Sources of finance for small and medium enterprises

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Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 2

ABSTRACT

This study examined the factors or determinants of successful small and medium entrepreneurs in the United Kingdom and the sources of financing for them. As such, the following research questions will be answered:

  1. What are the determinants to become small and medium successful entrepreneurs in the United Kingdom?
  2. What are the characteristics of independent small business owners and medium scale entrepreneurs in the United Kingdom?, and
  3. What are the sources of financing for them in the United Kingdom?

The study found that sample United Kingdom small scale and medium scale entrepreneurs revealed that the motivations for small scale entrepreneurs are more on the pull factors or intrinsic factors or rewards while the medium scale entrepreneurs are more on the extrinsic factors or rewards. The small scale entrepreneurs displayed a low entrepreneurial orientation while the medium scale entrepreneurs showed high entrepreneurial orientation. Moreover, the prior industry experience and previous business connections of small scale entrepreneurs are limited while the medium scale entrepreneurs are more extensive. Also, the medium scale entrepreneurs have extensive external support networks while their small scale counterparts are limited.

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Finally, the sources of funds for small and medium enterprises in the United Kingdom are mainly from bank financing and self-finance from savings especially during the first two years. However, after two to five years they borrowed from banks Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 3

Chapter 1

INTRODUCTION

BACKGROUND

Small businesses are now well recognized and acknowledged as important and pivotal contributors to economic development, job creation, both nationally and internationally. Many countries have now understood the significance of the small business and are now giving emphasis to it for creation of jobs, innovation and the long term development of economy. In fact, bulk of enterprises in all economies across the world is constituted by the small firms and companies. Such, small companies also majorly contributes to private sector output and employment, one which appears to be increasing over time.

An entrepreneur is no doubt a pure risk taker who creates value by offering products and services. They provide momentum for the change, innovation and progress in the economy. Entrepreneur is the one who has the knack of introducing new ideas in the market and they are often keen to change the traditional strategies and approach, if necessary. An entrepreneur is someone who can imagine the financial risk in starting up a new business and has the ability to capitalize the opportunity of benefit to an enterprise. An entrepreneur is very creative, skilful, innovative and always keen to explore new ideas and strategies.

The traits suggested by previous empirical research which describe entrepreneurs are: (1) high need for achievement (Decarlo & Lyons, 1979; Hornaday & Aboud, 1971; among many others); (2) internal locus of control (Hornaday & Aboud, 1971; Miller, 1983); (3) high need for independence and effective leadership (DeCarlo & Lyons, 1979; Hornaday & Aboud, 1971); (4) high need for autonomy (DeCarlo & Lyons, 1979; Sexton & Bowman, 1983, 1984); (5) Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 5 information processing capability (McGaffey & Christy, 1975); (6) preference for moderate level of risks (McBer & Co., 1986); (7) low conformity (DeCarlo & Lyons, 1979; Sexton & Bowman, 1983, 1984); (8) aggression, support, and benevolence (DeCarlo & Lyons, 1979); (9) energy level, risk-taking, and change (Sexton & Bowman, 1983, 1984); (10) dominance, endurance, innovation, self-esteem, low anxiety level, and cognitive structure (Sexton & Bowman 1983); and (11) low interpersonal effect, social adroitness, low harm avoidance, and low succorance (Sexton and Bowman, 1984).

Thus, this research concentrates upon the reasons influencing individuals to become entrepreneurs and the sources of financing available for them in United Kingdom.

PROBLEM STATEMENT

This study will examine the factors or determinants of successful small and medium entrepreneurs in the United Kingdom and the available sources of financing for them. As such, the following research questions will be answered:

  1. What are the determinants to become small and medium successful entrepreneurs in the United Kingdom?
  2. What are the characteristics of independent small business owners and medium scale entrepreneurs in the United Kingdom?, and
  3. What are the sources of financing for them in the United Kingdom?

THE OUTLINE AND CONTRIBUTIONS OF THE RESEARCH STUDY

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This study is organized into five chapters. Chapter one discussed the introduction and background of the study, it also presents the statement of the problem, research purpose, research Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 6 objective, the outline and contributions of the research study, definition of terms, and the methodology of the study.

Chapter two reviews the literature and Chapter three explains the methodology of the study. Chapter four presents the analysis of the study, and finally Chapter five summarizes and concludes the study. The contribution of this study to theory is that there is yet no research regarding determinants for successful small and medium and the available sources for them in the United Kingdom. As such, this study will be a big contribution since it fills this gap.

DEFINITION OF TERMS

Extrinsic Factors. Motivation of entrepreneurs usually due to external factors such as earning an income and be recognized as successful by other people.

Intrinsic Factors. The motivation of entrepreneurs and franchisors to go into business due to internal determinants such as achievement, power, and competence.

Achievement Motivation. This is the motivation drive which is due to the need of people to achieve something significant in his life.

Power Motivation. This is the need of an individual to acquire influence and control over other people.

Competence Motivation. This is the need of an individual to be efficient and competitive in his business and work.

Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 7

METHODOLOGY

Research Strategy

The researcher will conduct interviews with the respondents in the areas listed in the table below:

The areas of interviews will be conducted by the researcher on motivations which will identify the kind of motivation that predominate small and medium business entrepreneurs. Their entrepreneurial orientation will also be assessed and also their work/life balance. The education level and age will also be identified for the respondents so as to determine whether these factors are significant. Their prior industry experience will also be assessed as well as their prior access to business networks and external support networks.

Table 1

Characteristics Small scale entrepreneurs Medium scale entrepreneurs

Motivations

Entrepreneurial Orientation

Work/family balance

Education level

Age

Prior industry experience

Previous connections to business networks

External support networks

Sources of Financing

Secondary Research

The sources of available financing for small and medium scale enterprises in the United

Kingdom will also be identified and analyzed.

Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 8

Primary Research

An interview questionnaire was designed and sent to forty (40) sample entrepreneurs wherein twenty are small scale entrepreneurs and another twenty of them are medium-scale entrepreneurs in the United Kingdom. Time is at a premium and a questionnaire could be fitted in around other activities. This approach was not a preferred option - it was more a pragmatic solution to getting the information and involvement of key entrepreneurs.

The interview covered the same themes of the questionnaire. The aim being to give me the freedom to explore areas more deeply as appropriate. People do tend to give you more information and expand in a discussion rather than the limited responses gained from questionnaires.

Other methods considered were:

Multi Disciplinary Focus groups

This was discounted as it would have been difficult to organise logistically. Telephone interviews This was discounted as it was felt that a telephone interview to start with would be a bit impersonal, there is the potential to use them for a follow up to the questionnaire. This was not used as the return of the questionnaires was sufficient to provide helpful information at this stage.

Questionnaires to the whole organisation

This was discounted as there is a certain amount of question fatigue. The relevance of consulting all staff would not be relevant as the key person to interview is the owner himself..

Data Collection

Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 9

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The collection of data will be done through interviews from the respondents.

Data Analysis

The data will be analyzed by reviewing the voice recording in the interviews and through the notes of the researcher which will be written according to the guidelines in Table 1.

These interview questions were answered and this was all saved in a recorder. The researcher evaluated all these answers in the recorder and replayed it repeatedly in order to analyze their insights and views. This evaluation and analysis were then written by the researcher in the analysis and findings as well as quoted the interviews of the owners as evidences of the findings.

Interview Form

Dear Respondent,

The researcher is conducting a study on small and medium scale enterprises in the United Kingdom as a requirement for his academic degree in the university. It would be appreciated if you can answer the following interview questions:

  1. What are your motivations when you started as an entrepreneur? What are your motivations today as an entrepreneur?
  2. What are your entrepreneurial orientations?
  3. How is your work/family balance?
  4. What is your education level?
  5. How old are you?
  6. What are your prior industry experiences before going into entrepreneurship?
  7. What were your previous connnections to business networks?
  8. Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 10

  9. What are your external support networks? and
  10. What are the sources of financing?

Summary

Thus, this study will be conducted by utilizing literature review as a research tool and complimented by exploratory research through survey/interview the respondents.

Chapter 2

REVIEW OF LITERATURE

Introduction

Small businesses are now well recognized and acknowledged as important and pivotal contributors to economic development, job creation, both nationally and internationally. Many countries have now understood the significance of the small business and are now emphasizing it for creation of jobs, innovation and the long term development of economy. In fact, bulk of enterprises in all economies across the world is constituted by the small firms and companies. Such, small companies also majorly contributes to private sector output and employment, one which appears to be increasing over time.

Entrepreneur

Entrepreneur is no doubt a pure risk taker who creates value by offering products and services. They provide momentum for the change, innovation and progress in the economy. Entrepreneur is the one who has the knack of introducing new ideas in the market and they are often keen to change the traditional strategies and approach, if necessary. Entrepreneur is someone who can imagine the financial risk in starting up a new business and has the ability to capitalise the opportunity of benefit to an enterprise. An entrepreneur is very creative, skilful, innovative and always keen to explore new ideas and strategies (Adler, 2002; Aldrich, 1989; Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 11 Alstete, 2003; Anderson et al, 1992; Anna et al, (1999). For more of entrepreneurship please see Belcourt et al. (1991); Bennett & Dann (2000); Bird (1989); Birley & Westhead (1994).

Research on Entrepreneurial Traits

The traits suggested by previous empirical research which describe entrepreneurs are: (1) high need for achievement (Decarlo & Lyons, 1979; Hornaday & Aboud, 1971; among many others); (2) internal locus of control (Hornaday & Aboud, 1971; Miller, 1983); (3) high need for independence and effective leadership (DeCarlo & Lyons, 1979; Hornaday & Aboud, 1971); (4) high need for autonomy (DeCarlo & Lyons, 1979; Sexton & Bowman, 1983, 1984); (5) information processing capability (McGaffey & Christy, 1975); (6) preference for moderate level of risks (McBer & Co., 1986); (7) low conformity (DeCarlo & Lyons, 1979; Sexton & Bowman, 1983, 1984); (8) aggression, support, and benevolence (DeCarlo & Lyons, 1979); (9) energy level, risk-taking, and change (Sexton & Bowman, 1983, 1984); (10) dominance, endurance, innovation, self-esteem, low anxiety level, and cognitive structure (Sexton & Bowman 1983); and (11) low interpersonal effect, social adroitness, low harm avoidance, and low succorance (Sexton and Bowman, 1984).

Yonekura (1984) proposed that the following characteristics: "assertiveness, insistence, forward-looking, critical thinking, creativity, innovation, continuity, preparedness, responsibility, open-mindedness, etc. Burch (1986) mentioned nine salient traits, which dictated a high propensity for one to behave entrepreneurially. They are: a desire to achieve, hard work, nurturing quality, able to accept responsibilities, reward oriented, optimistic, excellence-oriented, Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 12 an organizer, and money oriented. (http://www.airiatech.com/personal-traits/computertechnology/ yonekura.html)." As such, entrepreneurs possessed those traits mentioned in order to be successful in business.

The reasons for people to go into entrepreneurship is an area which is widely researched in the area of management (Walker, 2004). Majority of these studies suggests that people are motivated by personal and financial reasons like achievement need, independence, and the creation of wealth (Bird, 1989; Birley and Westhead, 1994; Burns, 1996; Hisrich, 1986; Kuratko et al., 1997). Generally, most of the studies suggest that personal internal reasons are more important motivations as compared to financial reasons in going into entrepreneurship. (Gray, 1993).

Apart from the impact of personal and financial goals on organizational choice, an individual's perception of his or her present job situation may influence small business adoption. Difficulties experienced within the organization such as their thinking that it lacked opportunities and that their pay were low and not commensurate to their performance pushed them to start their own businesses (Moore and Buttner, 1997). Furthermore, those who have no work also forced them to become entrepreneurs (Still and Guerin, 1991), even though the clarity of the entry of business and its form are not that clear to them at the start (Praag, 2003; Vodopivec, 1998; Walker, 2004; Walker and Brown, 2004; Burke et al., 2002; Burns, 1996; Buttner & Moore, 1997;

Process of Starting Up the Business

The entire work culture and scenario of the small and medium business has improved a lot in the last few years. Success or failure of any business depends on its start up. This is the first and most vital step which decides the future of enterprise. All other steps are secondary, but establishment of the firm should be done carefully, so that it can grow and develop to its full Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 13 potential (Carter et. al., 1996; Carter & Anderson, 2001; Carter & Cannon, 1988; Chaganti & Parasuraman, 1996; Cliff, 1998).

The steps involved in the business start up can be classified as:

Business Start Up

In this section, we will consider both theoretical and practical aspects. Variation between theories of starting up a business and practical situation faced by the owner will be highlighted here (Coleman, 1988).

It is quite likely to have difference in the theories and practical aspects, which are as follows:

Formation of idea

Theory- An entrepreneur has the idea of business before starting up any activity. This step is very important because each and every aspect of business is considered in it. This step is also very important because every pros and cons of the particular business is decided at this stage (De-Bruin & Lewis, 2004; Deakins & Whittam, 2000).

Opportunity Recognition

The entrepreneur must be able to recognize opportunities for business and this is not an easy task. Opportunity might result from certain trends in the market such as the need for a new product or service (Kotler, 1972; Deshpande, 1983).

Market Research and Business Plan

It is quite likely to have difference in the theories and practical aspects, which are as follows: he should carry out the SWOT Analysis to analyse the strength, weakness, opportunity and threat in his business (Kotler, 1990; Dyer, 1994). Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 14

Arrangement for Finance

There are various sources of finance available for the entrepreneur and the small and medium sized firm. However, in the simplest way, it can be classified as the internal and external source. Internal sources of finance include the personal equity of the entrepreneur, usually in the form of savings, remortgages or perhaps money raised from family and friends (Feldman & Bolino, 2000; Fielden et al., 2003; Fitzgerald and Muske, 2002; Leazar, 2002). Usually, in the small and medium firms, there is highest possibility that the major fraction of the total finance is contributed by the internal sources like family and friends (Lee & Mathews, 1999; Hisrich, 1986). On the other hand, banks, equity from venture capitalists and informal investors and short term trade credit are the external sources of finance. Other external sources are leasing, hirepurchase and factoring (Anderson, 1997).

Optimum Use of Resources

To make any business successful and for its best possible growth and development, optimum and proper use of the resources is very important. In small towns, where business activity is less as compared to cities, the small business owner's ability to mobilize and gather the required resources from their environment becomes vital (Gimeno, 1997; Gray, 1993; Gatewood et al., 1995; Gundry & Welsch, 2001) Moreover, such areas are viewed as being lean in terms of those resources associated with the business start up. They are portrayed as being distanced from main markets and main centres of business activity, have lower and more dispersed population, a weaker infrastructure, local markets are limited due to lower population. "Despite the apparent difficulties in starting up and running a business to towns, the number of businesses has grown". (Anderson, 1997)

Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 15

Problems in Starting Up a Business

When starting up a business, the owner is bound to face some problems. There are basic steps and procedures that should be followed by the entrepreneur, while starting a business. But the problem arises when the successful implementation of these steps becomes difficult, due to the problems in the market. Sometimes things do no happen in reality as they were expected and also it may take longer time than expected (Martins et al., 2002; Marschack, 1994; Morrison, 2000; Olson, 1992; Praag, 2003; Rainbird, 1991).

Major problems in starting up a business can be classified as:

  • Goodwill- When a business is new, it lacks good reputation in the market, which is called Goodwill. In business, it is very important to have goodwill. It means that the business has trustworthy image in the market. Sometimes, just because of lack of goodwill, customers don't trust the company (Reynolds, 2000; Robichaud et al., 2001).
  • Market Prediction- It is essential for the entrepreneur to have the market predictions. The market trends keep on fluctuating. Thus the entrepreneur has to mould himself according to the market situations. If he does not maintain pace with the market trends it becomes very difficult to be in the race. This is not a very easy job (Robinson, 1994; Shane, 1995; Smith, 2000).
  • Financial Gap- The existence of a financial gap arises because demand from small firms is greater than the willingness of financial institutions to supply the finance at current market conditions. For finance such as bank loans, these gaps may be termed as credit rationing (Stanworth & Stanworth, 1997).
  • Getting the premises in prime location- Getting a good location to set up the business is a very big issue. The entrepreneur should keep in mind to get the best location. If the location is good and is very close to all the available resources then he can grab the opportunities of using these Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 16 resources (Taylor, 1980).
  • Judging the customer expectations- It is very hard to match the ever changing expectation and demands of the customers. It is very difficult to have an exact idea about the choice of the customers. In this case it becomes very difficult for the new firms to have an idea about the customer expectations (Timmons et al., 1985).

Growth of the Firm

Greiner's Growth Phases Model describes the Framework which helps in understanding why certain Management styles, Organizational structures and Coordination mechanisms work in some phases and why these don't work at certain phases in the development of an Organization. In 1972, Larry E. Greiner originally proposed this model with five phases of growth and more recently he added a sixth phase to his model (Harvard Business Review, May 1998). Each phase has a particular management style, faces specific problems, and each phase has been dominated by particular management style to achieve growth. This model suggests the organizations to go through the 6 stages of growth and need appropriate strategies and structures to cope up (http://www.mindtools.com/pages/article/newLDR_87.htm).

Phase 1: Growth through Creativity

This phase comes at the start-up stage of a company. In this phase, entrepreneurs of the firm will be busy in production and opening up markets. As there will be less staff, very hard work is required and the informal communication will work. This phase ends with a Leadership Crisis. New professional management people will be brought in (Walker & Brown, 2004).

Phase 2: Growth through Direction

In this phase, growth continues in an environment of more formal and functional Organization structure, Accounting, Capital management, budgets and focus on separate Standardized Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 17 processes like marketing and production. Incentive schemes will be introduced as a financial reward. This phase ends with an Autonomy Crisis: New structures based on delegation are called for (http://www.mindtools.com/pages/article/newLDR_87.htm; Walker, 2004).

Phase 3: Growth through Delegation

The Organization continues to grow with a decentralized organizational structure. The top management just monitors and deals with the big issues, where the mid-level managers freed up to react fast to opportunities for new products. In this phase the operational and market level responsibility increases and formal communication will be maintained. This phase ends with a Control Crisis: More sophisticated functioning from the head office is required and business need to work together ( http://www.mindtools.com/pages/article/newLDR_87.htm).

Phase 4: Growth through Coordination and Monitoring

Growth continues with the formation of product groups, thorough review of formal planning, centralization of support functions. Corporate staff will be hired for the oversees coordination. Investment finance is allocated centrally and managed according to Return on Investment (ROI). Incentives are shared through the lower level of company in order to motivate. This phase ends on a Red-Tape Crisis: A new culture and structure must be introduced (Birley & Westhead, 1994).

Phase 5: Growth through Collaboration

In this phase, new evolutionary paths are introduced. The previous formal controls are replaced by decentralized support staff to deliver projects in a matrix structure supported by sophisticated information systems and team-based financial rewards. This phase ends with a crisis of Internal Growth: Partnerships with complementary organizations is required (Greiner; Birley & Westhead, 1994; Burns, 1996). Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 18

Phase 6: Growth through Extra-Organizational Solutions

Greiner's recently added sixth phase to his model suggesting the organizations that growth may continue through merger, outsourcing, networks of organizations and by involving other companies (http://www.mindtools.com/pages/article/newLDR_87.htm); Carter et al., 1996).

A Case Study of a Successful Entrepreneur

Dr. Naveen Parihar was born in 1963 in his home town Nagod, situated in Madhya Pradesh, a State in India. He is a dental surgeon by profession. After his schooling, Dr. Parihar took admission in BDS (Bachelor of Dental Surgeons), in 1982. After completing BDS from Rukhmani Devi Dental College Lucknow, Uttar Pradesh, he worked with a private dental clinic as a junior dental specialist, to gain some experience.

Later, Dr Parihar got the opportunity to join the renowned Birla Hospital, as a dental specialist. He grabbed this offer because of the reputation of the Hospital and also because the hospital was in district headquarters Satna, 25 Kilometres from his hometown Nagod. He continued working with the Birla Hospital for 7 years. An entrepreneur to the core, Dr Parihar was not enjoying the stereotypes life and then he decided to become self employed by establishing his own business. As he was specialised in dentistry, he decided to stick to his skills and start a business in this field. Later on, he did thorough market research and considered all the aspects related to this business. He found out that establishing a dental clinic in the nearby headquarters (Satna) would not be a fruitful idea because of the cut-throat competition and saturation in the market. Therefore, he decided to open a clinic in his hometown (Nagod) itself. The main aim of Dr Parihar, behind opening this clinic was to provide dedicated and quality services to the local and nearby residents of the town. He always believed that the profit can only Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 19 be achieved by providing good services to the customers (Patients). Curewell Dental clinic was established in 8th, August, 2001. The clinic was set up in only three rented rooms in a building, in which one room was waiting room for patients, the second room was the meeting room and the other room was for the check up. The check up room was equipped with essential surgical equipments like dental chair. The owner was bound to face some problems by starting up a clinic in a small town. The first problem faced by the owner was the lack of skilled helping hands in the town. Dr Parihar also realised that hiring skilful assistants from the city would not be a very good decision, as it would increase the start up cost of the clinic.

Also, he did not want to comprise with the quality and skills. Hence, Clinic was started with limited helping hands and in its early stage there were only three skilled assistants in the clinic.

Belief of the Owner in Entrepreneurial Theory

As written in most of the theories, he has always kept the things simple and stuck to the basics without forcing the things to get happen. Dr Naveen Parihar has the experience of almost 20 years, in this field. He set a goal to achieve profits and he was aware of the limitations of its clinic in its early stage.

He has always been confident enough to take risk, creating and adopting new ideas in the business, if necessary. If we talk about his qualities then he is highly specialised in his field and has the ability to identify market trends. On the other hand, he is hard working, intelligent, courageous and knowledgeable.

Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 20

Problems Faced By Curewell Dental Clinic

  • Costly Dental equipments- It was one of the main issues in starting up a clinic as the dental equipments are very costly. For Dr Parihar, cost of the equipments including dental chair was half of the total start up cost. He also wanted to install latest and efficient equipments. Thus, for him it was tough task to manage this.
  • Registration of the clinic- To start any business in health and safety sector, it has to be registered with the government section called 'Health and Safety Society'. Before getting registered with this section, one needs to fulfil certain criteria. This can take few weeks or months and can certainly delay the whole project. It also requires lot of documentation before applying if the registration. Dr Parihar also suffered the same problem and got the registration after two months.
  • Marketing- It was the matter of concern for the owner as he was setting up his business in a town. Thus, there were very limited chances of advertisement in the area. Mouth advertisement was the only marketing that could be done in that area.
  • Lack of skilled man power- Skilled helping hands was also a big issue for the owner. He was aware that it would be difficult to find skilled assistants for the clinic. Thus, the clinic was started with only 3 skilled assistants.
  • Winning faith of the local residents- After the business was opened, main aim of the owner was Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 21 to make trustworthy image of the clinic in that area. He was aware that in this profession, faith of the costumers plays a crucial part in decided the future.

After the start up, growth of Curewell Dental Clinic is appreciable. It was started in only 3 rented rooms. But after gaining good profit in the year 2002-03, Dr Parihar decided to expand the clinic by shifting it to separate building which was bought by him in the end of 2003. He named the newly expanded clinic as 'Curewell Nursing Home' He also established two other departments, Orthopaedics and Genecology. He hired specialist doctors in this field from the district headquarters. These doctors visit the nursing home for the routine check up of patients, daily.

Dr Naveen Parihar always tries to adopt latest technology, if necessary. He was the first one to recognise new trends and introduced blood bank, X-ray, and Sonography facilities in the town. He also established new units to his nursing home and provided better services to the local and nearby residents. He has always carried out proper strategic and business planning before taking any crucial step. Dr Parihar knows how to give better performance with limited resources, which is the key factor of his success.

Small and Medium Enterprises in the United Kingdom

The small and medium enterprises in the United Kingdom played a key role in economic development. As such, the government supported its growth. According to the department for business innovation and skills the profile of the small and medium scale enterprises are as follows:

"There were an estimated 4.81 million private sector enterprises in the UK at the start of 2008, an increase of 104,0003 (2.2 per cent) since the start of 2007. These levels are the highest since the time series began in 1994.These enterprises employed an estimated 23.1 million people, and had an estimated combined annual turnover of £3,000 billion. Small and medium-sized Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 22 enterprises (SMEs) together accounted for 99.9 percent of all enterprises, 59.4 per cent of private sector employment and 50.1 percent of private sector turnover. Employment in SMEs is estimated at 13.7 million, 287,000 (2.1 per cent) higher than in 2007.Turnover in SMEs is estimated at £1,500 billion, £61 billion (4.2 per cent) higher than 2007.More industries experienced growth in the number of enterprises between the start of 2007 and the start of 2008, than experienced a fall. In percentage terms, the biggest increases were in the Mining and Quarrying; Electricity, Gas and Water Supply (19.3 per cent) and Financial Intermediation (10.2 per cent) sectors and the biggest falls in the number of enterprises were in the Manufacturing (- 6.9 per cent) and Other Community, Social and Personal Service Activities (-4.7per cent) sectors (http://stats.berr.gov.uk/ed/sme/smestats2008-ukspr.pdf)."

As such, out of the 4.81 million private enterprises in the United Kingdom, 99.9 percent are classified as small and medium scale enterprises (SMEs) and they are responsible for 59.4 percent of employment in the country as well as 50.1 percent of private sector turnover. The sector also experienced growth from 2007 to 2008 (http://stats.berr.gov.uk/ed/sme/smestats2008- ukspr.pdf).

Most of these private enterprises are (see Table 1) small which is 99.3 percent of the total and they employ about 0 to 49 employees per enterprise while the medium enterprises is 0.6 percent which numbered at 27,000 enterprises and employs from 50 to 249 employees per firm. The large enterprises employs more than 250 employees per firm percent which Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 23 numbered at 27,000 enterprises and employs from 50 to 249 employees per firm. Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 24 Source: http://stats.berr.gov.uk/ed/sme/smestats2008-ukspr.pdf.

Sources of Finance for Small and Medium Enterprises in the United Kingdom

The sources of funds for small and medium enterprises in the United Kingdom are mainly from bank financing and self-finance from savings especially during the first two years. However, after two to five years they borrowed from banks. As Hussein et al (2006) summarized in their study:

"Evidence suggests that there are similarities as well as differences between SME financing in the UK and in China. In terms of initial (start-up) funding, a large proportion of respondents Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 25 relied exclusively on financial support from their immediate family. After two years in business, respondents exhibited a higher reliance on own savings and the financial support of bank and other financial institutions. At the end of five years of uninterrupted economic activity, most of the owner/managers in the UK sample relied for their borrowing needs primarily on financial institutions and to a lesser extent upon their own savings (Hussein et al, 2006,p.584/http://www.emeraldinsight.com/Insight/viewContentItem.do? contentType=Article&hdAction=lnkpdf&contentId=1581927)."

Research Gap

Based on the research findings given above, there is still a research gap on the identifying the entrepreneurial background/traits and sources of financing and differentiating it from small and medium scale enterprises in the United Kingdom. These traits are the following:

  1. Motivations
  2. Entrepreneurial Orientation
  3. Work/life balance
  4. Education level
  5. Age
  6. Prior industry experience
  7. Prior access to business networks
  8. External support networks, and
  9. Sources of financing

Summary and Conclusion

Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 26 There are three main theories of entrepreneurship. Economic theory is the prevalent theoretical framework that has been the general model of income choice. The essence of the income choice is made by comparing the wages as individual expected to earn through employment. Social theory makes it possible to better understand the interaction between the characteristics of the situation and the characteristic of entrepreneur. Psychological theory consists in identifying certain personality characteristics or traits that appears to be possessed by successful entrepreneur picking winners.

Small and medium scale enterprises are now well recognized and understood as significant and essential factors to economic development, job creation, both nationally and globally. Many nations have now understood the significance of the small business and are now emphasizing it for creation of jobs, innovation and the long term development of economy. Majority of businesses around the world is constituted by the small firms and companies. Such, small companies also majorly contributes to private sector output and employment, one which appears to be increasing over time. An entrepreneur is a pure risk taker who creates value by offering products and services. This businessment provide momentum for the change, innovation and progress in the countries they are in. An entrepreneur is the one who has the zest of creating new ideas in the market and they are often keen to change the traditional strategies and approach, if necessary. An entrepreneur is a businessman who can take the financial risk in starting up a new business and has the ability to maximize the opportunity of benefit to an enterprise.

The traits suggested by research for successful entrepreneurs are that they have a high need for achievement; they have internal locus of control; they have a high need for independence and effective leadership; they have a high need for autonomy and many other traits that should Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 27 followed by prospective entrepreneurs. In a study in Australia about entrepreneurs and franchisors they found that in terms of entrepreneurial orientation, franchisors displayed a low orientation while independent small business owners have high orientation. In the area of work/family balance franchisors showed a low orientation while independent entrepreneurs showed high orientation.

In the area of education level, the female franchisors resulted to a lower level than the independent entrepreneurs. In terms of age, the franchisors are more than 35 years old while the independent entrepreneurs are lower than 35 years old. In the area of prior industry experience, the franchisors had limited exposure while independent entrepreneurs had extensive industry experience. Also, in terms of prior access to business networks, the franchisors had limited access while the independent entrepreneurs had extensive access. Moreover, the independent entrepreneurs have extensive external support networks while the franchisors have limited external support networks .

When starting up a business, the owner is bound to face some problems. There are basic steps and procedures that should be followed by the entrepreneur, while starting a business. But the problem arises when the successful implementation of these steps becomes difficult, due to the problems in the market. Sometimes things do no happen in reality as they were expected and also it may take longer time than expected.

A case study of Dr. Parihar who is a successful entrepreneur found that he believed in entrepreneurial theory and that he has the experience of almost 20 years, in this field. He set a goal to achieve profits and he was aware of the limitations of its clinic in its early stage. He has always been confident enough to take risk, creating and adopting new ideas in the business, if necessary. If we talk about his qualities then he is highly specialised in his field and Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 28 has the ability to identify market trends. On the other hand, he is hard working, intelligent, courageous and knowledgeable. Dr Naveen Parihar always tries to adopt latest technology, if necessary. He was the first one to recognise new trends and introduced blood bank, X-ray, and Sonography facilities in the town. He also established new units to his nursing home and provided better services to the local and nearby residents.

He has always carried out proper strategic and business planning before taking any crucial step. Dr Parihar knows how to give better performance with limited resources, which is the key factor of his success.

The small and medium enterprises in the United Kingdom played a key role in economic development. As such, the government supported its growth. out of the 4.81 million private enterprises in the United Kingdom, 99.9 percent are classified as small and medium scale enterprises (SMEs) and they are responsible for 59.4 percent of employment in the country as well as 50.1 percent of private sector turnover. The sector also experienced growth from 2007 to 2008.

Most of these private enterprises are (see Table 1) small which is 99.3 percent of the total and they employ about 0 to 49 employees per enterprise while the medium enterprises is 0.6 percent which numbered at 27,000 enterprises and employs from 50 to 249 employees per firm. The large enterprises employs more than 250 employees per firm percent which numbered at 27,000 enterprises and employs from 50 to 249 employees per firm. Based on the research findings given above, there is still a research gap on the identifying the entrepreneurial background/traits and sources of financing and differentiating it from small and medium scale enterprises in the United Kingdom. These traits are the following: motivations; entrepreneurial orientation; work/life balance; education level; age; past industry Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 29 experience; past connection to business networks; external support networks; and sources of financing.

Chapter 3

Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 30

FINDINGS AND DISCUSSION

Findings

The interview results of ten United Kingdom small scale and medium scale entrepreneurs and entrepreneurs (see Table 2) revealed that the motivations for small scale entrepreneurs are more on the pull factors or intrinsic factors or rewards and for medium scale business ownership, their motivation are more on the extrinsic factors or rewards. In terms of entrepreneurial orientation, small scale entrepreneurs displayed a low orientation while medium scale business owners have high orientation. In the area of work/family balance small scale entrepreneurs showed a low orientation while medium scale entrepreneurs showed high orientation.

In the area of education level, the small scale entrepreneurs resulted to a lower level than the medium scale entrepreneurs. In terms of age, the medium scale entrepreneurs are more than 35 years old while the small scale entrepreneurs are lower than 35 years old. In the area of prior industry experience, the small scale entrepreneurs had limited exposure while medium scale entrepreneurs had extensive industry experience. Also, in terms of previous connections to business networks, the small scale entrepreneurs had limited access while the medium scale entrepreneurs had extensive access. Moreover, the medium scale entrepreneurs have extensive external support networks while the small scale entrepreneurs have limited external support networks.

Table 2 United Kingdom Entrepreneurs Interview Results

Characteristics Small Scale Entrepreneurs Medium Scale

Entrepreneurs

Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 31

Motivations Pull Factors (intrinsic factors/rewards)

Extrinsic Factors

Entrepreneurial Orientation Low High

Job/life balance Low High

Education level Lower Higher

Age <35 years >35 years

Past industry experience Limited Extensive

Prior access to business networks Limited Extensive

External support networks Limited Extensive

  • Motivations for medium scale entrepreneurs are more on intrinsic factors while small scale entrepreneurs are more on extrinsic factors;
  • The entrepreneurial orientation of medium scale entrepreneurs are high while small scale entrepreneurs are low.
  • The work/family balance orientation of small scale entrepreneurs showed a lower level than the medium scale entrepreneurs;
  • The medium scale independent entrepreneurs have a higher level of education than its small scale counterparts;
  • The small independent entrepreneurs are younger than the medium scale entrepreneurs;
  • The medium scale entrepremeurs had or have more extensive advantage than the small scale entrepreneurs in terms of past industry experience, previous connections to business networks, and external support networks.

Sources of Funds

Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 32

The sources of funds for small and medium enterprises in the United Kingdom are mainly from bank financing and self-finance from savings especially during the first two years. However, after two to five years they borrowed from banks.

Discussion

As regard to entrepreneurial orientation of the small and medium scale enterprises in the United Kingdom, the medium scale enterprises had a higher orientation and that is probably they have evolved to become medium scale enterprises. The traits suggested by empirical research is confirmed in this study that they have a high need for achievement. They have also internal locus of control and also a high need for independence and effective leadership. This study also confirms that most of them have a high need for autonomy since they want to work on their own and be accountable for themselves. They have also information processing capability and preference for moderate level of risks since entrepreneurs are also risk takers. These entrepreneurs are also assertive, positive and forward looking, creative and innovative. They are also responsible and open-minded. They are also hard-working individuals, rewardoriented as well as money-oriented.

Based on data gathered in the review of literature, out of the 4.81 million private enterprises in the United Kingdom, 99.9 percent are classified as small and medium scale enterprises (SMEs) and they are responsible for 59.4 percent of employment in the country as well as 50.1 percent of private sector turnover. The sector also experienced growth from 2007 to 2008 (http:// stats.berr.gov.uk/ed/sme/smestats2008-ukspr.pdf).

Most of these private enterprises are small which is 99.3 percent of the total and they employ about 0 to 49 employees per enterprise while the medium enterprises is 0.6 percent which numbered at 27,000 enterprises and employs from 50 to 249 employees per firm. The large Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 33 enterprises employs more than 250 employees per firm percent which numbered at 27,000 enterprises and employs from 50 to 249 employees per firm. The sources of funds for small and medium enterprises in the United Kingdom are mainly from bank financing and self-finance from savings especially during the first two years. However, after two to five years they borrowed from banks. As Hussein et al (2006) summarized in their study:

"Evidence suggests that there are similarities as well as differences between SME financing in the UK and in China. In terms of initial (start-up) funding, a large proportion of respondents relied exclusively on financial support from their immediate family. After two years in business, respondents exhibited a higher reliance on own savings and the financial support of bank and other financial institutions. At the end of five years of uninterrupted economic activity, most of the owner/managers in the UK sample relied for their borrowing needs primarily on financial institutions and to a lesser extent upon their own savings (Hussein et al, 2006,p.584/http://www.emeraldinsight.com/Insight/viewContentItem.do? contentType=Article&hdAction=lnkpdf&contentId=1581927)." As such, in the empirical research of this study it is also confirmed that most of the small enterprises started from their own savings and then after two to five years they start to get financing mostly from banks.

Based on interviews of franchisors and independent entrepreneurs in Australia (see Appendix), most of the entrepreneurs who resigned from their work would like to be independent as one of them said:

"I had been a customer service manager in a bank, but I'd reached my limit...I'd been passed over for promotion too many times. It was so frustrating...I wanted to embark on a new career, Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 34 something that would re-ward my input and my talent." (http://findarticles.com/p/articles/mi_qa3896/is_200601/ai_n17186081/pg_13/?tag=content;col1) Another entrepreneur confirms his desire to be independent as he stated: "I wanted to be my own boss and creatively craft my business, but it was more than that...I wanted to realize my potential and get compensated for it... (http://findarticles.com/p/articles/mi_qa3896/is_200601/ai_n17186081/pg_13/? tag=content;col1)."

Most of the entrepreneurs also wants to make money as this is really the bottom line of going into business. As one of them stated: "Sure, I wanted to have some control over my work, but the bottom line was that I wanted to make money. I was sick of working too hard and not getting true performance appraisals or bonuses...(http://findarticles.com/p/articles/mi_qa3896/is_200601/ai_n17186081/pg_13/? tag=content;col1)."

Some entrepreneurs could not get employment because they feel isolated and some of them want to supplement the income of their husband and this what started her to become an entrepreneur. As she stated: "I couldn't get a job...I felt isolated and had no confidence...but I needed to supplement my husband's in-come...starting a hairdressing service from home seemed the obvious alternative given my training." (http://findarticles.com/p/articles/mi_qa3896/is_200601/ai_n17186081/pg_13/?tag=content;col1)

Some of the entrepreneurs as confirmed by this study already realize the importance of building contacts and networks in business. As one of them said: Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 35 "So many owners in the pool industry make the mistake of focusing on building the number of partners rather than looking after the profitability of each territory. I knew right from the outset that I needed to help each licensee build relationships with their local community...like local advertising with local businesses in the area, before I concentrated on advertising for new recruits." (http://findarticles.com/p/articles/mi_qa3896/is_200601/ai_n17186081/pg_13/? tag=content;col1)

Some of the entrepreneurs were not happy working for other people and they expect from themselves. They would like to take risk and also they want to put their new ideas into action. As one of them stated:

"Some people are happy working for someone else...I have higher expectations on myself... I knew it would be risky, but I wanted to come up with new ideas...new financial planning alternatives that would develop and expand my customer reach..."(http://findarticles.com/p/articles/mi_qa3896/is_200601/ai_n17186081/pg_13/? tag=content;col1)

Most of them also lose their jobs and they were forced to work on their own but it was a blessing in disguise for them. As one entrepreneur said: "Losing my job was a blessing in disguise. Being my own boss allows me to work in something I like doing. It's less boring than working for a company because you're always looking to do something new...something better. It's a highly competitive environment we work in, if you don't monitor how your competitors are doing things and find out new information, you'll lose your position in the market." (http://findarticles.com/p/articles/mi_qa3896/is_200601/ai_n17186081/pg_13/?tag=content;col1)

Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 36 Most entrepreneurs are highly competitive and they wanted to expand their business and would resort to discounts and promotions. As one entrepreneur interviewed expressed: "...What we are having to do is expand into our major competitors' product categories to retain our current market share, by offering similar lines...at cheaper prices. And in the meantime I'm having to battle with them on discounts and promotions while I also compete with my own stores in Capalaba and Chermside..." (http://findarticles.com/p/articles/mi_qa3896/is_200601/ai_n17186081/pg_13/? tag=content;col1)

Most of the entrepreneurs are also innovative and creative. As an entrepreneur boosted with this reply: 'There's a lot of room for innovation in manufacturing, but you need to train your staff so as to harness that creativity. I've shown my staff how to follow a stage-gate process, so we can benefit from their creative thoughts, but ensuring that we drop ideas that don't stack-up before we get burnt." (http://findarticles.com/p/articles/mi_qa3896/is_200601/ai_n17186081/pg_13/? tag=content;col1)

As a female entrepreneur, family is important for them and it is being independent and owning their own time that can give them more time for their family even if their business is only small. As one of the female entrepreneurs confessed: "I remember thinking that being an entrepreneur doesn't mean that you can ignore that you are a wife and mother. I felt that being in small business had its advantages, having the ability to pick my son up from school...was one..." (http://findarticles.com/p/articles/mi_qa3896/is_200601/ai_n17186081/pg_13/?tag=content;col1)

Another entrepreneur also expressed her opinion regarding family and private enterprise: Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 37 "...you can't just tell your boss that you're going to leave work to pick up the kids from school. Being in private enterprise appealed to me...you can take some time off during the day and make up the hours later... "(http://findarticles.com/p/articles/mi_qa3896/is_200601/ai_n17186081/pg_13/? tag=content;col1)

Entrepreneurs are family oriented and they are concerned with work and family balance. As one of them said: "Although we are divorced now, I knew that my husband wouldn't assume the family responsibilities. It was my job, so family balance was important to me before I jumped into owning my own coffee shop." (http://findarticles.com/p/articles/mi_qa3896/is_200601/ai_n17186081/pg_13/?tag=content;col1)

Entrepreneurs are pragmatic and they believe that the best teacher is experience as one of them said: "...you develop your skills through experience. I didn't know anything about managing employees and the corporate structures you need in place to monitor and reward performance... until I was in business. You can't learn these things in school." (http://findarticles.com/p/articles/ mi_qa3896/is_200601/ai_n17186081/pg_13/?tag=content;col1)

Their education had helped them to be successful in their own business and they used what they have learned to promote productivity in their company. As one entrepreneur put it: "I have an degree in human resource management which has come in handy when I want to search out the relevant legislation on selection and recruitment...but I suppose its not as relevant to all of my roles and responsibilities as chief executive officer of a construction company...but Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 38 it has also been helpful because I know where to find the information I need on marketing, promotions and customer relationship management." (http://findarticles.com/p/articles/mi_qa3896/is_200601/ai_n17186081/pg_13/?tag=content;col1)

Entrepreneurs are hard working and they have a passion for their work and also a passion for risk. They are willing to sweat it out to get the job done. As one entrepreneur expressed: "When I decided to expand my business into a chain of stores, I knew that it would be a taxing time...I never thought it would be easier to manage my roles as parent...and manager of my business. But it was a risk I wanted to take so that I could do something that I felt passionate about."(http://findarticles.com/p/articles/mi_qa3896/is_200601/ai_n17186081/pg_13/? tag=content;col1)

Chapter 4

CONCLUSION

The following are the conclusions derived from the findings:

Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 39

  • Ten United Kingdom small scale and medium scale entrepreneurs and entrepreneurs revealed that the motivations for small scale entrepreneurs are more on the pull factors or intrinsic factors or rewards;
  • The entrepreneurial orientation for small scale entrepreneurs are that their motivation are more on the extrinsic factors or rewards;
  • In terms of entrepreneurial orientation, small-scale entrepreneurs displayed a low orientation;
  • Medium-scale business owners have high entrepreneurial orientation;
  • In the area of work/family balance small scale entrepreneurs showed a low orientation while medium scale entrepreneurs showed high orientation;
  • In the area of education level, the small scale entrepreneurs have a lower level than the medium scale entrepreneurs.
  • In terms of age, the medium scale entrepreneurs are more than 35 years old while the small scale entrepreneurs are lower than 35 years old;
  • In the area of prior industry experience, the small scale entrepreneurs had limited exposure while medium scale entrepreneurs had extensive industry experience;
  • As regard to previous connections to business networks, the small scale entrepreneurs had limited access while the medium scale entrepreneurs had extensive access;
  • The medium-scale entrepreneurs have extensive external support networks while the small scale entrepreneurs have limited external support networks.
  • Based on data gathered in the review of literature, out of the 4.81 million private enterprises in the United Kingdom, 99.9 percent are classified as small and medium scale Sources of Finance for Small and Medium Scale Entrepreneurs in the United Kingdom 40 enterprises (SMEs) and they are responsible for 59.4 percent of employment in the country as well as 50.1 percent of private sector turnover;
  • The sector also experienced growth from 2007 to 2008;
  • Most of these private enterprises are small which is 99.3 percent of the total and they employ about 0 to 49 employees per enterprise while the medium enterprises is 0.6 percent which numbered at 27,000 enterprises and employs from 50 to 249 employees per firm;
  • The large enterprises employs more than 250 employees per firm percent which numbered at 27,000 enterprises and employs from 50 to 249 employees per firm;
  • The sources of funds for small and medium enterprises in the United Kingdom are mainly from bank financing and self-finance from savings especially during the first two years. However, after two to five years they borrowed from banks
  • As such, in the empirical research of this study it is also confirmed that most of the small enterprises started from their own savings and then after two to five years they start to get financing mostly from banks.

REFERENCES