The legal needs of small businesses 2013-2017

Why is this research important?

Small businesses – those employing up to 50 people – comprise 99% of all businesses, and 48% of employment. In 2017 estimated turnover of small businesses was £1.3 trillion – or 37% of total business turnover in England and Wales.

Establishing evidence of the legal problems that exist for these businesses, as well as the strategies and actions taken by them, is therefore important.

Why did we undertake this research?

This research is set within the broader context of the LSB’s strategic goals: breaking down the regulatory barriers to competition, growth and innovation; and enabling need for legal services to be met more effectively.  Small businesses encounter a range of legal issues as they start up and grow. Given their small size they will often need to turn to external experts as a means of overcoming their limited in-house capacities and capabilities.

This research updates previous waves of the research (in 2013 and 2015) and thus provides unique insight into changes over time on how this group of consumers experience and respond to legal problems, and their views of the legal sector.

What new information did this research provide?

This new research analyses the experiences of small businesses, showing the origin of legal problems that they face and their strategies for dealing with these problems, including where they seek advice and their experiences of doing so.

The findings show that:

Business problems have declined in incidence

  • Around a third of small business had a legal problem in the preceding 12 months, this has fallen significantly to 31% down from 36% in 2013. Levels of incidence have fallen in all problem areas except Regulation. The most frequent issues across the three surveys are: late or non-payment for goods or services provided; goods and services not as described; and liability for tax owed.
  • Other businesses were the main source of problems, but this has fallen significantly from 49% in 2015 to 44% in 2017.
  • 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 suffer ill health as a result of these legal problems.
  • It remains the case that small businesses with BME and disabled business owners-managers, were more likely to experience problems.

Engagement with legal service providers remains limited

  • While there has been a significant increase in the proportion of small businesses doing nothing when experiencing a problem (10%), the proportion adopting strategies including handling alone (50%) or using an advisor (24%) have changed little between 2013 and 2017.
  • Less than one in 10 either employed in-house lawyers or had a retainer with an external provider. When advice was sought, accountants were consulted more often than lawyers.
  • In 2017, for those that did use a lawyer, 22% shopped around for a provider, and 50% found it easy to compare different providers.
  • Legal proceedings and court or tribunal use is at a similar level to online dispute resolution, with just 4-6% of problems involving courts or tribunals in some way compared to 5% of problems using online dispute resolution in 2017.

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 significantly down from 14% in 2015. As in 2015, almost 50% of respondents strongly agreed or agreed with the statement that they use legal service providers as a last resort to solve business problems.
  • Satisfaction that law and regulation provide a fair trading environment increased from 30% in 2013 to 44% in 2017.

The full report can be found here including the underlying survey data sets for this piece of research.

How are we going to use this research?

We will use this research in our ongoing evaluation of the legal services market to assess how levels of access to legal services have changed over time. The findings of this research have wider implications for the legal service regulators, highlighting the continued perception of legal services as expensive – whether or not that perception is accurate. Work to implement the CMA recommendations should help to address this over time. For legal service providers the financial costs associated with these legal problems provides an opportunity to expand their business if they can tailor their services to what this group of consumers need, and overcome perceptions of high cost.