At the end of last year, we conducted our third small business survey to discover how SMEs consider their state of health and how they understand and address their legal needs.
The results are now in! Our latest report includes analysis and commentary from some of our experienced Client Legal Directors on some of the key issues that emerged from the survey.
Summary
The responses reveal a mix of economic sentiment and concerns regarding legal risks. While two-thirds of the respondents express neutrality or pessimism about the UK economy, the majority still cite moderate or significant growth as a key objective for the coming year.
Contract disputes and employment law changes are prominent concerns. Data protection preparedness is generally perceived as adequate, but cybersecurity and staying compliant with data protection regulations are underlying concerns. ESG is gaining importance for many, and understandably, AI legal implications are not well understood. Contract management challenges are varied, and most respondents rely on specialist practitioners for legal advice.
Employment Law
"Employers of all sizes will be affected by this and should be thinking now about how best to prepare for the impact."
Influx of new legislation impacting SMEs
The introduction of Labour’s new Employment Rights Bill has undoubtedly impacted the survey results, with increased employee rights and protections dominating as the biggest employment law concern. Respondents also express concern about the complexities of remote and hybrid working, minimum wage increases, changes to working time regulations, the increase in Employer NICs and changes to IR35.
Kate Palka, Client Legal Director and Employment Law specialist says, “Employers of all sizes will be affected by this and should be thinking now about how best to prepare for the impact. This could be achieved by reviewing current employment contracts and policies, engaging with employees, planning adjustments to HR practices and seeking legal advice to support them. It’s also important to keep updated on the details of the proposed changes as they work through the legislative process.”
If you’d like a useful summary of the incoming employment changes, you can listen to Kate’s podcast on the topic here.
Data Protection and Cybersecurity
Cybercrime of critical concern to small busineses
The importance of data protection for SMEs is evident in the survey results with 100% of respondents feeling “somewhat confident”, “confident” or “very confident” about their GDPR compliance.
However, cybersecurity preparedness levels are mixed. Though over 70% of respondents claim to be “somewhat prepared”, ransomware attacks, phishing scams and data breaches are cited as the primary cybersecurity and data protection concern of three-quarters of our respondents. This testifies to the critical concern cybersecurity poses for all businesses. Client Legal Director and cybersecurity expert, Alana Tart, says, “What people often do not acknowledge is that cyber is a team sport. Ensuring the right team is in place with the right decision-making authority before an incident occurs is key. This is vital to minimise operational disruption, protect the organisation’s reputation, and stay compliant with legal and regulatory frameworks.”
If you’re looking to improve your cybersecurity, you can access the recording and slides of our recent Legal Live on the topic here. Alana gives an overview of some of the most common and dangerous cybersecurity threats and passes on some practical advice about how to safeguard your business.
"Ensuring the right team is in place with the right decision-making authority before an incident occurs is key.
ESG (Environmental, Social, and Governance)
"If SMEs want to secure work with large organisations, they must be able to demonstrate that they can meet stringent ESG rquirements.
Link between size of business and value placed on ESG
The survey respondents expressed a variety of opinions on the importance of ESG, which appear to correlate with the size of the business. Those with the highest turnover (between £25 million and £100 million) rank ESG as extremely important, whereas those with a turnover under £5 million, range from considering it “not important at all” to “moderately important”.
While this is understandable, it is important that smaller SMEs recognise the importance of ESG. Not only are regulatory requirements trickling down and legislation looks likely to increase for SMEs, but there are significant commercial advantages to prioritising ESG compliance. David Bray, Client Legal Director says, “If SMEs want to secure work with large organisations, they must be able to demonstrate that they can meet increasingly stringent ESG requirements that these organisations often impose on their vendors. This is particularly true if those organisations are in the public sector. Good ESG compliance will often represent a significant competitive advantage in vendor selection and make an SME more attractive to investors. It makes commercial as well as ethical sense to focus on ESG.”
If you are interested in developing a robust compliance programme, you can find details of our Compliance Blueprint service here.
Artificial Intelligence (AI)
Knowledge of legal risks of AI very limited amongst SMEs
A new question in this year’s survey asked respondents to rate their understanding of the legal implications of AI in their business. One third professed to no or a low understanding. Only one respondent expressed a high level of understanding.
Kiley Tan, Client Legal Director and tech founder who is currently undertaking an AI course at MIT Professional Education says, “It is staggering to note that almost 89% of businesses surveyed indicated that they had moderate to no understanding of the legal implications of AI in their business. As AI continues to integrate into business operations, it’s crucial that businesses not only recognise its commercial value but also how it could impact them legally. The intersection of technology and law is something that businesses can’t afford to overlook.”
"The intersection of technology and law is something that businesses can't afford to overlook."
Contract Management
"SMEs should be investing in robust contract management processes, including clear drafting, regular review and proactive risk assessment."
SMEs face many contract-related challenges
It is evident from the results that contract management presents a significant burden for many SMEs. Ninety percent of respondents cited either contract performance or contract renewal as their primary concern in this area. The principal challenges facing these SMEs include ensuring clarity and enforceability, balancing commercial interests with legal requirements, and managing risk and liability.
Our respondents are clearly concerned about the consequences of failing to manage their contracts well. When asked what the most significant legal risk perceived for their business in the next two years, the most frequently cited response was “contract disputes”.
Client Legal Director Mark Duckworth advises that businesses get in the right support before problems emerge: “Given that contract disputes and contract-related challenges are prominent, SMEs should be investing in robust contract management processes, including clear drafting, regular review, and proactive risk assessment. A lawyer brought in from the outset can help mitigate the risks of disputes further down the line, which are often costly, stressful, time consuming and potentially reputation damaging.”
Reviewing our 2024 survey findings, TLD Chief Executive Ed Simpson, commented:
“From the huge influx of new legislation and increased regulatory requirements to the unknown risks and opportunities posed by AI, SMEs continue to face big challenges. As trusted advisors in our clients’ businesses, our Legal Directors are in a privileged position to provide support and guidance to navigate these changes and help SMEs realise their growth plans.”
A donation has been made for every completed survey to the Barons Court Project.
If you’re interested in finding out more about any of the issues raised in this report, or would like to understand how a TLD Client Legal Director could help your business, contact us on 020 3053 8613 or info@thelegaldirector.co.uk.
