Entrepreneurs are a fascinating subject for those of us in the private client industry.
People are often highly interested to read about successful businesses built from scratch or businesses, resurrected after catastrophe event or failure.
So, what are the hallmarks and features relevant to entrepreneurs? First of all, we should be clear that it is not possible to stereotype individuals or businesses purely because of success they have had.
Advisers and practitioners often adopt a one size fits all methodology when describing individuals, yet the individuals they refer to are exactly that; individual!
However, in terms of decision making there are trends which are common to a successful expansion of a business to new markets, or when a new business is starting up from scratch.
What are common factors that motivate entrepreneurs?
Is it a desire for success? Is it finding a solution to a problem? Is it taking a successful idea and replicating it in new jurisdictions or new sectors?
First of all, in all the scenarios, there needs to be an opportunity and the opportunity needs to be one that is capable of being realised. Entrepreneurs are flexible and will need to adapt quickly to changing demands or scenarios. To do so this requires an individual or a business to be nimble and able to make decisions, and importantly implement those decisions quickly.
Communicating about decisions to their relevant stakeholders can at times be a secondary thought, but clearly you need to bring everyone in your business along with you on the journey.
Generally, tax arises as a consequence of business activity and success from operations, be that in the form of corporation taxes, capital taxes, or upon the realisation of an exit or partial exit of the business.
Tax is also relevant when additional fund raises occur as this may trigger new share issues or partial disposals of existing equity.
In an ideal world, businesses take into account a future exit strategy when they are founded, but often in rapid growth scenarios this is not the case.
As such business owners need to engage with capable advisors, not only to ensure all tax reporting and obligations are complied with, but to future proof the structuring to ensure the business is attractive to future investors.
This is an area where advisers can demonstrate a real value add.
When creating wealth and generating income, on the whole, individuals are entirely comfortable with the concept of paying tax based on their successes. As such, good advisers give their clients comfort when matters are properly in hand and can articulate in a concise fashion the obligations for the business.
Global businesses and relocations
2020 and 2021 saw a rapid acceleration in remote working, meaning business owners can manage a business without being at the business HQ on a permanent basis. This creates opportunities for entrepreneurs to spend more time with families or in their favoured jurisdiction, thus meaning where you live is more down to a lifestyle decision rather than a business necessity.
This has increased the competition between jurisdictions who wish to attract successful individuals to reside in their country. There has been an increasing number of jurisdictions offering tax-based incentives to attract wealthy residents, which in turn sparks political debate and posturing around this subject.
There are also business incentives that are relevant factors too. Especially relevant for early-stage companies are any government grants, subsidies or tax breaks. These factors could also be key in determining where they would want their business to be centred and are less politically divisive then with HNWI tax breaks.
The role of advisors
With so many considerations, advisers to HNWI’s need to be armed with a broad range of information to guide business focused individuals through the various phases of their journey to success.
Recognising that there will be no one solution that will apply to all entrepreneurs understanding the driving factors motivating each individual will be key to ensuring that their clients can make informed decisions about how their business should be structured as well as deciding on which jurisdictions to choose for the operation of their business. It is then possible to make sure the business has the correct foundations to enable an easy investment structure for future capital inflows.
Entrepreneurs often need answers to questions quickly, and being available is also a necessary requirement which advisers need to fit in to their own busy schedules!
Entrepreneurs are a fascinating subject for those of us in the private client industry.
This article was written by Steve Gully, Director of Alex Picot Trust and was published by PAM Insight on eprivateclient.com in September 2023. To read the article on the eprivateclient website please click the article LINK HERE
