Small businesses: Legal issues not always seen as such
Most small business with a legal need requiring professional support do not get it, according to major new research that says legal problems “are acting as a brake on growth”.
“This shows that effective and accessible legal support for small businesses remains a neglected area of public policy,” said the Legal Services Board (LSB) in its small business legal needs survey.
The research – which surveyed 10,352 businesses through YouGov – said 36% had experienced at least one legal issue in the previous year and nearly one in five reported that legal issues had prevented or delayed investment.
Not all issues were of equal importance and a smaller proportion of businesses, 11%, had legal needs, an internationally accepted definition of where the perceived seriousness was greater than the business’s capability to resolve it without professional help.
But only two in 10 of them had their need met, primarily because they did not get such help.
As most issues arose through ordinary commercial activity rather than formal legal disputes, it was “unsurprising that businesses frequently seek practical solutions before exploring legal remedies”, the LSB said.
“For many small business owners, the immediate question is not ‘Which lawyer should I use?’ It is: ‘Is this something I can resolve myself?’ Or ‘Do I really need specialist help?’
“This distinction is important because it highlights how the legal services market is often experienced through wider business decision-making rather than a purely legal lens.”
For 36%, the legal issue resolved entirely on its own and a minority (7%) took no action. Nearly a quarter (24%) sought independent advice, 16% went to outside business friends or colleagues, 9% turned to family and 6% used an AI platform such as ChatGPT.
Their accountant (26%) was the most popular independent adviser, followed by a tax or financial adviser (21%) and then a solicitors’ firm (18%).
A further 16% went to a not-for-profit organisation, such as a chamber of commerce or Citizens Advice Bureau, and 10% to another regulated legal professional.
The survey suggested that businesses were becoming “considerably more active consumers of advice and support”, shopping around significantly more than they did in 2021, the last time the LSB carried out this research [1], now in its fifth iteration since 2013.
The findings showed that “improving access to justice is not simply about increasing the availability of legal services”, the LSB said.
“It is also about ensuring that businesses can identify when support is needed, access reliable information and navigate routes to assistance that feel accessible and relevant to them.”
There was a strong correlation between businesses with high levels of confidence in dealing with legal issues and achieving positive outcomes. Overall, only 10% of small businesses have some form of internal legal capability.
Legal capability was not simply a justice issue, the report explained. “Like financial capability or digital capability, it is an important component of business capability…
“The opportunity is not to create a standalone legal capability programme. It is to build legal awareness into the places where businesses already receive support.
“Startup and accelerator programmes, Growth Hubs, business support organisations, banks, accountants, trade associations and professional advisers all help businesses develop the skills needed to grow. Legal capability should increasingly form part of that broader offer.”
The Office of the Small Business Commissioner had recognised this, the report said, identifying improving understanding of contracts, confidence in negotiating payment terms and awareness of available support as important objectives.
When it came to legal needs, the LSB said cost alone did not explain the failure to seek professional help: of those that received help, half did not have to pay for it, while most of those that paid for all or some of the advice were able to afford it.
“Instead, there are wider factors of: failing to seek assistance in the first place, struggling to identify appropriate sources of help, waiting too long before taking action and lacking confidence in navigating available options.”
In a joint foreword to the report, LSB chief executive Richard Orpin and Small Business Commissioner Emma Jones, said there were some “encouraging messages” in the findings.
“Businesses with greater legal confidence and awareness of available support are more likely to seek help and achieve positive outcomes.
“Better information, stronger legal capability and easier access to support can help businesses identify issues earlier and address them before they become costly or disruptive.”
They highlighted three priorities: continued efforts to tackle late payment, building legal capability as part of business capability, and making legal support easier to find and use.
“Taken together, these priorities can help businesses manage risk, resolve problems earlier and grow with greater confidence.”
The report ended: “The survey points to a simple conclusion: legal issues are holding some businesses back. They are not rare events affecting a small minority. They are a routine part of running a business and, for some, a drag on investment, productivity and growth.
“The challenge is not eliminating legal issues altogether. It is reducing the harm they cause and helping businesses access support before problems escalate.”