‘fluffy’ or intangible, but it is vital to demonstrate best practice in front of your bankers, potential investors, merger partners or acquirers and, increasingly, regulators.

“Looking at this from the other direction, what does a bland set of financial statements, with some questionable accounting treatments and a few disclosure omissions say about your firm to the outside world?”

The Legal Services Act, which opens the door to non-lawyers investing in law firms from 2011, means the sector is going through an unprecedented period of change.

Mr Ramsey says it is essential for firms to think about their medium and long term strategies, particularly in the Midlands. “For any professional practice looking to expand geographically, its focus will inevitably fix on regional players and the first port of call will be a firm’s accounts. Conversely our region has some very strong practices which will be looking to take the lead in terms of expansion and again the targets they contact will go straight to the public record to find out as much about that firm as they can. Anything a regional firm can do to give itself an edge should be seized with both hands.” he said.

The second challenge posed by Grant Thornton is whether now is the time for firms to shift from the traditional partnership model to more corporate behaviours. This may mean transforming profit sharing arrangements to reward longer term investment and growth strategies, adopting more corporate management structures, such as the inclusion of non-executive directors on the board, and restructuring the business to take account of differential risk profiles , funding requirements and profitability of work types.

David White, professional practice partner at Grant Thornton in Birmingham, added: “There is no single answer to the challenges facing the legal profession but it is absolutely critical that firms do not bury their heads in the sand.

“New challenges must be robustly discussed at board level and appropriate plans made to respond positively. Firms that don’t could face extinction.”