Charities

LawBite YouGov Survey Results - Charity Sector

What's this all about?

At LawBite we believe that law in the UK should be accessible, affordable and clearly understandable for the UK’s business owners. At the start of 2016 the Department for Business Innovation and Skills reported that 99.9% of all private sector businesses were small or medium-sized (SMEs) and that these businesses provide employment to 15.7 million people.

Arguably these businesses are the lifeblood of the UK economy, so as part of LawBite’s campaign to drive change in the legal industry we asked YouGov to conduct a unique, comprehensive and independent survey of UK Small Medium Enterprises to discover the financial impact when they fail to take proper care of the legal issues they face.

Charity survey respondents are losing more than £1.2 billion a year by failing to take care of their legal issues

The economic analysis of the YouGov results was carried out by the Centre for Economics and Business Research (Cebr) . We think there is an important message here for every business owner so we wanted to share the highlights with you.

The results within the charity sector specifically are startling; with an upper estimate indicating that charity respondents are losing more that 1.2 billion a year from this failure.

Charity survey respondents are losing more than £1.2 billion a year by failing to take care of their legal issues

The results within the charity sector specifically are startling; with an upper estimate indicating that charity respondents are losing more that 1.2 billion a year from this failure.

What are the risks to your business?

The survey has provided some shocking revelations that should make every business sit up and take notice. It’s virtually impossible to imagine what impact the loss of £1.2 billion might have on the charity sector so let’s break it down into real-world terms and look at the risks every charity faces:

Firstly, we discovered that the average charity in the UK is likely to encounter more than 8 legal issues a year. This places those within the charity sector in line with the average across all survey respondents and therefore as much at risk as the other sectors surveyed.

The average charity in the UK is likely to encounter more than 8 legal issues a year

Of the legal issues charities encountered costs are extensive with 44% resulting in costs of £5,000 or more and the average loss annually for those surveyed from the Charity sector is approximately £12,160 per organisation.

What are the most common issues that Charity survey respondents face on a day-to-day basis?

More than half of all issues were found to be in five key areas:

Employees and Key Contractors (16%)
Disputes (12.5%)
Software (11.7%)
Customers and Suppliers (11.6%)
Terms and Conditions (8.5%)
Other (39.7%)

Average annual loss from legal issues for UK SMEs, by Sector

Across the charities surveyed the highest amounts are estimated to have been lost in the following six areas, some of which (IP, Disputes, Loans and Investments) aren’t even given as the most common issues encountered by charities:

IP (over £208 million)
Employees and Contractors (over £143 million)
Software (over £139 million)
Property (over £99 million)
Disputes (over £85 million)
Loans and Investments (over £84 million)

But it won’t happen to me… will it?

Given the number of incidences of these kinds of issue, charity respondents are overoptimistic about the prospects of future losses occurring because of these problems – with only 8% thinking these issues are ‘likely to pose a significant risk’ to their business.

Charities assume that risky outcomes are more likely to happen to other organisations than to themselves

Interestingly, this percentage almost triples (21%) when they are asked to forecast whether these problems are likely to affect other businesses rather than their own. Charities follow the typical trend in assuming that risky outcomes are more likely to happen to other organisations than to themselves.

Do Charities think lawyers help reduce risk to their Business?

Having uncovered the number of times issues arise and in spite of the potential cost to charities of the losses involved, we found charity respondents remarkably casual about using lawyers to reduce their risks.

Charity respondents are remarkably casual about using lawyers…

We asked charities about their expenditure on legal expertise and tellingly 56% were not even able to say how much they spent on legal services last year. For those charities that did know, almost half (48%) reported spending less than £1,000 per year on lawyers.

This is in line with the general results of the survey across sectors, however paradoxically the SMEs surveyed do understand that using lawyers is likely to make them better off. Of those SMEs who responded, 83% said that using a lawyer to deal with legal issues with commercial impact on the business had reduced the risk of higher costs, and 86% of those who responded (and didn’t use a lawyer in such instances) said that it could have reduced the risk of higher costs and losses if they had.

but SMEs do understand that using lawyers is likely to make them better off

In the general survey SMEs were also asked to rank the possibility of commercial legal issues arising against the risk of typical SME problems arising such as: cash flow issues, supply problems, damage to reputation, problems from key staff leaving the business or data security problems.

83% said that using a lawyer reduced the risk of higher costs

The analysis across all sectors showed that for every 10% extra an SME spends on legal costs, the chances of any of these other risks ranking ahead of commercial legal risks rises by as much as 90%. In other words, SMEs perceive that if they spend more on their legal budget then the relative risk of commercial legal issues arising for their business falls sharply. Although not specific to the charity sector this provides interesting insight in terms of the perception SME’s have that increased expenditure on legal support mitigates risk for commercial legal issues.

Why are so many charities not prepared to spend money on lawyers?

Our general survey results show that even though SMEs across all sectors surveyed know legal issues affect them frequently and cost them significant amounts of money, they are reluctant to invest in lawyers.

However, SMEs do take out insurance policies against a wide risk of other contingencies (directors insurance, employer’s liability, public liability). Insurance companies typically report that only 9% of SMEs make an insurance claim a year, whereas this YouGov survey shows that on average the charity sector respondents alone encounter more than 8 legal issues a year with significant adverse consequences from commercial legal issues.

Yet charities (along with many other organisations) are far less likely to want to protect themselves by taking out the simple ‘insurance policy’ of using a lawyer than they are by taking out an insurance policy against other risks.

A likely underlying cause for charities reluctance to use lawyers lies in attitudes to law firms, which the YouGov survey also covered. 69% of charity respondents say that legal documentation is not easy to understand, while only 10% say that legal fees are good value for money.

Even though charities know legal issues affect them frequently and cost them significant amounts of money, they are reluctant to invest in lawyers

Only 18% of charities rate law firms as ‘good’ in terms of ease of access (how easy it is to contact a lawyer; how speedy their response is and how easy it is to get a situation alleviated).

Only 1 in 5 SMEs rate law firms as ‘good’ in terms of ease of access

However, the survey results indicate that charity respondents are able to clearly articulate what they do want from lawyers and law firms. Of those who gave a response, over 90% ranked all of the attributes below as important:

Ease of communication (100%)
Value for money (100%)
The speed of service provided (100%)
They are more likely to resolve issues quickly (100%)
Taking time to understand the issue (98%)
Costs involved (97%)
Understanding the charity sector (95%)
Feeling “safe in their hands” (92%)
A bespoke approach to their need (89%)

Clearly, charities are not getting enough of these attributes from traditional law firms in order to persuade them to alleviate their risks from legal issues by engaging lawyers routinely.

What should those in the charity sector conclude from this research?

As someone working in the charity sector, your conclusion may be that engaging properly with your legal issues and guarding against them is going to potentially save you thousands of pounds a year. You are far more likely to have a legal issue than any insurance claim so you’d be better off spending as much or more on legal protection and advice as you do on your business insurance policies.

The biggest issues (and most expensive ones) you’re likely to face are all often easily preventable. Simple matters like having contract terms and conditions checked or drafted properly to ensuring your employment or contractor terms are clear and up to scratch will de-risk your business rapidly.

The biggest issues (and most expensive ones) you’re likely to face are all often easily preventable

If you’re not sure what you might need, you can have a free consultation with one of our expert lawyers (LawBriefs) to help any identify areas of concern and what you could do about them

If you’re reading this survey as a member or partner of a UK Law Firm then you should be shocked at how the industry is perceived by SMEs and how they’ve been underserved for so long. We urge you to join us on our mission to make the law more accessible, understandable and affordable for UK SMEs.

Survey data

The survey asked SMEs to indicate their level of losses from a wide range of legal issues with commercial impacts. These comprised issues with:

Customers and Suppliers
Employment and Consultants
Trading terms and conditions
Intellectual Property
Loans or investments
Decision making in, or ownership of their business
Software
Regulatory matters
Disputes
Tax

The survey covered over 20 business sectors including:

Charities and voluntary organisations
Arts, entertainment, recreation, cultural and sporting
Business administration and support
Membership organisations
Publishing, broadcasting and media
Education, health and social work
Finance and insurance
Technology
Recycling and refuse

All of the findings have been extensively analysed by the Centre for Economics and Business Research (Cebr). The statistical highlights of the narrative above are only a portion of data collected and analysed. We welcome any requests to discuss the findings in more detail.