UK SMEs lose £6.4 billion a year through poor professional advice

26 August 2015

Poor professional advice from third parties or consultants had resulted in 16 per cent of small businesses surveyed losing money, according to a study by Direct Line for Business.

The research found Britain’s small and micro businesses had lost an average of £20,842 in the past 12 months due to inadequate professional consultancy. One in five business said they had lost between £50,000 and £100,000.

The insurer estimated this would equate to a total of £6.4 billion lost by small and micro businesses in the UK as a result of poor advice in the past 12 months.

IT consultants were named the most often in the survey for giving bad advice, cited by 44 per cent of businesses affected by poor guidance. A third of companies said poor advice had been on management issues, while 32 per cent claimed incompetent marketing consultancy had negatively impacted their company.

The other advisory services names as negatively impact businesses were property consultancy (23 per cent), communications consultancy (16 per cent), accountancy (9 per cent), advertising consultancy (8 per cent) and legal advice (6 per cent).

Direct Line for Business warned professional advisers could be pursued for losses incurred as a result of giving substandard advice, and suffer reputational damage. They should also consider the effects on the businesses to which they provide advice.

Nearly half (46 per cent) of affected companies said they were forced to lay off staff because of poor professional advice. While 39 per cent were forced to scale back or halt expansion plans, a third (34 per cent) needed to take out a loan to prop up their business. More than a quarter (28 per cent) said the survival of their business was put in jeopardy. Others had lost clients or been forced to sell company assets.

Nick Breton, head of Direct Line for Business, said: “Our research clearly highlights the devastating effect poor professional advice can have on small and micro businesses. However the impact on an advisory firm that is facing litigation can be just as shattering. For those providing advisory services, it is important to recognise that issues can occur and clients could pursue them for compensation. Advisory firms can protect themselves in case an issue does arise from the advice they give by taking out professional indemnity insurance.”

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