For our TLD 2023 SME Legal Survey, we invited responses from SME business leaders, in the categories of £0-5m turnover, £5-25m turnover category and £25-£100m. Keen to identify any emerging trends, we have analysed the results and compared them with the responses from our 2022 survey. Here’s what we’ve learned…
Business Growth
SMEs determined to overcome a challenging financial year
65% of our total survey respondents are feeling more confident about the prospects for their business than they were 12 months ago – an increase of 7% since 2022. In fact, smaller businesses are feeling particularly buoyant, with 91% of respondents in the £0-5m turnover category feeling more confident in 2023. This, despite revenue for 73% of these organisations either staying the same or shrinking.
And, while organisations with a turnover of £5-25m are slightly less optimistic (only 55% in this category are more confident about their prospects for the next 12 months), businesses are bouncing back from financial stagnation, or shrinking revenues.
Our survey sample in the £25-100m category is split evenly: one third of the respondent’s revenues stayed the same, one third grew by 0-20% and the remainder experienced growth of more than 20%. Having weathered the storm, these organisations anticipate steadying in 2023, while smaller businesses predict 12-months of revenue growth.
Sales, Recruitment and Wage Inflation top the chart for ‘biggest challenges,’ and while these were all issues for SMEs in 2022, they have become even more important. 60% of respondents cited Sales as one of their biggest challenges in 2023, up from just 32% in 2022.
Intellectual Property
Artificial Intelligence and brand protection are biggest IPR concerns
76% of this year’s survey respondents have never conducted an audit of their Intellectual Property, with 40% either having no interest, or considering it not applicable to their business. When prompted, several key risks emerged: 67% of respondents cited the need to protect their brand as their biggest risk, while the use of Artificial Intelligence is a very real concern for 42% of our audience.
While this might feel frustrating for IPR lawyers, it is in fact, a significant improvement on 2022 – when 74% of respondents had no interest in talking to an IP expert about their intellectual property. The benefits to SMEs of protecting IPR are slowly but surely, getting through.
As Client Legal Director Nick Blackbourn notes in his article, ‘Big Lessons for Small Businesses: Getting the Fundamentals of Intellectual Property Right’, “Often small business owners are so caught up in the challenges and excitement of developing their own businesses that they can fail to take a step back and examine what’s at the heart of the value of the business. Knowing what your risk areas are and how best to minimise them is the job of a good lawyer.”
Your People
Attracting and retaining staff remains the biggest challenge for SMEs
Our 2023 survey group represents a cross sector of employers – with workforces ranging from under 10 staff (20% of respondents); 11-50 staff (40%), through to organisations with 51-200 workers (36% of respondents). Respondents are evenly split between those that have maintained their workforce (stayed the same), and either increased or decreased in number.
Predictions are positive: 60% of our survey group anticipate increasing their workforce in the next 12 months – good news for SMEs!
Employment contracts are increasingly under control too – 60% of our survey respondents reviewed key contracts in the last two years (increasing from 42% in our 2022 survey).
External support remains key to the SME sector, with 80% of respondents using either an external HR firm or an external lawyer for advice. Only 32% of respondents have an internal HR function (at Director/Manager level). For an in-depth insight into how legal directors work with HR teams, then do read our blog where TLDs Kate Palka and Sue Lappin of Lappin HR discuss, ‘How an employment lawyer can support your HR function’.
And finally, attracting and retaining staff remains the biggest worry for SMEs – with 75% of all respondents citing this as their biggest employment challenge – well ahead of managing hybrid working, which affects just 12.5% of the businesses surveyed.
Your Business Relationships
Mind the gap: contract approval processes missing in SME sector
SMEs are diligently managing their contracts – 72% know where their contracts are (whether physical or digital) and 72% are aware of the renewal dates and key terms.
It might therefore surprise you to learn that 72% of businesses surveyed do not have a contract approval process. This does not just affect businesses in their infancy – 100% of businesses in our survey between £25-100m turnover did not have a contract approval process either!
Just 26% of contracts are reviewed by either an in-house lawyer or an external law firm, meaning senior leadership teams (Managing Directors / Financial Directors) taking the lead on contract review could benefit from the support of an experienced lawyer in negotiating terms, ensuring that they are acting lawfully and reducing their risk.
Client Legal Director and TLD Talks podcast guest Chris Parr recommends clients, “seek legal help for contracts of high value or for ones that are potentially complex. If contractors or subcontractors are involved, for example, liability can become complicated, and it is important that you don’t end up ultimately responsible for another company’s work or product.”
If you would like more information on contract negotiation,why not read our factsheet. or listen to Episode 1 of TLD Talks.
Reviewing our 2023 survey findings, TLD Chief Executive Ed Simpson, commented:
“SMEs have faced huge challenges in recent years, and it is encouraging to see small businesses expressing such optimism about their prospects in the coming year. And we’re glad that we at TLD can be a part of that – our Client Legal Directors love supporting ambitious businesses and helping them realise their growth ambitions.”
A donation has been made for every completed survey to Brain Tumour Research.
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.
