Financial strategies for long-term success in women-owned small businesses

Dyer, Melissa Renee Article Financial strategies for long-term success in womenowned small businesses The Journal of Entrepreneurial Finance (JEF) Provided in Cooperation with: The Academy of Entrepreneurial Finance (AEF), Los Angeles, CA, USA Suggested Citation: Dyer, Melissa Renee (2021) : Financial strategies for long-term success in womenowned small businesses, The Journal of Entrepreneurial Finance (JEF), ISSN 2373-1761, Pepperdine University, Graziadio School of Business and Management and The Academy of Entrepreneurial Finance (AEF), Malibu, CA and Los Angeles, CA, Vol. 23, Iss. 1, pp. 1-16, https://doi.org/10.57229/2373-1761.1393 , https://digitalcommons.pepperdine.edu/jef/vol23/iss1/1 This Version is available at: https://hdl.handle.net/10419/264420 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc/4.0/ The Journal of Entrepreneurial Finance The Journal of Entrepreneurial Finance Volume 23 Issue 1 Spring/Summer 2021 Article 1 7-2021 Financial Strategies for Long-Term Success in Women-Owned Financial Strategies for Long-Term Success in Women-Owned Small Businesses Small Businesses Melissa R. Dyer Limestone University Follow this and additional works at: https://digitalcommons.pepperdine.edu/jef Part of the Entrepreneurial and Small Business Operations Commons, and the Finance and Financial Management Commons Recommended Citation Recommended Citation Dyer, Melissa R. (2021) "Financial Strategies for Long-Term Success in Women-Owned Small Businesses," The Journal of Entrepreneurial Finance : Vol. 23: Iss. 1, pp. -. Available at: https://digitalcommons.pepperdine.edu/jef/vol23/iss1/1 This Article is brought to you for free and open access by the Graziadio School of Business and Management at Pepperdine Digital Commons. It has been accepted for inclusion in The Journal of Entrepreneurial Finance by an authorized editor of Pepperdine Digital Commons. For more information, please contact bailey.berr[email protected]. The Journal of Entrepreneurial Finance • Volume 23, No. 1, Summer 2021 • 01-16 DYER, M. • FINANCIAL STRATEGIES AND LONG TERM SUCCESS • 1 Financial Strategies for Long-Term Success in Women-Owned Small Businesses Melissa Renee Dyer, DBA Limestone University, Gaffney, SC, USA [email protected] [email protected] Abstract Abstract: Failure of small businesses many times is because of poor implementation of long-term financial strategies. Women small business owners face many challenges in financing their small businesses because they may not have a financial plan. Interviews with 11 women small business owners in Cleveland County, North Carolina were completed to discuss ways to fund and sustain their small business. The success of women small business owners can strengthen the local economy by stimulating economic growth, increase the quality of life for the owner and their family, and can improve the standard of living in their community. Keywords: Financial, women, entrepreneurship, small business 1. Introduction Small businesses play a critical role in the U.S. economy, but almost half of new small businesses will not survive beyond 5 years (U.S. Small Business Administration [SBA], Office of Advocacy, 2016), therefore, it is essential that small business owners have an understanding of successful long-term financial strategies. This is particularly true for women small business owners who are often vital and robust predictors of stable local economic (Deller, Conroy, & Watson, 2017). However, women entrepreneurs face greater obstacles in financing their small businesses than men small business owners (Brush, Greene, Balachandra, & Davis, 2018). In the third quarter of 2016 there were 240,000 new business startups and 215,000 business closings (U.S. SBA, Office of Advocacy, 2018). Both startups and The Journal of Entrepreneurial Finance • Volume 23, No. 1, Summer 2021 • 01-16 DYER, M. • FINANCIAL STRATEGIES AND LONG TERM SUCCESS • 2 closures directly influence local economies positively and negatively, respectively. The presence of women-owned business positively affect local economies. Areas with strong women-owned businesses exhibit higher economic stability, fewer workforce reductions, and increased employment and income (Deller et al., 2017). Encouraging women to become business owners may improve local economies, but the businesses need to survive long-term to have maximum impact. To sustain a business beyond 5 years, the woman small business owner needs to possess appropriate knowledge, skills, and financial resources (Shane, 2003). The purpose of this study was to explore the long-term financial strategies successful women used to sustain small businesses beyond 5 years. 11 women small business owners were interviewed to collect the primary data for this study. Based on participants’ responses, three themes were identified during the thematic analysis: methods of funding small businesses, challenges for women as small business owners, and entrepreneurial spirit. 2. Literature Review In 2003, Shane developed a general entrepreneurial theory based on the individualopportunity nexus, which was chosen as the conceptual framework for this study. The premise of Shane’s (2003) theory is the opportunity for new venture creation, entrepreneurial characteristics, and the resources needed to make the venture successful. Shane defined entrepreneurship as a process of activities involving discovery, evaluation, and exploitation of opportunities. How well individuals reach decisions about and exploit these opportunities to make a profit is the basis of the general theory of entrepreneurship. Creating a strategy and acquiring needed resources are also important in addition to understanding the process for valuemaking opportunities (Sarkar, Ruffin, & Haughton, 2018; Shane, 2003). Shane (2003) determined that technological, political and regulatory, and social and demographic changes create opportunities. An individual has to possess information others do not have or interpret specific information differently than others. This leads to recognition of the opportunity to exploit entrepreneurial opportunities. Shane also established the following as key points for his theory: (a) individual differences, (b) psychological factors, (c) industry differences, (d) environmental factors, (e) resource acquisition, (f) strategy, and (g) organizing and planning. Shane’s theory contributed to an understanding of the financial strategies women small business owners use to be successful beyond 5 years. The key points of Shane’s theory provided the framework for validating how the individual and industry differences, psychological and environmental factors, and strategic planning affected the women’s ability to acquire needed resources and be successful long-term. The acquisition of sufficient capital originating from either self-funding or investors is of equal or greater importance in creating a sustainable competitive The Journal of Entrepreneurial Finance • Volume 23, No. 1, Summer 2021 • 01-16 DYER, M. • FINANCIAL STRATEGIES AND LONG TERM SUCCESS • 3 advantage. Long-term financial strategies often include starting small and growing a new venture as it becomes profitable (Shane, 2003). Therefore, capital is necessary to survive, grow, become profitable, and remain viable. However, success comes not from financial resources alone but also from the development and implementation of strong financial strategies for utilization of these resources (Shane, 2003). An entrepreneurial opportunity cannot be successful without financial resources (Sarkar et al., 2018; Shane, 2003). Sarkar et al. (2018) believed there were thresholds to becoming self-employed and that inequality affected entrepreneurs’ ability to obtain the resources they needed to become successful. Alakaleek and Cooper (2018) also believe that having the necessary capital is what makes new businesses survive, grow, and be profitable. Entrepreneurs, especially women entrepreneurs, usually face barriers in obtaining financial resources due to uncertainty and information asymmetry (Shane, 2003). With the uncertainty of a potential venture’s success, investors may be unable to fully evaluate the opportunity (Shane, 2003). This uncertainty can create a bargaining problem between the entrepreneur and investor and may cause investors to require collateral for their investments (Shane, 2003). Since investors are not privy to all information regarding the opportunity this creates information asymmetry and may lead entrepreneurs to be opportunistic and take risks with investors’ capital (Shane, 2003). To overcome uncertainty and information asymmetry, entrepreneurs commonly self-finance (Shane, 2003). If an entrepreneur is unable to finance the opportunity and seeks outside financing, he or she may find investors will typically invest in an industry in which they have specialization (Shane, 2003). Investors may make geographically localized investments, gather, and verify information, control rights to the venture, require the entrepreneur to provide regular updates, and seek to participate in day-to-day operations of the venture (Shane, 2003). 3. Research Method Employing a multiple qualitative case study design provides data from real-life settings. Using a case study design reveals the dynamics of what is transpiring and why it is working (Yin, 2018). Before deciding on a multiple case study, different types of qualitative designs were considered. However, a multiple case study design was chosen to examine data from women small business owners who have employed financial strategies to sustain their businesses beyond 5 years. Because each woman-owned small business is unique, a multiple case study design was optimal. Using this design, access to the long-term financial strategy data for each business was possible. A multiple case study design was also chosen because I sought to explore reallife stories of women small business owners who had a sound financial plan that led The Journal of Entrepreneurial Finance • Volume 23, No. 1, Summer 2021 • 01-16 DYER, M. • FINANCIAL STRATEGIES AND LONG TERM SUCCESS • 4 to their long-term success. A multiple case study is built on multiple individual cases that either have similar or contrasting results (Yin, 2018). Because each of the participating women-owned small businesses was unique, a multiple case study design was optimal. By using this design, I accessed the long-term financial strategy data for each type of business thereby replicating the conceptual theory from case to case. By interviewing each of the participants, I was able to understand the correlation between the key points of Shane’s (2003) theory and the success of the women’s small businesses. The study results show how each participant had individual differences that motivated them to start their own business as the industry differences affected where and how they began their business. Psychological and environmental factors were determinates in how they choose to finance their start-up and maintain their financial resources long-term. Lastly, each participant discusses how they used organization and strategic planning to sustain their businesses beyond 5 years. The data was collected from the 11 participants through semistructured interviews in a private conference room at the local public library. The following seven questions were asked of each participant: 1. What were the financing options available to you as a small business owner? 2. How did you increase your chances of receiving long-term financing opportunities for your small business? 3. What long-term financial strategies did you use to access capital? 4. What were the key challenges you encountered in implementing the strategies you used to sustain your business for the first 5 years? 5. How did you address these key challenges in financing your small business? 6. What long-term financial resources did you use to sustain your small business beyond 5 years? 7. What additional information can you provide about long-term financial strategies that helped you sustain your business beyond 5 years? The participants were also given the opportunity to clarify or add any additional information. The participants had not seen the questions before the interview, and several needed clarifications for what I was asking. The interviews were recorded using a digital audio sound recorder Dictaphone and an iPhone. I transcribed each interview verbatim later the same day. The transcriptions were paraphrased for member checking, and a time was scheduled to discuss the interpretation of the data with the participant to confirm accuracy. The Journal of Entrepreneurial Finance • Volume 23, No. 1, Summer 2021 • 01-16 DYER, M. • FINANCIAL STRATEGIES AND LONG TERM SUCCESS • 5 Once the data was collected and checked, NVivo software was used to organize the data, identify, and code recurring themes. I used the interview transcripts to create nodes based on the questions in NVivo. I used these nodes to create a codebook of the responses. NVivo was utilized to determine the number of participants that had the same or similar responses. Once the codebook was created, I was able to analyze the results. In the analysis and coding, recurring long-term financial strategy themes used by the participants were identified. The long-term strategy themes correlated with the conceptual framework on entrepreneurs’ need for financial resources to be viable beyond 5 years and answered the research question. Document analysis from secondary data helped the researcher confirm the study’s findings (Nieva, 2015; Yin, 2018). The SBA, North Carolina, and Cleveland County data does not track women small business data. Data from U.S. Bureau of Economic Analysis on the number of women-owned businesses, unemployment rate, and per capita income was utilized for this study. Thematic analysis was exercised to recognize and identify recurring themes and correlate the emerging themes from this study with the literature and new studies published since this writing. This enabled the research question to be answered. By adhering to the interview protocol (see Appendix A) in this multiple case study and thorough thematic analysis of the data collected, this study could be easily used and reproduced by other researchers. 4. Presentation of the Findings The research question for this study was “What are the long-term financial strategies women small business owners use to sustain their businesses beyond 5 years?” In his general theory of entrepreneurship, Shane (2003) stated that resource acquisition is necessary for the long-term success of entrepreneurs. These resources include funding to start and sustain a business (Mijid, 2017; Panic, 2017; Shane, 2003). A small business cannot survive, grow, or be profitable without startup and long-term funding. However, according to Shane (2003), success does not come from financial resources alone but also from the development and implementation of strong longterm financial strategies. The two themes identified in this study were methods of funding small businesses and challenges for women as small business owners. 4.1 Theme 1: Methods of Funding Small Businesses The participants discussed the financial plans they had for the different stages of their businesses. This information led to three minor themes: (a) startup funding (b) strategies for financing and growing the business in the first 5 years, and (c) strategies for long-term financing and viability. Based on the general theory of entrepreneurship, The Journal of Entrepreneurial Finance • Volume 23, No. 1, Summer 2021 • 01-16 DYER, M. • FINANCIAL STRATEGIES AND LONG TERM SUCCESS • 6 entrepreneurs must have financial resources to begin and sustain a business long term (Shane, 2003). The minor themes were derived from participants’ discussions of how they acquired initial funding, how they dealt financially with maintenance and growth of their businesses during the first 5 years, and how they have planned for long term success. These themes correspond with Shane’s theory. 4.1.1. Initial funding options. The minor theme of startup funding emerged from Questions 1 and 2. Each of the participants had funding to launch their business. However, 54% of the participants stated that they did not know what financing options they had, and only two of the participants used external funding from financial institutions. When asked about her initial funding options, participant two (P2) replied, “The only one I really recall was bank financing. Just a classic bank loan—wasn’t aware of any other options.” Participant seven (P7) stated, “Government funding was actually probably the easiest approval.” Three of the participants sought initial financing through personal family loans. Participant three (P3) replied, “I asked my mother to borrow.” Notably, the participants who sought family loans had been in business for a varying amount of time. P4 had been in business since 1975, which was the oldest small business in the study. Participant 5 (P5) started her business in 2014, which was the youngest small business in the study. P4 responded, “I borrowed a thousand dollars from my motherin-law, and I took that thousand and bought any supplies that I thought I could to possibly get by with.” P5 replied, “I took out a loan from my parents.” The last option used was self-funding using personal savings. The remaining five participants self-funded their startups using personal savings, confirming the various studies that indicated women often choose not to seek external funding (Dutta & Banerjee, 2018; Kwapisz & Hechavarria, 2018; Mijid, 2017; Panic, 2017; Shane, 2003). Participant nine (P9) stated, “I did my own financing, so I started small just with me.” Participant six (P6) responded, “At the time that I went into business, I was not comfortable borrowing money to go into business, so I financed my own self, I guess you could say. I had $2000 in savings, and that’s what I used.” 4.1.2. Strategies for financing and growing the business in the first 5 years. This second minor theme emerged from Questions 3, 4, and 5. Participants shared the different strategies employed to survive the first 5 years including saving, reinvesting, and using revolving credit such as credit cards. P11 said, “Any profits I just kept putting into a savings account and let it just sit there and build.” P4’s response was All I did for years and years and years was just reinvest that money. I took what I had to live on. I just reinvested everything that I ever made with the exception of, you know, just taking a check for myself. P9 stated, “I worked, and then I would always save a percentage.” The Journal of Entrepreneurial Finance • Volume 23, No. 1, Summer 2021 • 01-16 DYER, M. • FINANCIAL STRATEGIES AND LONG TERM SUCCESS • 7 Two participants took advantage of revolving credit by using credit cards to purchase supplies. P11 answered, “If I need XYZ in order to make the shop run for the next week and you [sic] don’t have cash on hand, then you [sic] would need to use a credit card which actually worked out great.” P5 responded, “Really, the only financing I have is my credit card.” 4.1.3. Strategies for long-term financing and viability. The minor theme of strategies for long-term financing and viability came from Question 6. When asked what long-term financial resources they used to sustain their small business beyond 5 years, six of the participants stated they continued to save, reinvest in their small business, and kept expenses down. P1 stated, “Long-term, basically what I’ve done is I’ve saved tips. I’ve cut back in my personal life in order to cut spending.” P11 replied, “for me, it was more about spending what I have and not overextending myself.” P2 said she “kept expenses down and saved money.” Two of the participants were able to apply and receive external funding once their small business was established. P6 stated, “Uh, well, when you’re doing well, you know, money just comes to you. So, you know, when you go to the banks, they’ll lend you the money.” 4.2. Theme 2: Challenges for Women as Small Business Owners The second identified theme related to the challenges that women face as small business owners. The responses for this theme came from Questions 1 through 7. Financial resources are critical to business growth but are often a challenge, especially for women entrepreneurs (Brush et al., 2018). Several of the participants stated that they had challenges because they were women. P5 said that “it’s really hard to get funding and especially for women.” Both gender bias and family responsibilities affect women small business owners’ long-term success. Ceptureanu and Ceptureanu (2016) established that women small business entrepreneurs face gender barriers, under-appreciation, lack of trust in themselves, lack of free time, and family responsibilities. P4 said, “it is a predominately male-dominated area of businesses, and some men with power are unwilling to take me seriously.” P11 also stated, “It is definitely hard on a family, hard on relationships. I’ve had to sacrifice a lot of things in the early beginnings to be successful now.” P6 decided to step back from her business for her family: I had a child after the eight years because after that, I was in my mid-30s and I was ready to settle down, and you know, have a child. And I think I decided to step back a little bit. The Journal of Entrepreneurial Finance • Volume 23, No. 1, Summer 2021 • 01-16 DYER, M. • FINANCIAL STRATEGIES AND LONG TERM SUCCESS • 14 doi:10.1080/00036846.2017.1332745 Dutta, A., & Banerjee, S. (2018). Does microfinance impede sustainable entrepreneurial initiatives among women borrowers? Evidence from rural Bangladesh. Journal of Rural Studies, 60, 70-81. doi:10.1016/j.jrurstud.2018.03.007 Foley, M., Baird, M., Cooper, R., & Williamson, S. (2018). Is independence really an opportunity? The experience of entrepreneur-mothers. Journal of Small Business and Enterprise Development, 25, 313-329. doi:10.11008/JSBED-10-2017-0306 Hui, J. S., & Gerber, E. M. (2017). Developing makerspaces as sites of entrepreneurship. CSCW ‘17, 2023-2038. doi:10.1145/2998181.2998264 Johnson, M. A., Stevenson, R. M., & Letwin, C. R. (2018). A woman’s place is in the …startup! Crowdfunder judgments, implicit bias, and the stereotype content model. Journal of Business Venturing, 33, 1-19. doi:10.1016/j.jbusvent.2018.04.003 Kaur, N., & Kaur, H. (2017). Microfinance and women empowerment. Vinimaya, 38(3), 30-49. Retrieved from http://www.nibmindia.org Kwapisz, A., & Hechavarria, D. (2018). Women don’t ask: An investigation of start-up financing and gender. Venture Capital, 20(2), 159-190. doi:10.1080/13691066.2017.1345119 McManus, M. J. (2017). Women’s business ownership: Data from the 2012 survey of business owners. U.S. Small Business Administration Office of Advocacy (Issue Brief No.13). 1-17. Retrieved from www.sba.gov/advocacy/issue-briefs Mijid, N. (2017). Dynamics of female-owned smallest businesses in the USA. International Journal of Gender and Entrepreneurship, 9(2), 157-170. doi:10.1108//IJGE-10-2016-0041 Moreno, S. E. C. (2016). Female entrepreneurship in a forced displacement situation: The case of Usme in Bogota. Suma De Negocios, 7, 61-71. doi:10.1016/j.sumneg.2016.02. Nieva, F. O. (2015). Social women entrepreneurship in the kingdom of Saudi Arabia. Journal of Global Entrepreneurship Research, 5, 1-33. doi:10.1186/s40497-0150028-5 The Journal of Entrepreneurial Finance • Volume 23, No. 1, Summer 2021 • 01-16 DYER, M. • FINANCIAL STRATEGIES AND LONG TERM SUCCESS • 15 Orlandi, L. B. (2017). Am I an entrepreneur? Identity struggle in the contemporary women entrepreneurship discourse. Contemporary Economics, 11, 487-498. doi:10.5709/ce.1897-9254.259 Panic, D. S. (2017). Performance and financing strategies of female and male entrepreneurs in the Republic of Serbia, International Journal of Gender and Entrepreneurship, 9(2), 135-156. doi:10.10.1108/IJGE-08-026-0029 Pham, T., & Talavera, O. (2018). Discrimination, social capital, and financial constraints: The case of Viet Nam. World Development, 102, 228-242. doi:10.1016/j.worlddev.2017.10.005 Sarkar, S., Ruffin, C., & Haughton, J. (2018). Inequality and entrepreneurial thresholds. Journal of Business Venturing, 33, 278-295. doi:10.1016/j.busvent.2017.12.009 Saunders, M., Lewis, P., & Thornhill, A. (2016). Research methods for business students. Essex, UK: Pearson Education Limited. Shane, S. (2003). A general theory of entrepreneurship: The individual-opportunity nexus. Northampton, MA: Edward Elgar Publishing. Sharafizad, J. (2018). Informal learning of women small business owners. Education and Training, 60(1), 82-103. doi:10.1108/ET-01-2017-0006 Sharafizad, J., & Coetzer, A. (2016). Women business owners’ start-up motivations and network content. Journal of Small Business and Enterprise Development, 23, 590-610. doi:10.1108/JSBED-07-2015-0085 U.S. Small Business Administration, Office of Advocacy. (2016). Frequently asked questions about small business. Retrieved from https://www.sba.gov U.S. Small Business Administration, Office of Advocacy. (2018). North Carolina small business profile Retrieved from https://www.sba.gov Wellalage, N., & Locke, S. (2017). Access to credit by SMEs in South Asia: Do women entrepreneurs face discrimination. Research in International Business and Finance, 41, 336-346. doi:10.1016/j.ribaf.2017.04.053 Weller, S. C., Vickers, B., Bernard, H. R., Blackburn, A. M., Borgatti, S., Gravlee, C. C., & Johnson, J. C. (2018). Open-ended interview questions and saturation. PLoS The Journal of Entrepreneurial Finance • Volume 23, No. 1, Summer 2021 • 01-16 DYER, M. • FINANCIAL STRATEGIES AND LONG TERM SUCCESS • 16 ONE, 13(6), 1-18. doi:10.1371/journal.pone.0198606 Yin, R. K. (2018). Case study research and applications: Design and methods (6th ed). Thousand Oaks, CA: Sage Publications.