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McMahon , Scott Holmes Sound financial management is crucial to the survival and well-being of small enterprises of all types. Studies of reasons for small business failure inevitably show poor or careless financial management to be the most important cause (see Berryman 1983, Peacock 1985 for reviews of the relevant literature). Potts (1977, p.2) states the case more succinctly: . . . the clearest and most startling distinctions between successful and discontinued small businesses lie in their approach to the uses which can be made of accounting information .... In recognition of such findings, recent years have seen increased attention to financial management in small business training and education programs and in the many books and articles written for small business. It is not unreasonable to ponder whether this attention has had a visible impact on the way in which small businesses are operated. It seems appropriate to review, and attempt to integrate, available empirical research findings concerning the financial management practices of small business in North America. Such a review can lead to improved understanding of both the research conducted to date and the financial management practices under scrutiny. Furthermore, it can act as a stimulus for future research. An additional function of this review is to identify and highlight trends in the financial management practice of small firms. This will assist policymakers in understanding the financial environment in which small firms operate and the possible impact of the current and proposed policies directed at the small business sector. Over the past decade there has been a significant increase in government sponsored agencies and educational programs directed at the small business sector and in interest in small firms, as illustrated by the President's annual report on small business. Such attention warrants consideration as to whether these policies have positively influenced the financial practices of small firms. This article provides a concise summary of research evidence which indicates that financial practice among small firms has not experienced any significant change over the past fifteen years. This result should have impact on future policy decisions. NORTH AMERICAN PRACTICE Accounting Systems It is clear that significant progress has been made in encouraging small business ownermanagers to install and use accounting information systems. For example, in a survey of over 360 small businesses in Georgia, DeThomas and Fedenberger (1985) found a high standard of financial recordkeeping. Around 92 percent of respondents had some form of record-keeping beyond check stubs and deposit receipts. D'Amboise and Gasse (1980) studied the utilization of formal management techniques in 25 small shoe manufacturers and 26 small manufacturers in the plastics industry in Quebec, Canada. A cost accounting system was in operation in about 88 percent of businesses studied. It is also clear that the availability of affordable computers and suitable software has played an important part in promoting this situation. In a survey of 129 small manufacturing businesses in the province of Quebec, Raymond and Magnenat-
general ledger. Virtually all (91 percent) of the summary information was in the form of traditional financial statements (balance sheet. Raymond (1985). Further studies undertaken in a wide variety of settings by Cheney (1983). funds statement. Further encouraging results are provided by a study of 398 small pharmacies located in the states of Michigan. Rhode Island and Washington reported by Thomas and Evanson (1987).5 percent of the respondents. accounts payable. and inventory. Additional financial information respondents would like to have included were a cashflow summary (67 percent) and a contribution-format (percent-of-sales) income statement (43 percent). income statement. there is some evidence that the standard of financial reporting in small businesses in North America is now quite high. none of the respondents were regularly producing cashflow information.. and annually by 32. Malone (1985). sales analysis. Read this entire Journal Article and more with a FREE trial. However. Nebraska. Income statements and balance sheets were prepared at least quarterly by 62. DeThomas and Fredenberger (1985) found that 81 percent of the small businesses in their survey regularly produced summary financial information. Financial Reports Reflecting the availability of computerized accounting systems. Journal of business venturing . North Carolina.. Over 85 percent of the respondents indicated that an outside accountant .1 percent.). with the remainder being bank reconciliations and operating summaries.Thalmann (1982) discovered a preponderance of accounting-related applications among computer software in use. DeThomas and Fredenberger (1985). payroll. Farhoomand and Hryck (1985). etc. and Nickell and Seado (1986) confirm that accounting/financial management applications dominate as computer applications in the small businesses examined. particularly in the areas of accounts receivable.
this study develops an empirically tested structural equation model of financing antecedents of family businesses. and perceived risk and attitudes toward personal risk. Although these factors have been identified. Australia Monash University. entrepreneurial characteristics. May 2001.http://www. Pages 285-310 Capital structure decision making: A model for family business Claudio A. Recent family business literature suggests that these processes are influenced by firm owners' attitudes toward the utility of debt as a form of funding as moderated by external environmental conditions (e. Utilizing theories derived from divergent disciplines. Australia b c Available online 18 December 2000. preferred ownership structures. . Victoria. Abstract Most theoretical and empirical studies of capital structure focus on public corporations. Participants of our study involved a random sample of 5000 business owners who were mailed a 250-item Australian Family and Private Business questionnaire developed specifically for this investigation. Issue 3. George A. debt–equity ratios. long-term debt. business life-cycle issues.vs. and this deficiency is particularly evident in investigations into factors that influence funding decisions of family business owners. issues relating to independence and control. attitudes toward debt financing. Only a limited number of studies on capital structure have been conducted on small-tomedium size enterprises (SMEs).. financial and market considerations). Victoria. and short. A number of other factors have been shown to influence financing decisions including culture. age and size of the firm.sciencedirect. Victoria. . Theory indicates that there is a complex array of factors that influence SME ownermanagers' financing decisions. Tanewskib and Kosmas X. business goals. Romano a .a . Smyrniosc Monash University. Australia Monash University.g. entrepreneurs' prior experiences in capital structure. sources of funding for growth. views regarding control. until now there does not appear to have been any attempts to develop empirically-based models that show relationships between these factors and family business owners' financing decisions.com/science/journal/08839026 Volume 16.
However. However. family control.Notably..g. Equity is a consideration for owners of large businesses. family. and financial factors is complex. and financial factors (e. see Family business (disambiguation).g. age of the firm. size or industry).g. business objectives and plan for the achive goals) Please read: A Thank You from Wikipedia Founder Jimmy Wales Read now Family business From Wikipedia. industry. the free encyclopedia Jump to: navigation.g. our findings indicate the importance of utilizing theories that also help to explain behavioral factors (e. business plan. search For other uses. Please add more appropriate citations from reliable . young firms. ( size. In addition. Primary sources or sources affiliated with the subject are generally not sufficient for a Wikipedia article. our findings reveal that firm size. Our findings suggest that the interplay between multiple social. family businesses in the service industry (e. retailers and wholesalers) are less likely to use family loans as are those owners who are planning to achieve growth through new products or process development. Small family businesses and owners who do not have formal planning processes in place tend to rely on family loans as a source of finance.g. behavioral aspects of business financing (e. and owners who plan to achieve growth through increasing profit margins. Use of capital and retained profits is likely for family businesses planning to achieve growth through an increase in sales but less is likely for family businesses in the manufacturing sector and lifestyle firms. business planning. business objectives).. age of the CEO.. gearing levels) when working with and researching family enterprises. owners' needs to be in control) that affect financial structure decision-making processes. debt and family loans are negatively related to capital and retained profits.. family control. and business objectives are significantly associated with debt. Practitioners and researchers should consider the dynamic interplay among business characteristics (e. In addition. This article needs references that appear in reliable third-party publications. equity is less likely to be a consideration for older family business owners and owners who have a preference for retaining family control..
corporation. one or more members within the management team are drawn from the owning family. family participation as managers and/or owners of a business can present unique problems because the dynamics of the family system and the dynamics of the business systems are often not in balance. many of the largest publicly listed firms are family-owned. Many businesses that are now public companies were family businesses. Family businesses may also be managed by individuals who are not members of the family. (August 2008) A family business is a business in which one or more members of one or more families have a significant ownership interest and significant commitments toward the business’ overall well-being. that is. Please improve this article if you can. The talk page may contain suggestions. However. . management trust. a person (rather than a state. family members are often involved in the operations of their family business in some capacity and. usually one or more family members are the senior officers and managers. A firm is said to be family-owned if a person is the controlling shareholder. in smaller companies. or mutual fund) can garner enough shares to assure at least 20% of the voting rights and the highest percentage of voting rights in comparison to other shareholders. In some countries. (August 2008) This article may require cleanup to meet Wikipedia's quality standards. However. Family participation as managers and/or owners of a business can strengthen the company because family members are often loyal and dedicated to the family enterprise. Family businesses can have owners who are not family members. Contents [hide] • • • • • • • • • • 1 Definition 2 Problems 3 Structuring 4 Scenarios 5 Succession 6 Success 7 Family Businesses Examples 8 See also 9 References 10 External links  Definition In a family business.sources.
the founder is balancing his personal interests (taking cash out) with the needs of the business (expansion). Or.  Scenarios But balancing competing interests often become difficult in three situations. the family members often take a vote. the founder may decide the business needs to build a new plant and take less money out of the business for a period so the business can accumulate cash needed to expand. the decision making becomes more consultative. a family member who is an owner may want to sell the business to maximize their return. The first situation is when the founder wants to change the nature of their involvement in the business. When the second generation (sibling partnership) is in control. Involving someone else to manage the company requires the founder to be more conscious and formal in balancing personal interests with the interests of the business because they can no longer do this alignment automatically—someone else is involved. In this manner. In making this decision. For example.  Structuring When the family business is basically owned and operated by one person. For example. 2009). if a family member wants to be president but is not as competent as a nonfamily member. the interest of one family member may not be aligned with another family member. if a family needs its business to distribute funds for living expenses and retirement but the business requires those to stay competitive. For example. that person usually does the necessary balancing automatically. Usually the founder begins this transition by involving others to manage the business. the interests of the entire family and the business are not aligned. The second situation is when more than one person owns the business and no single person has the power and support of the other owners to determine collective interests. When the larger third generation (cousin consortium)is in control. Problems The interests of a family member may not be aligned with the interest of the business. if a founder intends to transfer ownership in the family business to their . but a family member who is an owner and also a manager may want to keep the company because it represents their career and they want their children to have the opportunity to work in the business. Finally. the personal interest of the family member and the well being of the business may be in conflict.. For example. Most first generation owner/managers make the majority of the decisions. the decision making throughout generations becomes more rational (Alderson. the interests of the entire family may not be balanced with the interests of their business. For example. K. the decision making becomes more consensual.
as long as they continue to be managed by people who are steeped in the traditions. in terms of managerial ability. each having the particular skill set needed by the family. there is a higher chance that the interests of the two sons not employed in the family business may be different than the interests of the two sons who are employed in the business. accounting. foreign management and natural succession (See Succession planning).  Succession Two appear to be the main factors affecting the development of family business and succession process: the size of the family. Ownership in a family business will also show maturity of the business. developing unique cultures and procedures as they grow and mature. Given the situation above. finance. If all the shares rest with one individual. character and commitment to do this work. it just means that there is a greater need for the four owners to have a system in place that differences can be identified and balanced. a family business is still in its infant stage. insurance. family systems. how do they balance these unequal differences? The four siblings need a system to do this themselves when the founder is no longer involved. in relative terms the volume of business.  Success Successfully balancing the differing interests of family members and/or the interests of one or more family members on the one hand and the interests of the business on the other hand require the people involved to have the competencies. or at least able to adapt to them. Their potential for differences does not mean that the interests cannot be aligned. investing. The reason? They can be quirky. conflict resolution. Often family members can benefit from involving more than one professional advisor. Some of the skill sets that might be needed include communication. even if the revenue is strong . 2010). openness. That's fine. Arieu proposed a model in order to classify family firms into four scenarios: political. and strategic planning.four children. and suitability to lead the organization. Family-owned companies present special challenges to those who run them. The third situation is when there are multiple owners and some or all of the owners are not in management. legal. leadership development. management development. two of whom work in the business. technical and commitment (Arieu.
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