Fair price, quality work: attracting SMEs

David Kirwan explains why we need to teach SMEs to judge lawyers on quality rather than cost

Small to medium enterprises (SMEs), as the then Minister of State for Skills and Enterprise Matt Hancock MP put it, are the “lifeblood of our economy”.

They contribute 47 per cent of revenue to the UK economy, drive growth and boost productivity.

However, a recent survey showed that the legal sector – one of the many industries that directly serve SMEs - could be letting them down.

According to research by Nesta Challenges to mark the launch of the Legal Access Challenge, a new challenge prize which aims to help more people access legal support through digital technology, SMEs find the legal system difficult to access.

The figures backing up the claims are sobering: two-fifths of SMEs believe the legal system is only set up for big businesses, while eight in ten think it should be easier to check if a problem can be resolved through the legal system.

Yet many legal firms who directly target SMEs in their business plans have been left scratching their heads as to what exactly is deterring small to medium-sized businesses from using their services.

More clues can be found by delving through previous reports, not least of all the Solicitors Regulation Authority’s (SRA) June 2017 risk outlook update Improving Access – tackling unmet legal needs.

This illuminating document reveals that on average, SMEs experience eight legal issues every year, costing the sector more than £13.6bn annually.

However, only one in ten small businesses take advice from a solicitor or barrister, tending to turn to their accountants instead.

While the relationship they have with their accountant is a factor (they typically deal with them on a more regular basis than their solicitor), the bottom line tends to be price – and law firms underestimating the importance of price to business owners do so at their peril.

When making a court claim, SMEs are looking at a substantial bill for preparing the claim – on top of court fees which have recently increased – just to commence a claim which has no guarantee of success.

If the claim is defended, costs may then rise exponentially.

This is a substantial barrier to using the legal system, and no dispute resolution solicitor will be willing to guarantee success to their client because of unknown factors which may arise.

The same issue arises in non-contentious work.

Many solicitors will be able to recount situations where clients have approached them waving a piece of A4 paper in the air on which they have written the terms of an agreement – and asking them to review it for £50.

How can we succinctly explain that reviewing a one-page agreement written by a non-professional would actually be more difficult and time-consuming because of underlying contract law; and certainly not a situation in which a quick glance would suffice?

Employment lawyers will recognise similarities in their own department, perhaps where an SME has an immediate and emotive problem with an employee.

The business may not appreciate that owing to the complexity of employment law, considerable chargeable time needs to be spent working through the issues to avoid a tribunal claim.

Our corporate and commercial department will often by approached by new SME clients who feel they were charged more by their previous solicitor than they expected to pay.

When a new business – or indeed any client – seeks out the services of a solicitor, they usually have no real knowledge of the law; are totally dependent on the legal expert to guide them; and may therefore feel their trust has been breached if they find the result unsatisfactory – or end up paying more than they expected.

I understand why SME owners feel navigating legal services is something of a minefield.

There is a plthora of law firm websites which all state variations of the same thing.

Some years ago, one of our solicitors was consulted by a start-up businessperson with a standard business model who had been quoted £4,000 plus VAT for a shareholders’ agreement, because they had mistakenly phoned one of the largest international law firms in Manchester.

The question for SMEs is how to choose a trusted legal adviser who will offer expertise at a fair price, when they have no objective criteria with which to assess them.

The question for the legal sector (and one we must find an answer to) is how to demonstrate our value in these economically challenging times, when everything but everything is about the bottom line.

David Kirwan is managing partner at Kirwans Solicitors kirwanssolicitors.co.uk