Owners of small and medium sized businesses (SMEs) often find themselves doing everything from hiring staff to drawing up supplier contracts, but taking on all these responsibilities without advice can leave an SME owner open to legal action.
Small and medium sized businesses (SMEs) are the backbone of the UK economy, employing 16.6 million people and generating an annual turnover of around £2.8 trillion1. But whether it’s a manufacturing firm, an IT consultancy or a fish and chip shop, the owners of these businesses often find themselves doing everything from hiring staff to drawing up supplier contracts.
Taking on these responsibilities can leave an SME owner open to legal action. A survey of more than 10,000 SMEs by the Legal Services Board (LSB)2 found that 32% of small businesses had experienced at least one legal issue in the previous 12 months.
And these challenges are costly. As well as taking up time, more than a quarter of respondents – 28% – said they lost income, with 10% losing a customer or contract.
Key legal challenges
SMEs can face all sorts of legal issues, with the LSB survey pointing to trading, employment relations and tax and regulation as the most common ones.
The type – and volume – of legal challenges business owners face are also shaped by legislation and the economic backdrop. For example, April’s increase in employer national insurance contributions and the national living wage could force SMEs to make difficult decisions around staffing to make ends meet. The result? Disgruntled employees and a greater risk of employment tribunals.
Similarly, as customers could also be feeling the squeeze from these increased costs, it’s likely to mean more SMEs chasing late payments.
Trading uncertainty
SMEs also face geopolitical risks. Whether its supply chains being disrupted by the war in the Middle East; Brexit controls on exports; or Trump’s yo-yoing tariffs making it impossible to know how much tax is due on the latest shipment; uncertainty makes for tough business conditions and pushes up the risk of legal action.
The virtual world can also be a legal nightmare for business owners. A cyber attack or data breach can seriously affect operations, potentially breaking contractual arrangements and landing the business with a fine of up to 4% of annual revenue from the Information Commissioner3.
There’s more change on the horizon too with the Employment Rights Bill4 expected to become legislation at some point in 2026. This seeks to outlaw practices such as zero-hour contracts and fire and rehire, and give workers more rights, including flexible working, day one paternity and unpaid parental leave and day one unfair dismissal.
Navigating legal risk
Unfortunately, there’s a bit of a head in the sand approach to dealing with legal issues. The LSB survey found that only a quarter of small businesses sought professional help from their accountant or solicitor for a legal issue.
It’s easy to see why. Popping into the local solicitor’s office isn’t cheap. Even a simple document such as an employment agreement can cost around £500.5
Even where a business owner isn’t faced with a legal challenge, it can be difficult to stay on top of their responsibilities. A change in regulation affecting their business sector may be on the radar but broader issues such as employment, data protection or environmental requirements may be out of range.
Protecting the business
Prevention is definitely better than cure when it comes to legal challenges. Having the correct paperwork in place can ensure everything runs smoothly, whether that’s taking on a member of staff or trading with businesses around the world.
Even when faced with a potential legal dispute, early access to advice can provide considerable peace of mind as well as helping to minimising any damage.
Knowing what’s coming is an essential part of minimising legal issues too. By keeping abreast of any new regulations, an SME can avoid a last-minute scramble to meet compliance requirements.
Expert legal support
Having an in-house legal team may be outside the remit of all but the largest corporates, but with all businesses being exposed to legal risks, even the smallest ones can benefit from its own legal support.
Knowing legal support and advice is just a click or a phone call away enables SMEs to manage their legal risk effectively, giving them the confidence to focus on running a successful business.
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