Legal problems are costing small businesses in England and Wales £100bn a year, with fears over the cost of legal advice meaning they are far more likely to go it alone than seek help, authoritative new research from the Legal Services Board (LSB) has found.
However, while this presents “a challenge to legal services firms to offer a better proposition”, the high number of sole traders with low turnovers raises the question of how this can be done economically, it acknowledged.
The LSB’s business legal needs benchmarking survey is by far the largest of its kind, with 9,703 small businesses – from sole traders to companies with up to 50 employees – taking part.
Nearly four in ten of them (38%) had experienced a ‘significant’ legal problem in the past year, with trading issues by far the most frequent cause, followed by tax and employment. Of these, almost half (45%) had a tangible impact, with the average financial impact being £6,700.
This equals £100bn when scaled up across all small businesses, and the LSB’s head of research, Alex Roy, said this was a “statistically robust sample” from which to draw such a conclusion.
Other impacts included the loss of customers or contracts and the inability to take on new work.
The vast majority of businesses (91%) took action to respond to their problems, but mostly by either handling it themselves or to a lesser extent seeking help from family and friends.
Of the minority who sought formal advice, a third went to solicitors, 21% to accountants, 9% to trade bodies/professional associations and 6% to barristers.
Overall this translated into solicitors becoming involved in just 12% of the legal problems facing small businesses, along with barristers (2%) and other legal services providers (2%).
Their help was most commonly sought for problems with intellectual property, employment and ownership structure, while some other issues – most notably tax – were simply not seen as legal in nature.
However, while respondents recognised the importance of legal processes to enforce their rights, just 13% agreed with the statement that “lawyers provide a cost-effective means to resolve legal issues”, with 45% disagreeing and 43% unsure.
The survey showed that the larger end of the sample was somewhat more comfortable with seeking legal advice and a little happier with the cost (23% of companies with 10-50 employees thought lawyers cost-effective).
A significant minority of respondents also searched the Internet, mainly for information about the law or regulations and to download a document template.
LSB chief executive Chris Kenny said: “Reliable, accessible, good-value legal services are as important to growing small businesses as bank finance. But this research shows that law firms are missing this opportunity to contribute to growth – and to grow themselves.
“So the findings of this research serve as a wakeup call. It isn’t meant to criticise. That would be too easy. Instead it is intended to highlight the gaps that exist and the opportunity they present.
“There is a huge section of the business community out there whose legal needs are not being met. Meeting those legal requirements represents serious opportunities for the legal firm that can respond flexibly and innovatively to the needs of small businesses.”
The full research, including the underlying datasets, is available on the LSB website for firms to download. It was conducted for the LSB by Professor Pascoe Pleasance and Dr Nigel Balmer of University College London.