Legal problems cost businesses time, money

Legal challenges are emerging as significant obstacles for small businesses in England and Wales. The latest findings from the Legal Services Board (LSB) reveal that these legal problems are causing companies to lose valuable time and money. The report, released today, is backed by various business groups advocating for improved access to legal support for small enterprises.

According to the Small Business Legal Needs Survey, which gathered responses from over 10,000 small businesses, 36% reported encountering at least one legal issue in the past year. On average, businesses faced 2.8 issues each, culminating in an estimated 16 million legal problems affecting small firms annually across the region. Nearly 20% of respondents affirmed that these legal challenges had either prevented or delayed innovation and growth, highlighting a pervasive issue among businesses striving for advancement.

The financial implications of these legal issues are significant. The survey indicated that four in ten legal matters resulted in expenses exceeding £5,000, and one in ten cases racked up costs surpassing £15,000. These findings illuminate that legal problems extend beyond mere legal concerns, impacting critical elements such as business growth, productivity, and resilience, particularly for small companies with limited resources.

Richard Orpin, Chief Executive of the Legal Services Board, emphasised the far-reaching consequences of legal problems for small businesses, stating, “Small businesses are the backbone of the economy, yet too many are losing time, money and opportunities because legal problems are not identified early enough or resolved effectively." He continued, "Our findings show that legal problems are business problems. They can hold back growth, delay investment and prevent businesses from reaching their full potential."

The survey also revealed that issues stemming from everyday commercial activities, such as late payments and disputes regarding deliveries, are prevalent among small businesses. Late payment emerged as a particularly damaging issue, with 35% of affected businesses dedicating significant time and resources to chase outstanding payments. Moreover, 28% reported trouble managing their own bills due to these late payments.

Emma Jones CBE, Small Business Commissioner, noted the urgency of this challenge, stating, “At the Office of the Small Business Commissioner (OSBC) we are on a mission to make life easier for small firms by getting money moving faster through the economy." She highlighted the steps being taken to address poor payment practices, including the Government’s efforts to advance the Commercial Payments Bill through Parliament.

The survey results indicate that businesses that understand how to identify legal issues and where to seek assistance tend to achieve better outcomes. Unfortunately, many companies still grapple with recognising suitable sources of help, often waiting until issues escalate. Accountants and tax advisers emerged as the most common sources of legal advice, suggesting the importance of trusted intermediaries in the process.

Tina McKenzie, National Chair of the Federation of Small Businesses (FSB), remarked on the intimidation small firms feel regarding legal issues. She said, “Small firms find legal issues extremely intimidating, and very often lack the resources needed to navigate the legal system with confidence.” She also mentioned the FSB’s initiative to provide free 24/7 legal advice to its members and advocated for a more responsive legal system that supports small businesses.

David Bharier, Deputy Director of the British Chambers of Commerce, noted the growing financial burden on SMEs, stating, “The cost burden facing SMEs has grown substantially in the last decade, and that matters when our data shows just 17% of firms are planning to increase investment.” He called attention to the weight of legal disputes and late payments and stressed the need for policies that facilitate investment rather than hinder it.

In light of these findings, the LSB is reaching out to government entities, legal services regulators, and various organisations to address these pressing issues. Their focus will be on tackling legal problems that significantly impact economic growth, particularly concerning late payments. They aim to help small businesses identify legal issues early and access the necessary support while making legal services easier to find through improved technology and signposting efforts.