Entrepreneurs at risk from personal neglect

Media fascination with divorce settlements and pensions reform has failed to convince owner-managers to review their personal finances, as the majority are preoccupied by their business.

Research by accountants Kingston Smith shows seven out of 10 entrepreneurs expect to be in business for the next decade, yet most have taken no action in light of the high-profile reforms.

The research, obtained by Freelance UK, reveals that just under half of small business owners review their financial situation on a regular basis.

Recent changes to UK pensions have failed to spur entrepreneurs into being more financially astute, as 93 per cent admit they have taken no action since the regime was updated in April.

Likewise, 83 per cent confessed they have not ‘asked an expert’ how they can protect their finances when they get married or commit to a long term partner.

Reflecting on the worrying trends, experts at Kingston Smith said the root cause is an entrepreneur’s belief that their business will provide enough funds for a comfortable retirement.

However a precise exit strategy continues to trouble entrepreneurs – even the ones who rely on their business for a pension – given that 60 per cent will not have the £50,000 a year they expect, if they retire at 55.

Half of the small companies questioned did not have any pension in place, while a further 16 per cent said the eventual sale of their company would net them no money at all.

Andrew Shaw, partner at Kingston Smith said, “Entrepreneurs may feel that by running their own businesses they are taking hold of their own destiny, but their failure to plan adequately for the future could seriously undermine their prospects of profiting from their hard work.

“The fact that the majority of entrepreneurs do not have a pension and almost one in ten has never invested in any kind of tax-saving opportunity is as alarming as the lack of regular attention they give to their finances.”

He conceded it is “tempting” for owner-managers to let day-to-day business overshadow personal finance, and many, he said, “plough every penny” into their company in the hope it will be their pension

“This is a high risk strategy,” Mr Shaw added.

“Putting all of your eggs into one basket greatly increases the risk that you won’t have sufficient resources to live the life you want to after you exit your current business.

“While it is vital that entrepreneurs put a plan in place to preserve their wealth for retirement, it is equally important that this plan is reviewed to accommodate changes in life circumstances such as divorce or to take advantage of or protect yourself from changes in the tax and pensions regime we have seen recently.”


22nd June 2006

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