Poor professional advice from third parties or consultants has resulted in 320,000 enterprises losing money. Estimated average loss of £20,842 to Britain’s small and micro businesses because of poor advisers and consultants. The greatest issue has been caused by deficient IT consultancy advice.

Poor professional advice from third parties or consultants has resulted in one in six (16 percent) small and micro businesses (the equivalent of around 320,000 enterprises1) losing money, according to new research2 published by Direct Line for Business.

Professional advisers, such as accountants and property consultants, are warned that they could be pursued for losses incurred as a result of giving substandard advice. The research reveals 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 one in five (19 percent) claiming to have lost between £50,000 and £100,000. In total this would equate to a whopping £6.4 billion lost by small and micro businesses as a result of poor advice in the past 12 months.3

IT consultants were identified as the professionals most likely to give damaging advice. Four in ten (44 percent) businesses whose operations were affected by bad advice blamed their IT consultants. A third (34 percent) of businesses suggested it was poor advice on management issues, while 32 percent claimed incompetent marketing consultancy negatively impacted their business. 

Direct Line for Business warns 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. Nearly half (46 percent) of affected companies suggested they were forced to lay off staff because of poor professional advice. While 39 percent were forced to scale back or halt expansion plans, a third (34 percent) needed to take out a loan to prop up their business. More than a quarter (28 percent) 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. Advisory firms can protect themselves in case an issue does arise from the advice they give by taking out professional indemnity insurance.”