Over a million new French firms have been established annually since 2016, according to INSEE, highlighting the entrepreneurial spirit in France. However, the current French economy, along with its economic, fiscal, and political climate, has created obstacles that have forced businesses to adapt and evolve quickly.
For UK startups, scaleups, and portfolio companies, understanding how economic shifts in France ripple across Europe is essential. The interconnected European markets means that what happens in France doesn’t stay in France – it can influence investor sentiment, cross-border funding opportunities, and market expansion strategies in the UK.
French Economy: Global and Political Pressures
Post-Covid, French businesses initially enjoyed a recovery, characterised by full order books and improved margins. However, a global slowdown (driven by challenges in China’s economic transition and US protectionism) has hit Europe’s economy hard. Domestically, France’s political instability and the collapse of the government has stymied strategic deals like mergers, acquisitions, and capital raises.
For UK companies looking to expand into Europe or collaborate with French partners, these pressures translate into heightened caution. Investors are more selective, requiring startups to present strong business models and realistic valuations. The increased scrutiny can make cross-border deals more challenging but also opens opportunities for well-prepared companies to stand out.
Fiscal Changes
The proposed 2025 Finance Act in France, introduced by Barnier’s government, aims to raise taxes on large companies with a one-off corporation tax and an 8% levy on capital reductions. The appointment of François Bayrou as Prime Minister has sparked interest in what fiscal policies will ultimately be adopted, creating uncertainty for the French economy.
For UK startups and scaleups, this fiscal uncertainty presents both risks and opportunities. Higher corporate taxes in France could deter some investors from French companies, potentially diverting capital towards UK-based firms. On the other hand, UK businesses with French subsidiaries or operations may face increased costs, necessitating careful financial planning and strategic adjustments.
Capital Raising and Valuations
In France, startups face increasingly selective investors who demand solid growth prospects and reasonable valuations. Despite these hurdles, firms with viable economic models continue to attract funding. However, higher interest rates are limiting growth for more mature companies, leading to a rise in restructurings and bankruptcies (European Commission).
UK startups and scaleups should take note of this trend. With many investors operating across European borders, a cautious approach in the French economy can quickly influence funding dynamics in the UK. Companies seeking investment must focus on demonstrating resilience, scalability, and clear paths to profitability to secure backing in a more risk-averse environment.
The Importance of Strategic Preparation
One lesson UK entrepreneurs can draw from their French counterparts is the value of strategic preparation. In France, businesses are increasingly turning to tools like pre-transfer donations, holding company contributions, and life assurance to optimise tax and wealth management (Lombard Odier).
UK founders planning for exits or major transitions can adopt similar strategies. By engaging in early-stage wealth assessment and planning, they can mitigate tax liabilities and ensure smoother transitions from business ownership to financial wealth. Additionally, fostering next-generation leadership through training and governance can help ensure long-term business continuity. Additionally, proactive recruitment can ensure that businesses have the right talent in place to drive these transitions effectively.
Opportunities Amidst Challenges
Despite the current challenges, the French economy remains a hub of innovation and entrepreneurial dynamism. Opportunities still exist for those who can anticipate changes and adapt accordingly. For UK startups and scaleups, this means staying informed about macroeconomic trends in France, building strong cross-border partnerships, and being ready to seize opportunities when they arise.
Cuts in key interest rates across developed economies, including France, could trigger renewed investment in the medium term. UK firms that position themselves as attractive partners now may be well-placed to benefit when investor confidence rebounds.
Final Thoughts
French entrepreneurs in 2024 have demonstrated the value of resilience and adaptability. For UK startups, closely monitoring France’s economic landscape can aid in smarter decision-making. Whether it’s adjusting investment approaches, seeking partnerships, or learning from how French firms handle uncertainty, staying flexible is essential.
At The Small Consultancy, we specialise in helping startups and scaleups thrive in complex markets. Whether you’re aiming for growth, seeking funding, or exploring international expansion, we’re here to guide you. Reach out to learn how we can support your business journey.
