Small businesses continue to face a significant access to justice gap and aren’t empowered to obtain legal services meeting their needs, new research from the Legal Services Board (LSB) shows. Some of the legal challenges small businesses face include trading, like late payments, employment relations or tax and regulatory issues.
The survey of over 10,000 small businesses shows that:
- Around one-third (32%) of small businesses experience a legal issue annually.
- Only a quarter of small businesses used professional help in response to legal issues, while around half either sought to resolve their legal issues entirely on their own or took no action at all
In response to the findings of the Small business legal needs survey, the LSB is making the case for a legal support strategy to help small businesses recognise their legal needs and access legal services when they need it. The ‘key asks’ being put to the Minister of Small Business and the Ministry of Justice, set out the reasons why a legal support strategy for small businesses is needed.
A legal support strategy should empower small businesses and address these five areas:
- Early information and advice provision
- Fostering innovation in the delivery of legal services and access to information
- Making the market work better for small businesses
- Access to better dispute resolution mechanisms
- Capacity building through networking with larger businesses to resolve legal issues.
LSB Chair Dr Helen Phillips, says:
“Small businesses are vital to the UK economy. We want to see an environment where small businesses, from your local café, builder, retail owner, to sole traders like self-employed musicians or designers, are able to identify their legal needs and seek legal support when they need it,” says.
“Our research shows that higher legal capability and access to legal advice are linked to better outcomes in dealing with legal issues. Then, they can more easily focus on being successful businesses, that contribute socially and economically to our communities.”
“While small businesses face similar problems to individuals, unlike for individuals there isn’t currently a legal support strategy for small businesses. What we are calling for is a collaborative approach which goes beyond regulators and has cross-governmental coordination.”
“This research is unique in tracking the experience felt by small business over a long period of time. The fourth wave means we can see the impacts felt from both the pandemic and the EU exit, both of which have had financial implications for small businesses.”
“We’re working across the legal services sector to deliver on the Reshaping Legal Services strategy, to deliver better services, stronger confidence and fairer outcomes to better meet society’s needs. Greater access to legal advice and support for small businesses would reach a large area of the economy and lead to benefits for small business owners, employees and the wider public.”
Federation of Small Businesses National Chair Martin McTague said: “Disputes cost small companies in England and Wales at least £11.6 billion each year, and many struggle to find the time or resources to handle them.
“This report and proposed legal support strategy marks an important intervention, adopting FSB recommendations which, if enacted, will empower small businesses to address legal disputes effectively at an early stage. By doing so, we can help small businesses minimise the need to take cases through costly court processes.
“A more accessible dispute resolution system, promoting Alternative Dispute Resolution and other early intervention options coupled with an effective civil justice system providing affordable, fair and just outcomes will reduce the pain for a lot of small firms.”
Small Business Commissioner, Liz Barclay said: “Small firms lose time and money chasing payments that are slow or overdue. That’s time that could be put into chasing new customers, planning the business, innovating and growing.
“We need legal processes that take the confrontation out of getting paid, make it easier to negotiate fairer payment terms before the work starts and get the contract in writing with all the necessary detail up front. Disputes must be resolved without heat and pain, so that future business relationships can be preserved.
These proposals recognise that and the need to avoid costly, protracted court encounters while ensuring fair outcomes.”
Other findings include:
- Four in ten small businesses said that Covid-19 had an impact on their legal issue, at an average cost of over £3,000.
- Around one in five said that EU exit had an impact on their legal issue, at an average cost of £4,400.
- Just 10% of respondents viewed lawyers as cost-effective and almost 1 in 5 small businesses who paid for legal services used personal savings to meet these costs.
Find out more:
- Read the Small Business Legal Needs Report 2021 (PDF)
- Explore the interactive dashboard
- Examine the Small Business Business Legal Needs dataset and user guide
- Watch our explanatory webinar on the report findings