The Legal Services Board (LSB) has published its third research report focusing on the legal needs of small businesses and looking at how their views have changed – and the legal services market has responded – since similar research was conducted in 2013 and in 2015. It is the largest ever survey of small firms’ interactions with the legal sector drawing on over 10,000 responses.
This research tracks how an individual or business responds when faced with a problem that can be resolved using legal processes.
Commenting on the report, Dr Helen Phillips, Chair of the LSB, said:
“While our research suggests the impact of legal problems on small businesses has decreased the estimated annual cost to the UK economy of their legal problems is still very substantial, at roughly £40bn. More worryingly 20% of businesses reported health impacts for staff from these legal problems, which could affect more than 1m individuals.
There still remains a perception of legal services as expensive – whether or not that perception is accurate – resulting in many businesses either ignoring legal issues or trying to handle them alone. It is hoped that work by regulators and others to implement the CMA recommendations on improving transparency should help address these issues over time.
There are so many opportunities for legal service providers to expand their business if they can tailor their services to what this group of consumers need, raise awareness of their services and overcome perceptions of high cost.”
Key findings from the research include:
Business problems have declined in incidence
- Around a third of small businesses had a legal problem in the preceding 12 months. This represents a fall from 36 percent in 2013 to 31%
- The most frequent issues across the three waves of the survey are:
• late or non-payment for goods or services provided
• goods and services not as described, and
• liability for tax owed.
- Around half of small businesses reporting a legal issue said it had a negative impact
- Total annual losses to small businesses due to legal problems is estimated at £40bn, and over 1 million individuals in small businesses suffered ill health.
Engagement with legal service providers remains limited
- There has been a significant increase in the proportion of small businesses doing nothing when experiencing a problem (10%)
- proportions adopting strategies including handling alone (50%) or using an advisor (24%) have changed little between 2013 and 2017
- Less than one in 10 employed in-house lawyers or had a retainer. When advice was sought, accountants were consulted more often than lawyers
- For those that did use a lawyer, 22% shopped around to find a provider. 50% of those who shopped around found it easy to compare different providers.
Views on cost effectiveness of lawyers have not improved
- Just 11% of small businesses agreed that lawyers provide a cost effective means to resolve legal issues – this is down from 14% in 2015
- Satisfaction that law and regulation provide a fair trading environment increased from 30% in 2013 to 44% in 2017.