• Over a third of small businesses (34 per cent) admit to having had to address a legal issue within the last 12 months, with one in five (22 per cent) stating more than once
• A quarter of those spent between £5-15,000 within the last year, despite four in ten (41 per cent) having cash reserves of less than £10,000 and 17% having less than £1,000
• Despite this, nearly seven in ten (67 per cent) do not consider third-party legal advice a priority for their small business currently, with 34 per cent preferring to deal with an issue at the time versus planning ahead

Small businesses are unnecessarily putting their cash reserves at risk by failing to prioritise legal issues, according to Direct Line – Business research. (1)

A quarter of SMEs (24 per cent) admit to having spent between £5-15,000 on dealing with legal matters within the last twelve months. Nearly one in twenty (4 per cent) has spent over an eye-watering £30,000 in the same timeframe. This is despite more than four in ten SMEs (41 per cent) holding less than £10,000 in cash reserves, and 17 per cent having less than £1,000 in the bank.

Legal matters are common. Over a third (34 per cent) have had to address a problem within the last twelve months, while nearly a quarter (22 per cent) say they have needed to do so more than once. The most common legal matters SMEs have faced over the last year were found to be in five key areas:

• Commercial contracts (34 per cent)
• Landlord and tenant (23 per cent)
• Employee-related legal questions (e.g. furlough, redundancy) (21 per cent)
• Late payment and debt (21 per cent)
• Redundancy policies – non-Covid-19-related (16 per cent)

Despite paying out huge sums, nearly seven in ten (67 per cent) SMEs don’t see third-party legal advice as a priority for their business. This has led to over-optimism about the potential for significant risk, with four in ten (41 per cent) saying they haven’t taken any precautions whatsoever to reduce their level of legal exposure.

Over a third of those who do not see it as a priority say that this is because they’ll deal with a problem when it arises, while nearly three in ten (29 per cent) say that they have other more important matters to attend to.

Despite just a quarter of SMEs (24 per cent) saying they feel fully aware of the potential legal issues that could affect their business, 28 per cent would rely on their own knowledge to tackle a legal problem. More than one in five (23 per cent) would use Google to search for advice, while around one in ten (12 per cent) would ask a friend or relative – regardless of whether they were experienced or not.

Negative perceptions or attitudes to third-party legal advisors could be contributing to the problem. Nearly a quarter (24 per cent) are reluctant to engage with lawyers, with nearly two thirds (63 per cent) saying this is because they are too expensive.

There is also a low awareness of other sources of legal expertise. Less than a third of small businesses (29 per cent) say they’re aware it’s possible to get legal advice on minimising risks from an insurer. More than four in ten (41%) say they’re not aware that they can get this from a third-party business provider at all.

Jemma Holloway, Head of SME Insurance at Direct Line – Business said:

“Small businesses face unprecedented uncertainty and a challenging economic climate. It’s worrying that many aren’t prioritising or are casual about legal risks and are putting themselves in financial jeopardy at the worst possible time.

“Prevention is better than cure, but what many SMEs don’t realise is that it is possible to get advice on legal issues – whether big or small – from other business providers, such as insurers. This can help them improve their knowledge of the most common legal issues and reduce their exposure to risk.  

“Our Legal Essentials service gives SMEs round-the-clock advice and a free legal document and business guide service. Appropriate for any SME – regardless of sector or size – it offers peace of mind and the knowledge that help is there if they need it”.

Direct Line’s Legal Essentials service provides SMEs with a comprehensive legal documents service and 24/7 legal advice helpline, preventing legal issues from throwing them off track.

Direct Line’s Legal Essentials service provides SMEs with DAS Businesslaw, a free legal document and business guide service. The service is provided in partnership with DAS UK and Farillio.

Small businesses can access a library of legal templates, tools and guides to help them run their business and stay compliant with the latest regulatory changes. They can use the service to create ready-to-sign contracts, agreements, policies and letters. All documents are developed and regularly updated by legal experts and are customisable via a smart document builder.

Direct Line’s Legal Essentials service is included free on every policy and is preventative in nature. SMEs can also choose to add Legal Expenses cover to their policy which could pay their legal costs if they find themselves involved in a legal dispute, for instance disputes with suppliers or clients.

To find out more about Direct Line’s Legal Essentials service, head here:

https://www.directlineforbusiness.co.uk/small-business-insurance/legal-essentials

ENDS

(1)  Opinium survey of 502 senior decision-makers in small businesses, 28^th September-1^st October 2020

Direct Line Group

Unni Henry
Senior PR Consultant
Tel: 07859 888 026
Email: [email protected]

Eulogy
Michael Hindmarsh
Account Director
Mobile: 07415 396642
Email: [email protected]

About Direct Line – Business

Launched in 2007 Direct Line - Business now has over half a million customer policies, providing a flexible range of insurance products for the landlord, van and small business sectors.

Direct Line insurance policies are underwritten by U K Insurance Limited, Registered office: The Wharf, Neville Street, Leeds LS1 4AZ. Registered in England and Wales No 1179980. U K Insurance Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

Direct Line - Business and U K Insurance limited are both part of Direct Line Insurance Group plc.

Customers can find out more about Direct Line’s business products or get a quote by calling 0345 301 4827 or visiting www.directlineforbusiness.co.uk