The legal needs of small businesses 2015 survey

The full report can be found below including the underlying survey data sets for this piece of research. Short papers discussing the implications of the research findings for policymakers, regulators and the legal profession are also available below.

Why is this research important?

Small businesses – those employing up to 50 people – comprise 99% of all businesses, and they contribute 33% of UK business turnover and 48% of employment. Establishing evidence of the legal problems that exist for these businesses, as well as the strategies and actions taken by them, is therefore important.  Only by understanding legal needs in this sector can regulators, government bodies and legal services providers identify the scale and type of legal issues that small businesses encounter, and take effective action to enable the provision of fit for purpose legal services.

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, and 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.

In 2013, we undertook the first large scale quantitative survey of the legal needs of small business owner and managers (Pleasance and Balmer, 2013).  This research repeats that survey and presents new empirical evidence on small businesses’ experiences of legal problems.

What new information did this research provide?

This new research analyses the experiences of small businesses in today’s economy, 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.  It is the largest ever survey of small businesses’ interactions with the legal sector (an online survey of 10,528 respondents).
The report includes a cross-sectional analysis of the 2015 survey as well as a comparison of the 2015 results with the 2013 benchmarking survey.  Over 1,400 individuals who were interviewed in 2013 were also interviewed in 2015, allowing a panel analysis to be undertaken.

The findings show that:

Business problems have declined in incidence but remain costly

  • The number of legal problems faced by small businesses reduced significantly over the last two years reflecting better trading conditions. The most common problems related to trading, employment and taxation. Other businesses were the main source of problems.
  • Half of small businesses reporting a legal issue said it had a negative impact; one-quarter of them reported loss of income and one-fifth reported health related problems. Total annual losses to small businesses due to legal problems is estimated at £9.79bn
  • Larger small businesses, and small businesses with BME and disabled business owners-managers, were most likely to experience problems

Engagement with legal service providers is limited

  • The large majority of small businesses had little contact with legal advisers. Less than one in 10 either employed in-house lawyers or had a retainer with an external provider. Over half of small businesses experiencing a problem tried to resolve it by themselves. When advice was sought, accountants were consulted more often than lawyers
  • There was a marked decline in the use of external support providers between 2013 and 2015, reflecting the decline in problems.  Use of solicitors in the previous 12 months fell from almost 20% to almost 10%; and accountants from over 60% to just over 49%.

Attitudes to legal service providers are mixed

  • Only 13% of small businesses viewed lawyers as cost effective – little improved since the LSB’s 2013 survey. Microenterprises were the least likely to view lawyers as affordable
  • 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 compared with 12% who disagreed strongly or disagreed.
  • Satisfaction that law and regulation provide a fair trading environment increased from 30% in 2013 to 45% in 2015 – improving economic conditions as well as improvements in the regulatory environment may explain this change.

How are we going to use this research?

In an area that has previously received little investigation, this research will add to the robust evidence base the LSB is establishing.  It has increased our understanding of where the current legal services market is failing to meet the needs of small businesses.  The research will be used by the LSB in the pursuit of its strategic goals, where we will seek to ensure the issues identified by this research are addressed through our own work and that the implications for policymakers, the legal profession and small business owners alike are understood and taken into account.