SMEs reluctant to address legal risks

Over a third of small businesses admit to having had to address a legal issue within the last 12 months, over a fifth more than once. Despite this, nearly seven in ten do not consider third-party legal advice a priority.

This, according to analysis from Direct Line, effectively means SMEs are putting already strained cash reserves at risk.

The most common legal matters SMEs have faced over the last year were found by the insurer in a recent survey to be in five key areas:

Commercial contracts (34%)
Landlord and tenant (23%)
Employee-related legal questions (eg. furlough, redundancy) (21%)
Late payment and debt (21%)
Redundancy policies (non-COVID-related) (16%)

Despite paying out huge sums, nearly seven in ten (67%) SMEs don’t see third-party legal advice as a priority for their business. This has led to unfounded optimism about the potential for significant risk, with four in ten (41%) saying they haven’t taken any precautions 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%) say that they have other more important matters to attend to.

Jemma Holloway, head of SME insurance at Direct Line for 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."

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