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Entrepreneurs Mostly Upbeat On UK's Business Future - Lombard Odier

Jackie Bennion

21 June 2021

Analysing the attitudes of UK HNW entrepreneurs after Brexit and dealing with the COVID crisis, a new report by Swiss private bank found the group largely optimistic about the UK's future as a place in which to build a business and invest.

The report titled Entrepreneurs’ Views 2021: Business Lessons, Wealth and the UK Outlook found that the most trusted relationships for entrepreneurs are with their accountants and IFAs. Only a third put their wealth manager or private banker as the most trusted source of advice.

This could indicate that entrepreneurs find it easier to rate the specific services of an accountant “rather than the holistic approach” offered by a private bank or wealth manager, the report suggested.

What private bank
The report, which canvased 250 UK-based entrepreneurs with investable assets of at least £3 million, revealed that their top priority when choosing a private bank was stability and being well-capitalised. They ranked private bankers offering superior online and personalised services tailored to their needs the next most important factors.

The survey also covered how the pandemic and Brexit has changed entrepreneurs' business and wealth planning.

Despite difficult conditions created by both, most are positive about the UK as a centre for business and global finance, with three-quarters saying they were confident that the UK's status would  be maintained over the next five years. Roughly half said they have changed their business strategy or reorganised their supply chains during the economic upheaval; and roughly a third have changed how their wealth is managed, including accelerating plans to pass on wealth to their children (32 per cent) or move out of the UK (30 per cent).

As the largest global financial centre after New York, London financial services contribute roughly 7 per cent to UK GDP and account for around 3 per cent of all jobs. But a report from New Financial in April found that around 480 financial services firms have relocated part of their business, staff or legal entities out of the country as a result of the EU departure. Trade figures also suggest that UK businesses are haemorrhaging income with European exports down by about half from pre-Brexit levels.

Wealth planning
The study showed that just over half of UK business owners surveyed thought they were optimally structured for tax, dropping to less than half among entrepreneurs yet to experience a liquidity event. In cash terms, entrepreneurs are still holding a majority (80 per cent) of their personal wealth in the UK and thought this would be the case in three to five years from now.

What worries entrepreneurs most
Not surprisingingly it is rising taxes, above concerns about unemployment or rising inflation. Two-thirds said that a hike in corporate tax is a major concern and well-founded.

In March, the UK Treasury announced corporate tax increases from 19 per cent to 25 per cent starting in April 2023. The UK may also follow in US footsteps, where President Biden announced plans in April to increase capital gains tax and top bracket income rates. Almost three-quarters are concerned about future increases in personal tax rates as the UK battles with the economic cost of the pandemic. Sixty-eight per cent are concerned about the introduction of a wealth tax, and 58 per cent about a rise in inheritance tax.

The World Bank’s Doing Business 2020 survey of 190 economies ranked the UK eighth for ease of doing business. This, however, did not factor in the UK’s future trading relationship with the EU, which is anything but clear.

Entrepreneurs ranked supportive regulation and tax incentives for start-ups first and second as the most important factors going forward. A third also believe that it  is important for the government to put in place a national industrial policy for entrepreneurs and start-ups.

The ongoing difficult environment has also stimulated sale activity, with more than a quarter saying they plan to sell their businesses between now and 2026.

“The entrepreneurial community is known for its resilience and flexibility, and our report only reinforces that further. UK entrepreneurs have adapted their businesses, wealth structures and even their location in the face of recent challenges,” Duncan MacIntyre, UK CEO at Lombard Odier, said.

The younger cohort (Generation Y, aged 25 to 40) said emotional attachment was their single biggest challenge when selling a business. When giving advice to their pre-sale selves, several respondents raised the concern of tackling the emotional dimension of the transaction. Identifying the right time to sell is the most important lesson learned from selling a business. Those who have been through a sale identified negotiating skills as the second most important aspect.

MacIntyre says the findings also point to an increased focus on planning for future goals, which includes "more time spent on succession issues and more exchanges with family members, something we have seen among our own clients throughout the pandemic. This further highlights the need to factor in both the practical and emotional considerations that come with the realisation of business wealth."

Interest versus action on sustainability
Forty per cent of entrepreneurs say their interest in sustainable investing has risen over the past year. However, just 55 per cent take sustainability into account in current investment decisions, and only 25 per cent of portfolios are allocated to sustainable investments. A third of the entrepreneurs believe sustainable investing means sacrificing returns. Interestingly, this view is more prevalent among younger entrepreneurs.