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£6.4bn per year – The cost of bad business advice

According to research commissioned by Direct Line for Business, one in six small businesses lost money last year because of poor professional advice received from third party consultants and businesses.

The research revealed that advisory consultants and other businesses cost Britain’s small and micro businesses an estimated average of £20,842 in the past 12 months due to inadequate professional consultancy, with one in five (19%) claiming to have lost more than £50,000 and £100,000.

This equates top £6.4 billion lost by small businesses as a result of substandard advice in the last year. Furthermore, nearly half (46%) of affected companies suggested they were forced to lay off staff because of poor professional advice.

The most likely professionals to were identified as IT consultants, with 44% of affected businesses blaming their IT consultants for damaging advice. A third of businesses (34%) reported receiving poor advice in regards to management issues, whereas 32% claimed that marketing consultants had let them down.

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

Advisers, such as accountants and property consultants can be pursued for losses incurred as a result of giving substandard advice and can take out professional indemnity insurance to protect against such an eventuality.

Related article: Professional indemnity insurance – how much cover do I need?

In its report, Direct Line for Business warns consultants that provide advisory services to 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.

39% of firms who received bad advice report being forced to cut back or halt their expansion plans, while a third (34%) required external funding to prop up their business. Over a quarter (28%) reported that the survival of their business was put in jeopardy.

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

The head of Direct Line for Business, Nick Breton, 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.”


Has your business been the victim of substandard advice? What is your opinion of the research findings?

Let us know in the comments section below:

Do you offer professional advice in your line of work? Make sure you’re adequately protected with a professional indemnity insurance policy from Be Wiser Business Insurance.

Are you getting a good deal on your business insurance? Call us today to find out:

0333 999 0802 from a mobile.
0800 042 0401 from a landline.

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