Bad professional advice spurs on massive £6.4bn loss across small UK businesses

13th August 2015


Poor professional third party and consultant advice has resulted in 16% or some 320,000 small businesses losing money, claims new research.

Direct Line for Business, who conducted the analysis, as a result has warned that professional advisers, such as accountants and property consultants, could be pursued for losses incurred as a result of giving substandard advice.

The research revealed that advisory consultants and other such firms have cost Britain’s small and micro businesses an estimated average of £20,842 in the past 12 months due to inadequate professional consultancy, with almost 20% claiming to have lost between £50,000 and £100,000. In total this would equate to a whopping £6.4bn lost by small and micro businesses as a result of poor advice in the past 12 months.

IT consultants were identified as the professionals most likely to give damaging advice, with 44% of businesses saying their operations were affected by bad advice from them. A third of businesses suggested it was poor advice on management issues, while 32% claimed incompetent marketing consultancy negatively impacted their business.

Advisory sectors that most negatively impact businesses

1 IT consultancy 44 per cent
2 Management advice 34 per cent
3 Marketing consultancy 32 per cent
4 Property consultancy 23 per cent
5 Communications consultancy 16 per cent
6 Accountancy 9 per cent
7 Advertising consultancy 8 per cent
8 Legal advice 6 per cent

Direct Line for Business has cautioned that not only should consultants providing advisory services consider the reputational and financial impact of poor advice to their own company but also a number of unintended effects on the businesses to which they provide advice.

In fact nearly half, at 46% of affected companies suggested they were forced to lay off staff because of poor professional advice. While 39% were forced to scale back or halt expansion plans, 34% needed to take out a loan to prop up their business. More than a quarter, at 28% highlighted that the survival of their business was put in jeopardy.

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”.

How poor professional advice affected small and micro businesses

1 Forced to lay off employees 46 per cent
2 Forced to scale back or halt expansion plans 30 per cent
3 Forced to take out credit 34 per cent
4 Put business survival in jeopardy 28 per cent
5 Forced to resolve client/customer issues 28 per cent
6 Lost clients 16 per cent
7 Forced to sell company assets 2 per cent
8 Other 1 per cent

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