WOMEN AND MEN ENTREPRENEURS: DIFFERENT RELATIONSHIPS TO BOOTSTRAP FINANCE

Lynn NeeleyNorthern Illinois University

and

Howard Van AukenIowa State University

Howard Van Auken3363 Gerdin Business Building

Iowa State UniversityAmes, Iowa 50011

vanauken@iastate.edu

ACADEMIC ABSTRACT

Women and men entrepreneurs have shown different preferences in their businesses’ sizes and sectors, and sometimes, strategies used to resolve venture challenges. Capital access has also been an obstacle but partially overcome with bootstrap finance. This research explored women’s application of bootstrap finance techniques and compared those with men’s choices. Bootstrap methods’ use frequencies were similar in both groups, but women tended to control cash flows more often. Women were more likely to bootstrap than men if sales declined, and if they were young or more educated; women with overdraft privileges were less likely to bootstrap; men, more likely.

EXECUTIVE SUMMARY

The central question of this study was to find if women entrepreneurs had developed strategies to resolve the perennial need for financial capital differently than men, with particular attention to bootstrap finance techniques. A representative sample of female and male small venture owners completed and returned questionnaires that provided data about their personal and their firms’ characteristics and the bootstrap finance sources they used to supplement or supplant their enterprises’ resource needs.

When the percentages of female and male entrepreneurs, who used specific bootstrap techniques, were compared a few pronounced differences were clear. Women relied more on techniques to reduce expenses or gain funds by factoring accounts receivable; men relied more on ending business relations with late paying customers. The results of regression analyses for the two groups of business-owners showed that the owners’ age, a proxy for experience, and education in addition to their firms’ changes in sales and overdraft privileges influenced the owners’ decisions to choose bootstrap techniques differently. For females all independent variables were significant in relation to the dependent variable, aggregate bootstrap finance use; for males, only the owner’s highest level of education attained was significant. An interesting result was that the

coefficients’ signs on overdraft privileges were difference for male- and female-business owners. It was negative for women and positive for men. This could indicate that women use bootstrap finance instead of arranging banking relationships, while men use bootstrap finance in addition to arranging banking relationships.

For entrepreneurship theory these results indicate that female and male entrepreneurs make decisions differently when evaluating their options to find needed funds and resources. Practical implications of these findings are that education, consultation, and training approaches might be improved by recognizing and serving the different decision-making approaches the two groups of entrepreneurs take to meeting their ventures’ resource needs.

INTRODUCTION

Women-owned businesses have been an increasingly important part of the United States economy by creating jobs and by growing revenue streams. While women- and men-owned enterprises have strong similarities in overall profitability and other overall performance measures some of the strategies the two groups choose for their ventures have been different. For example, women-owned businesses often have been operated on a smaller scale, have been over-represented in retail and service sectors, and have used smaller networks to access information and resources.

Financial resources and managing those assets have been a perennial challenge for many small business owner-managers (Carter, et al., 2003) and owner-managers’ preferences influenced financial decisions (Chaganti, et al., 1995). Although some researchers have explored women entrepreneurs’ use of borrowing habits, venture capital activity, and impressions of lenders, few studies have examined the relationship between gender and bootstrap financing its importance to small business owners (Carter & Van Auken, 2005).

This study focuses on relationships between entrepreneurs’ characteristics, especially gender, venture conditions, and bootstrap finance’s use. Bootstrap financing has been easier to access, seen as less expensive than traditional capital sources. Better insights into women entrepreneurs’ bootstrap preferences may allow advisors and educators to offer more and better information to strengthen women small business owners, their businesses, and their success.

LITERATURE REVIEW

In this section, we give an overview of women business-owners, finances and bootstrapping, variables that affect financial decisions, and our hypotheses.

Women Entrepreneurs

Women-owned businesses have been an increasingly important part of the United States economy (Survey of Business Owners, 2002). More than six million women-owned ventures employed over 12 million persons, and generated just under $1 trillion in revenues in the U.S. at the beginning of the 21st century. These firms’ growth in numbers and size has crossed industry

sectors. For these reason, understanding needs unique to women’s enterprises could expand employment and improve the quality of life for many people.

Women and men entrepreneurs’ ventures have many similarities in general outcomes. For instance, no gender differences in strategies for businesses’ survival or success have been found (Kalleberg & Leicht, 1991). Further, when entrepreneur-related demographic characteristics, other than gender, or industry-specific parameters were included, no financial performance differences were found between men- and women-headed companies (Johnsen & McMahon, 2005; Watson, 2002). In spite of the similarities, the entrepreneur’s gender has influenced some business processes.

Differences in size, industrial sector participation rates, and financing patterns have been documented between women- and men-owned ventures, but little has been discovered about the underlying decisions made by the two groups of entrepreneurs. Women and men entrepreneurs have sometimes chosen different approaches to achieve enterprise results (Birley 1989; Watson 2002) and pursue success (Bird & Brush, 2002). Other researchers found that women chose smaller venture sizes (Verheul & Thurik, 2001), had more modest growth orientations and different strategies (Morris, et al., 2006) compared to men. Watson & Robinson (2003) showed that women limited their companies’ sizes to reduce risk. Women have cultivated networks with fewer members compared to men’s networks but with higher rates siblings or parents, as networks members proscribing information flows (Birley 1985). Women also chose relational management practices rather than transactional or hierarchical approaches to operate their businesses (Buttner & Moore, 1997).

Additionally women have accessed, required, and used less capital to begin and manage their companies (Coleman & Robb, 2009). Watson (2002) asserted that women used fewer resources due to lower past personal earnings or higher risk aversion. At the same time, women’s higher participation in retailing or services may have needed less external financing for their firms’ operations (Orser, et al., 2006). Regardless of gender, entrepreneurs have perennially cited acquiring and managing financial resources as problematic (SBA Most Requested Items, 2009). Women, among other entrepreneurs, would be well served by a deeper understanding of their financial actions.

Financial Challenges for Entrepreneurs

Access to and need for financial and other resources has been consistently reported in the top ten problems that independent business persons face (SBA Most Requested Items, 2009). Credit rationing, from either the demand- or supply-side perspective, has caused difficulty for entrepreneurs (Levenson & Willard, 2000). Owner-managers may have been unable to obtain credit because they had not been creditworthy or because they had not applied for credit (Levenson & Willard, 2000). At the same time, entrepreneurs have sometimes: reported little need for external funding (Winborg & Landstrom, 2001), chosen not to seek credit (Orser, et al., 2006; Wu, et al., 2007), preferred internal funding because of lower costs (Carpenter & Petersen, 2002), or gotten funds from more broadly-defined creditors (Winborg & Landstrom, 2001).

Business owner-managers, who have not obtained credit from traditional sources such as commercial banks, may have been un-creditworthy (Levenson & Willard, 2000) or may have lacked banking experience or relationships (Carter & Allen, 1997). Entrepreneurs have often had additional issues such as, family commitments or tax considerations, to include in making financial choices (Ang, 1991), and may have chosen other options.

Entrepreneurs’ more complex financial decisions have required different solutions to finding resources (Ang, 1991). Inter-generational transfers (Gibson, 1992), tax considerations, or personal transactions (Ang, 1991) may have influenced financial decisions (Norton, 1991). Other researchers have asserted that wealth maximization may not have been the primary objective of small enterprises (Watson & Wilson, 2002). Entrepreneurs have also preferred internal funding because of lower costs and easier access (Carpenter & Petersen, 2002), or may having gained funds from a broadly-defined set of creditors (Winborg & Landstrom, 2001). In sum, owner of small businesses have been willing or eager to use alternative approaches to resource acquisition, including bootstrap finance methods (Winborg & Landstrom, 2000).

Bootstrapped Resources and Entrepreneurs

Bootstrap finance is a set of methods used by small business owner-managers to satisfy start-up resource needs (Bhide, 1992) and to support the continued operations (Winborg & Landstrom, 2001). These techniques have been widely used in the most economies (Acs, et al., 2004; Neeley, 2003). Bootstrap finance methods have allowed start-up businesses to leverage assets (Bhide, 1992) through informal arrangements such as borrowing equipment, sharing space, delayed payments to vendors, prompt invoicing, personal credit cards use, cooperative purchasing, and loans from relatives or friends (Winborg & Landstrom, 2001).

Bootstrapped resources have been distinct from formally-obtained equity or debt (Bhide, 1992). While securing a loan or finding investors may have been difficult, time-consuming, and include legal and/or registration fees, entrepreneurs have had reasonable access to bootstrapped resources (VanAuken & Neeley, 1996). Modest negotiations with friends, relatives, vendors, or customers have been involved, but formal lending agreements or contracts with financial institutions and investors have not (Neeley, 2003). Most research in bootstrap methods has investigated at the firm-level (Ebben & Johnson, 2005) rather than the business owner level (Carter & Van Auken, 2005). Few studies have analyzed the venture managers’ personal characteristics, especially gender, and this pathway to fill the “funding gap” in their companies (Ebben & Johnson, 2006; Harrison & Mason, 2007; Van Auken, 2005).

Influences on Bootstrap Finance Preferences

Some evidence on the impact of entrepreneurs’ personal traits on financial decisions, including bootstrapping, has been reported, and those findings on owner-manager characteristics and financial choices are organized in this section by education, age, and gender. The relationships between bootstrapping and the enterprise’s banking relations and cash flows follow the entrepreneur’s traits insights. These topics speak to women’s bootstrap choices, and these insights could aid the interpretation of our research’s results.

Entrepreneur’s Education

Advanced education levels have increased the likelihood of business owners to self-fund (Carter, et al., 2003) and to have greater access to capital. Higher education has enhanced the ability to accumulate personal wealth, secure external funding more easily, improve financial and non-financial support from communities or stakeholders (Hanlon & Saunders, 2007), develop better networks to enable the firms’ operation (Donckels & Lambrecht, 1997), and may have served as a substitute for financial capital (Chandler & Hanks, 1998). Well-educated persons have been more prone to initiate their own businesses (Bates, 1995).

Entrepreneur’s Age

The owner-manager’s age, a proxy for experience, enhanced the odds of obtaining credit (Fabowale, et al., 1995) and was a marker for stronger social capital, improving the person’s ability to get resources (Adler & Kwon, 2002; Hanlon & Saunders, 2007). The effects of age on financial performance have been mixed, some studies demonstrating a positive relationship with profitability (Coleman, 2007) and others finding no link with financial performance (Collins-Dodd, et al., 2004).

Entrepreneur’s Gender

Women have clearly preferred types of capital that were internally generated by their firms’ operations (Chaganti, et al., 1995) or that were their personal funds or resources from their family members (Carter, et al., 2003). They have depended more on their own resources, regardless of the level of the enterprises’ size or the women business owners’ education (Coleman & Robb, 2009). Women have typically used lower amounts of capital to begin and manage their companies. Over the years researchers have offered several different explanations for these peculiarities. Watson (2002) asserted that women have used fewer resources due to lower past personal earnings or greater risk averse. Another perspective has been that women have been highly represented in retailing or services and did not need external financing to support their operations (Coleman & Robb, 2009; Orser, et al., 2006).

Female entrepreneurs have depended move heavily on family and friends as sources of information and that women focused on family and friends for funds (Birley, 1989). Other studies revealed that female entrepreneurs relied more heavily on personal resources than males; and those resources included the support of family and friends (Carter, et al., 2003; Marlow & Patton, 2005). Coleman and Robb (2009) found that women used more personal resources and those of family and friends. At the same time, women’s preferences for capital were overwhelmed by their ventures’ financial performance on matters of access to capital (Carter & Allen, 1997).

Enterprise’s Changes in Sales

Financial theory recognizes the potentially important role of changing sales in both a firm’s liquidity position and need for capital. Changing sales would usually change the need for capital to fund changing asset levels because levels of both assets and financing would commonly fluctuate with changing in sales. Asset growth and need for external financing may precede

increased sales because of higher inventory needed to support growing sales or accounts receivable following sales growth (Byers, et al., 1997). Higher profits associated with sales growth may also reduce the need for external financing and bootstrap financing, especially if the profits were reinvested in the company.

Enterprise’s Overdraft Privileges

Carter and Allen (1997) found that women’s access to capital overwhelm life-style choices and preferences when women made some business decisions. Women who had personal bankers or had secured commercial loans increased the odds of creating larger enterprises. They went on to suggest that women should find new sources of capital to advance their business aspirations fully. One set of those new sources could be an expanded or heavier use of bootstrapped resources.

Bootstrapped Resources and Women Entrepreneurs

Women have shown some distinguishing tendencies in the informal sources of funds chosen, but many the motives and issues driving those choices have not been explored thoroughly. Personnel commitment has been a hallmark of women’s resource acquisition decisions (Bird & Brush, 2002; Coleman & Robb, 2009), and women have relied more heavily on their and family and friends monies (Carter, et al., 2003; Orser, et al., 2006). Some researchers have posited that risk aversion may have influenced women to avoid external funds (Van Auken, 2005), others have asserted that a lack of financial experience or knowledge could have led to women’s decisions (Carter & Allen, 1997) or that lower experience and greater risk avoidance combined to reduce women’s use of external resources (Carter & Van Auken, 2005).

Little has been learned about women’s participation in the great variety of bootstrap opportunities other than personal funding (Carter, et al., 2003), slowing disbursements, and speeding up collections (Carter & Van Auken, 2005; Van Auken, 2005). Further, very few studies have explored women’s personal traits’ interaction with their ventures’ situations (Carter & Allen, 1997). This study’s intent is to add to this modest body of knowledge.

Hypotheses

The purpose of this research is to explore the relationships between gender and the use of bootstrap finance techniques when some enterprise characteristics are included in shaping women’s and men’s financing choices. We propose to consider the entrepreneurs’ highest-levels of education achieved, ages, gender, and their enterprises’ changes in changes in sales and banking relationships as elements likely to influence bootstrap decisions. Our hypotheses are:

H1: Entrepreneurs’ gender will influence their bootstrap finance choices similarly within four personal or venture characteristics:

H1a: The entrepreneur’s highest level of education. H1b: The entrepreneurs’ experience (age). H1c: The enterprises’ overdraft privileges. H1d: The enterprises’ year-over-year change in sales.

Specific arguments to support the hypotheses appear in the Methodology’s Dependent Variables section.

METHODOLOGY

This section outlines the sample and questionnaire, statistical analysis, and fuller explanations of independent and dependent variables.

Sample and Questionnaire

A stratified random sample of 1,498 independently-owned Illinois firms employing fewer than 100 persons was selected from the Harris Illinois Directories of Services and Manufacturers. The sample included service, building and construction, retail, wholesale, manufacturing, real estate, hotel and restaurant, arts and entertainment, information, and transportation enterprises. The sample was representative based on the U.S. distribution of small ventures’ sizes by number of employees and industrial sectors shown through SIC codes (SBA, 2003a and 2003b).

The questionnaire design was based on the study by Winborg and Landstrom, (2001), Van Auken (2005); and Neeley & Van Auken (forthecoming). The first section asked about enterprise characteristics such as industrial sector, number of employees (0, 1-4, 5-9, 10-19, 20-99, and >100), stage of development (start-up, growth maturity, and decline), and sales in thousands of dollars (<100, 100-249, 250-499, 500-999, 1, 000-2,500 and >2,500). The second section of the questionnaire asked owners to report how frequently they used 19 bootstrapping methods (1-5 Likert scale 1 = never use through 5 = use often). Methods included techniques to reduce accounts receivables, and expenditures on inventory, equipment, and facilities, to delay payments, and use of personal, family members’ and friends’ resources. The third section of the questionnaire asked about owner characteristics, including gender of owner, owner’s age in years, and highest educational level achieved (high school, college, and graduate school).

Statistical Analysis

The data were summarized with univariate statistics to find the respondents and their companies’ characteristics and bootstrap methods’ use. The sample was subsequently segmented by gender. T-tests of differences between percentages of female- and male-owned ventures’ reporting bootstrap finance’s use were calculated. Generalized least squares regression was used to evaluate variables associated with the use of bootstrap financing.

Bp=a0 + b1 Ed + b2 Ag + b3 Ar + b4 Ch where

Bp = Usage of Bootstrap Financing Ed = Education Level of OwnerAg = Age of OwnerAr = Arrangements for External CapitalCh = Change in Sales from Previous Year

Dependent Variable

We used a limited number of bootstrap financing methods in the analysis because the majority of methods were used infrequently. To reflect the most commonly chosen bootstrap financing methods, the analysis relied on bootstrap financing methods with reported usage intensity means greater than one. Those techniques were factor receivables, give-up personal salary, offer discounts for early payments, offer discounts cash discounts, beta test equipment, and borrow equipment. These six variables were summed to provide a singular measure of bootstrap financing methods’ use by the business owners.

Independent Variables

This section shows a fuller explanation of the independent variables, entrepreneurs’ highest level of education, age, and gender, and their businesses’ overdraft privileges and changes in sales.

Entrepreneurs’ education has been frequently associated with amounts or levels of financial and human capital (Cassar, 2004; Coleman & Cohn, 2000). Storey (1994) suggested that better human capital leads to greater access to financial capital. Owner education was also found have affected bootstrap finance’s use (Neeley & Van Auken, forthcoming). Carter, et al., (2003) found advanced levels of education increased the likelihood that women business owners would obtain external funding. Entrepreneurs’ higher educational enhanced their ability to: get bank loans (Fabowale, et al., 1995), amass personal wealth, secure external funding more easily, and improve financial support from stakeholders (Hanlon & Saunders, 2007).

Age has been a proxy for owner experience, which is consistent with Honjo’s approach (2000). Experience, the stock of skills and abilities that an individual has acquired over time, has affected small firms’ finance strategies (Chandler & Jansen, 1992). Owner experience has been widely examined (Reuber & Fischer, 1994; Stuart & Abetti, 1990), and has affected choices business owners made among bootstrap finance (Neeley & Van Auken, forthcoming). Entrepreneurs’ age enhanced their capital acquisition ability and was a marker for strong social capital, improving the person’s ability to obtain resources (Adler & Kwon, 2002).

Women have preferred to use funds generated by their firms’ operations (Chaganti, et al., 1995) or from their personal or family members’ resources (Carter, et al., 2003) regardless of their enterprises’ size. Women have used lower amounts of capital to begin and manage their companies (Watson, 2002) possibly due to high representation in retailing or services enterprises (Coleman & Robb, 2009; Orser, et al., 2006). On the other hand, women’s ventures’ financial performance overwhelmed personal capital preferences in regard to capital access (Carter & Allen, 1997).

Negative consequences of under-capitalization have been well documented (Coleman, 2000; Gaskill, et al., 1993). Owners’ beliefs in external financing availability can be a motivating factor in their search for sources financing (Carter & Van Auken, 2005). The perception of the environment, not necessarily the reality of the environment, has motivated decisions (Hauser, 1998). Overdraft privileges have protected the firm from some of the financial consequences of cash shortages and have provided some cushion in their need for external financing. Owners who have made arrangements for overdraft privileges may be less likely to use bootstrap sources. Overdraft privilege may supplant the need for bootstrap financing.

Changes in sales have affected firms’ liquidity positions and needs for capital. Changing sales would drive the need inventories, supplies or wages; asset growth and needs for external financing may move with sales because of, for example, higher inventory needed to support growing sales and accounts receivable following sales growth (Byers, et al., 1997). At the same time, higher profits or cash flows from sales growth may reduce demand for financing, especially if profits are reinvested in the company. Bootstrap finance use may change spontaneously with changes in asset levels while at other times the changes would be planned (Van Auken & Neeley, 1996).

RESULTS

Two hundred and forty seven useable surveys were returned, providing an overall response rate of about 16.5 percent. A total of 40 returned surveys were from businesses owned by women. Only 32 of the women-owned firms used bootstrap financing. Because this study examines the role of bootstrap financing among women-owned small firms, only these 32 surveys were used in this study.

Business Owner and Venture Characteristics

Data in Table 1 show that most respondents were over 40 years old and had some college education, which is consistent with the population of U.S. business owners (SBA 2003(b)). Most firms were in the service sector, and about 65 percent were beyond the beginning phase of operations, and one-half had less than five employees. Sales were relatively evenly distributed among the sales volume categories.

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Insert Table 1 about here__________________________

Bootstrap Financing Use Rates

Table 2 shows the percentage of female and male respondents who used each source of bootstrap financing, which were similar for the two groups of entrepreneurs. The majority of bootstrapping methods were used by less than one-third of the respondents with the most- and least-frequently used choices consistent between the two groups. Only seven of the techniques (minimize inventory, charge Interest on overdue accounts, give-up personal salary, factor receivables, stop selling to late payers, and offer discounts for early payments) were used by more than 50 percent of both groups, and most of these were related to enhancing cash flow. Additionally, only 10 of the techniques were used by more than one-third of the female male business owners. About 22 of the bootstrap techniques were used by less than 25 percent of the business owners.

The results in Table 2 also show significant differences in five bootstrap financing’s use relative to gender. Four of these five methods (give-up personal salary, factor receivables, offer discounts for early payments, operate totally from home and use temporary employees) were used more frequently by female- than male-owners. A significantly higher percentage of male entrepreneurs used the bootstrap financing method “stop selling to late payers” than female

entrepreneurs. Bootstrap financing methods used by a significantly higher percentage of females were related to conserving cash (give-up personal salary, operate from home, use temporary employees) or generating cash flow (factor receivables). The method used by a significantly higher percentage of males was focused on limiting cash flow loses from late payers.

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Insert Table 2__________________________

Regression Results

Table 3 shows the results of the regression analysis (F=4.760, significant at p<.01). The dependent variable was bootstrap finance-described in the Methodology section, and the independent variables were change in sales from one year earlier, age of owner, educational level of owner, and whether the firm had overdraft privileges at a financial institution. Table values show that all of the coefficients were significant for female owners while only the coefficients for level of education significant for male owners. Changes in sales were significantly associated to bootstrap financing for women-owned firms, and the negative sign (coefficient = -0.66, p<.01) indicates that higher sales led to lower bootstrap finance use and that lower sales leads to higher sales are associated with lower bootstrap finance use. Women may have reinvested profits to address resource needs.

The negative sign for age among female owners (coefficient=-1.00, p<.01) indicates an inverse relationship between business owner age and bootstrap finance’s use. Younger owners would use higher levels of bootstrap finance; and older owners, higher levels of bootstrap finance. Younger owners, who have less access to traditional capital, would rely to a greater extent on bootstrap finance sources. This result is also consistent with younger owners having fewer personal resources. Because the coefficient for male-owned firms was not significant, age, a proxy for experience, had a more profound inverse relationship to bootstrapping for women than for men.

The negative sign for overdraft privilege (coefficient = -0.66, p<.01) indicates an inverse relationship between overdraft privilege and bootstrap finance use. Firms with overdraft privileges rely less on bootstrap finance than those without overdraft privileges. Overdraft privileges would provide spontaneous capital through this banking relationship. Cash shortages would be, for example, covered by the overdraft protection obviating any bootstrap methods. Firms without overdraft protection would need to rely to a greater extent on bootstrap finance to manage or cover short term liquidity shortages. While overdraft privileges had a significantly inverse relationship to bootstrapping for women, the relationship between overdraft privileges and bootstrap finance use for men was not significant.

The positive sign for educational level for all owners (coefficient = 1.48, p<.05) indicates a direct relationship between the owner’s educational level attained and bootstrap finance use. More highly educated owners used bootstrap financing more than less educated owners. Owners with more education may be more aware of the processes to acquire and sources of capital in general. Higher educational levels may have also raised owners’ awareness of the importance of

exploring alternative solutions to problems. Because the coefficient was not significant for male-owners, educational attainment had a more profound direct relationship to bootstrapping for women than for men.

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Insert Table 3__________________________

DISCUSSION

Adequate access to capital is one of the most challenging and important aspects of operating a venture. Inadequate or inappropriate capital acquisition strategies can lead to liquidity shortages, operational weakness, and lack of competitiveness. Difficulties associated with capital acquisition have been cited as an important source of smaller and newer firms’ financial distress and failure. Successful capital acquisition strategies can incorporate bootstrap finance sources that complement traditional capital and lead to a more financially secure enterprise. Bootstrap finance can also be used to supplement traditional funds during periods of capital shortages.

Strategic use of bootstrap financing can give firms a financial advantage in the market. Issues affecting the use of bootstrap financing have not been previously been examined extensively. This paper focused on four factors - educational level of the owner, age of the owners, overdraft privileges, and change in sales from the previous year. All factors were found to be significantly related to use of bootstrap financing. Educational level, change in sales from previous year, and overdraft privileges were negatively associated with use of bootstrap financing. More education can expand the owner’s understanding of market opportunities and the process through which business capital is raised. Additionally, more education can simple prepare the owner to make better decisions.

Changes in sales and overdraft privileges can affect liquidity and, thus, use of bootstrap financing. Increasing sales can enable the firm to increase retained earning and, thus, decrease the reliance on bootstrap finance sources. Alternatively, the possible negative impact of declining sales may reduce available funds and lead the firm to increase bootstrap finance. Similarly, access to overdraft privileges also can directly impact need for and use of bootstrap financing. Overdraft privileges that provide the firm with immediate access to capital partially preempt the need to the firm to seek or use bootstrap finance.

The direct association between owner age and use of bootstrap financing may imply greater understanding of the role of various types of capital in funding the firm or a greater store of personal resources. Older owners may have greater network of contacts as well as experience in business and financial management.

One of the more important points is the degree to which the findings may be related to business decisions. The results suggest that financial characteristics, changes in sales and overdraft privileges, were significantly associated with the use of bootstrap finance as were the owner’s age and education level. Age and education may provide business owners with background and

experience needed to make better decisions. Firms may gain financial benefit from the strengthened financial position associated with sales growth and overdraft protection.

The results also provide insight into differences in bootstrap finance use between female- and male-owned firms. The results show many similarities in bootstrap finance use, with five techniques chosen by significantly different proportions of the two groups. Four out of five differently-used techniques were chosen more often by female than male owners. Specific significant differences suggest that techniques used significantly more by women were associated with conserving cash or improving cash flow. The exception is that significantly fewer women-owned firms stop selling to late payers than male-owned firms. This is consistent with Brush (1992) who reported that women owners placed relationships as being more important than male owners. Additionally, the results showed that changes in sales, age of owner of owner, and access to overdraft privilege were significantly associated with usage of bootstrap financing among women-owned firms, but not among male owned firms. This result suggests that financial performance, sales and overdraft privileges, and experience have a greater impact on usage of bootstrap financing among female than male owned firms. This result may be associated with women-owned firms having greater barriers to capital access than male- owned firms (Coleman 2004).

CONCLUSIONS AND IMPLICATIONS

This study extends previous research by isolating the influence of gender on entrepreneurs’ financial decision-making after relevant business owner- and firm-related variable have been considered. The findings show similar bootstrap finance methods chosen by men and women, but their choices were affected differently by their age and education and their firms’ change in sales and overdraft privileges.

Clear implications exist for female entrepreneurs, support persons or agencies that serve them, and governments or consultants providing them assistance. Female owners should become more informed about financing options available beyond the traditional sources of capital. During periods of declining sales, especially during recessionary times, female owners could choose bootstrap sources to supplement capital needed, and be proactive in developing contingency plans for accessing bootstrap sources in case sales decline. These policies and practices could be incorporated into training programs recognizing that female business owners behave differently than male entrepreneurs. Educators and consultants could help owners understand the various financing alternatives and the importance if developing contingency plans, while keeping in mind that women choose bootstrapping instead of overdrafts and men choose bootstrap finance to supplement overdrafts. Government policy may be able to alleviate capital shortages through programs that inform female entrepreneurs better about capital acquisition processes while encouraging lenders to provide financing. Women’s funding choices were influenced far more by their highest level of education than were men’s.

The economic crisis starting in 2008 could have a detrimental impact on female small business owners because they will likely experience lower demand. Lower demand will likely depress sales and cash flows and tighten profit margins. Capital acquisition, which is always difficult, will be even more challenging as lenders become more cautious in their lending decision and

tighten lending requirements. Lower demand and more limited access to capital could cause significant disruptions in their operations.

Limitations in the study also provide opportunities for further research. The sample was limited to only Illinois companies rather than a national sample. A national study on the use of bootstrap finance by female business owners could provide more comprehensive results and allow for regional comparisons. Additionally, an international study would allow comparisons by country and culture. Second the study was based on a small sample. A larger sample may provide more informative results. A longitudinal study could provide evidence in the changing patterns and variables impacting acquisition of finance over time. Finally, the study focused only on a limited number of owner characteristics. Future studies could collect more comprehensive information that would permit a more in-depth examination of factors associated with the use of bootstrap financing among female small business owners.

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Table 1Respondent Owner and Their Firms’ Characteristics

Variable Female-Owned Firms(n=32)

Male Owned Firms

(n=215)Age of Owner < 41 41-50 51-60 > 60

12.537.537.512.5

10.028.335.126.6

Type of Business Retail Construction Wholesale Manufacturing Service

3510.017.55.032.5

28.616.919.48.127.0

Number of Employees <5 5-9 10-19 >19

50.045.05.0

2.536.554.56.6

Stage of Development Beginning Growth Maturity

35.017.547.5

27.224.348.6

2001 Sales<250250-499500-9991,000-2,500>2500

20.012.522.522.522.5

24.615.220.522.517.2

Education of Owner High School College Graduate School

25.050.025.0

20.254.824.6

Table 2Percentage of Firms Using Bootstrap Financing Methods

For Female and Male Owned Firms

Bootstrap MethodFemale Owned Firms

(n=32)Male Owned Firms

(n=208)Minimize Inventory 79.0 79.8Charge Interest if Overdue 65.0 75.2Give-up personal salary 1% 60.0 46.1 *Factor Receivables 1% 60.0 36.3 *Stop Selling to Late Payers 5% 60.0 73.9 **Borrow Equipment 52.5 57.8Offer discounts for early payments 51.3 50.0Invoice Customers Promptly 37.5 41.9Beta test equipment 37.5 30Offer discounts cash discounts 35.0 33.7Employ Relations at Low Wages 22.5 14.9Delay Payments 20.0 20.0Barter 20.0 23.0Share Location with Other Business 20.0 14.1Factor Inventory 18.0 24.7Operate Totally from Home 5% 17.5 9.3 **Lease Equipment 13.2 12.3Delay employee pay 12.5 12.5Pool Purchases 12.5 11.7Use Personal Credit Card 10.3 8.0Share Equipment with Others 10.3 8.5Free Consulting from Universities 8.0 14.0Share Employees with Others 7.5 7.3Use Salary from Another Job 5.0 5.7Have Clients promote your business 5.0 5.0Require Down payments 2.6 2.9Sell on Consignment 2.5 5.8Loans from Friends/Relatives 2.5 2.2Government Grants 2.5 0Use Temporary Employees 13.5 6.5 **Foundation Grants 0 0Corporate Grants 0 0Operate Partially from Home 15.6 13.9

* Significant at 1%** Significant at 5%

Table 3Regression Results:

Dependent Variable = Use of Bootstrap FinancingIndependent Variables = Change is Sales, Age of Owner, Education Level of Owner, and

Arrangements Made for External Financing

DependentVariable

IndependentVariable

Regression CoefficientFemale Owned Firm

(n=32)(F = 6.22 *)

Regression Coefficient

Male Owned Firm(n=213)

(F=2.56 **)

Use of Bootstrap Financing

Intercept 11.86 * 9.89

Change in Sales -0.66 * -0.00

Age of Owner -1.00 * -0.16

Educational Level of Owner

1.48 ** 0.49 *

Overdraft Privilege -0.66 * 0.36* Significant at 1%** Significant at 5%