Law firms missing out on SME work over cost concerns, LSB study finds

More than half of small businesses are handling their own legal matters amid widespread concerns about the value for money offered by law firms, according to a major Legal Services Board (LSB) research project.

The report, compiled in partnership with pollsters YouGov, surveyed 9,703 small and medium enterprises (SMEs) in England and Wales, with 52% of respondents stating that they handle legal problems without external help.

Only 13% of respondents to the survey believed that lawyers offer a cost-effective method of resolving legal issues, despite more than one third (38%) acknowledging that they had faced a significant legal problem over the last 12 months, of which almost half (45%) resulted in a negative financial impact.

Knights Solicitors managing partner David Beech (pictured) commented: “SMEs view lawyers as being too costly because of hourly rates and inefficient processes, which repeatedly reinvent the same wheel at too much cost and do not properly take into account the commercial value to an SME. Law firms need to charge what clients want to pay rather that what the clock says – they have to find cost effective ways of delivering the same services for less.”

The report valued the average cost of each legal problem at £6,700, which, when extrapolated across all small businesses in the UK, means SMEs are losing more than £100bn per year as a result. Only 5% of the businesses surveyed employed an in-house legal expert.

Keystone Law managing partner James Knight said: “In our experience many SMEs lack a relationship of trust with a commercially minded solicitor who they can turn to at short notice to receive succinct advice on an ad hoc basis. This is unfortunate since a legal adviser can remain hidden in the background whilst helping to resolve a dispute quickly and amicably. A bit of strategic advice at the planning stage can help ensure a dispute never arises in the first place.”

The LSB – the independent body responsible for overseeing the regulation of legal services in England and Wales – hopes the report will act as an incentive for law firms to develop and deliver better service offerings for the 4.7 million small businesses in the UK, while also challenging regulatory bodies to remove unnecessary regulation which is hindering innovation.

LSB strategy director Crispin Passmore said: “Seven out of eight consumers say lawyers aren’t offering a cost effective way to resolve problems, so it appears law firms aren’t doing as good a job as they could be doing. We need to have more choice and a more competitive market and this research is aimed at helping firms help themselves.

“This is about a pattern of change – removing unnecessary regulation and red tape to increase access to justice and ensure legal services can be better targeted and delivered more cost efficiently to small business.”