Company owners gamble wealth on business
Business owners in the West Midlands are drawing the lowest salaries in the UK and are investing heavily in their companies in the hope they can retire early, according to a new study by UK chartered accountants Haines Watts.
The study reveals that West Midlands company owners are “crossing their fingers and hoping” that their business will deliver the returns needed to support them and their families – despite major risks to their business that have been heightened by the recent Brexit vote.
The Haines Watts Wealth Survey is based on interviews with companies between £1 million and £50 million turnover. It reveals the earnings, wealth and spending habits of UK business leaders, and is the first in a three-part series of studies aimed at exploring the purpose and motivations for running a company in the UK.
Risking it all
The study reveals that the average West Midlands company owner earns £88,700 per annum (including salary and dividends). This is 7% less than the national average (£95,000), and substantially less than the average salary of the CEO of an AIM-listed company (£202,000, Fast Growth Company, 2014).
Company owners told Haines Watts that they are instead investing their wealth back into their business or taking other risks such as gambling their financial future on a stock exchange. This is particularly true in the West Midlands, where the average total value of financial investments including stocks and shares (£121,400) exceeds the national average (£120,900).
Despite the humble pension falling out of favour across the country, 75% of West Midlands company owners have a pension fund compared to just 68% nationally. Interestingly, early retirement is also high on the priority list, with 49% of West Midlands company owners looking to retire before the age of 65 compared to just 40% nationwide.
When it comes to property, the average UK business owner has £222,800 combined residential and commercial property debt. This figure falls slightly for West Midlands company owners (£210,600), however this is still significantly high.
Darren Holdway, managing partner at Haines Watts, comments: “Our study reveals that company owners are gambling their wealth on their business, leaving their financial security hanging in the balance. This is surprising given how hard they work to generate that wealth in the first place and the obvious risks involved.
“As a busy business owner, it’s easy to believe that your company is a safe investment. But if I held up a mirror, I don’t think many owners – whatever their age or stage in their life – would be comfortable with what they saw. They would wish they had a contingency plan in place and spent more time considering their options.”
Not only are company owners across the West Midlands putting all of their eggs into one basket, but also they are leaving their business open to significant risks. Almost half (44%) of West Midlands company owners feel their business could not survive more than a week without them, while 14% believe it could only manage for up to 3 days.
Almost half (49%) of company owners in the region have a main supplier that they could not survive without, while 39% have a major customer that they rely on. In fact, 85% say their main customer contributes a third (30%) or more of their revenue, which is notably higher than the UK average of 78%.
Holdway continues: “Not only are business owners putting all of their eggs into one basket, but that basket is riddled with holes. Our study reveals an alarming degree of risk of downtime in the event of an accident or disruption. As we have witnessed with the UK’s recent Brexit vote, the potential for significant market disruption is never far away and any company could fall to its knees if it doesn’t have the right contingency plans in place to deal with such an event.
“Wealth is about more than just the here and now; it’s about protecting your financial future, your family and your staff. As a business leader, it’s careless to cross your fingers and hope for the best; company owners need to realise how much is at stake, address their biggest areas of vulnerability and regain control of their future.”
All work and no play
Despite working tirelessly on keeping their business running, West Midlands business owners are eschewing luxuries in favour of a more conservative lifestyle.
Fiat is by far the most popular car brand owned by company leaders in the region (22%), followed by Honda (14%), Ford (12%), BMW (12%) and Toyota (8%). Just 15% of company owners drive a brand new car – despite the many financing options available – and a mere 5% have a double garage.
More than four fifths (81%) of West Midlands business owners say they own designer goods, while 12% own a second home and 12% have or will send their children to a fee-paying school. This figure is slightly below the UK average of 13%.