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The Use of Owner Resources in Small and Family Owned Businesses: Literature Review and Future Research Directions

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Abstract

This paper integrates relevant literature and the Sustainable Family Business Model regarding interchange of financial resources between family and business. Two distinct literatures on the use of owner resources in small businesses are examined: the intermingling of business and household resources from the family firm literature and financial bootstrapping studies from the small business finance literature. What has not been addressed in both literatures about the use of owner resources is discussed and the risks that owner resource bootstrapping and intermingling may place on the household and the business are considered. Recommendations and propositions for future research are suggested. To fully understand the makeup and success of household financial portfolios and family businesses, it is important to understand the use of owner resources in a holistic manner.

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Notes

  1. See, for example, Haynes et al. (1999), Yilmazer and Schrank (2006) and Muske et al. (2009).

  2. There is a question whether the U.S. tax laws permit intermingling between the household and business. The income of family businesses is taxed no differently than that of non-family businesses operating under the same form of legal organization. Legal organization options exist to enable businesses to retain their private family nature (e.g. the U.S. Sub-chapter S Corporation) and these legal organization types have rules that specify who pays the business income tax (the proprietor owner or shareholders, or the business, or both). U.S. tax law permits businesses to deduct reasonable expenses necessary to incur business income and thus reduce tax liability.

  3. Direct transfers of cash in the form of gifts or loans and support of a business seeking credit through use of household property or assets as collateral are studied in Haynes et al. (1999) and Yilmazer and Schrank (2006); use of a personal credit card for business use, withholding manager salary and providing free space and utilities in the household for a home-based business are studied in Freear et al. (1995), Winborg and Landström (2001), Neeley (2003), Van Auken (2003, 2004), and use of home equity loans for business are studied in Freear et al. (1995) and Harrison et al. (2004).

  4. For example, Winborg and Landström (2001) used data collected from 900 small businesses in Sweden, while Neeley (2003) used data collected from 255 small businesses in Illinois. Van Auken (2003) used a sample of 91 small firms, and Van Auken (2004) used a sample of 44 small technology-based firms in Midwest. Harrison et al. (2004) used data collected from 40 independently owned software firms in Ireland and England. Finally, Freear et al. (1995) used data collected from 77 computer software entrepreneurs in New Hampshire.

  5. Haynes et al. (1999) used data from 673 business-owning households (NFBS), and Yilmazer and Schrank (2006) used data on 4,146 households that owned and managed businesses (SCF).

  6. Business-to-family intermingling in Haynes et al. (1999) is measured by four questions regarding whether any business real estate was used to secure loans for family needs, whether other business assets had been used in that manner, whether business income was used to meet family cash flow problems, and whether family members owed any money to the business. In contrast, Yilmazer and Schrank (2006) measured the financial support from the business by determining whether the household owed the business any money at the time of the survey.

  7. Family businesses dominate USA firms. Based on a randomly selected and screened household sample, Heck and Trent (1999) estimated that 13.8% of all households in the USA owned at least one family business. There were 114,470,000 households in the U.S. in 2006 (U.S. Census Bureau 2007), thus there were approximately 15.8 million family businesses among the estimated 23 million total businesses in the USA (about two-thirds of all businesses).

  8. Gender was not a predictor of intermingling in Yilmazer and Schrank (2006). However, gender was examined jointly with marital status because of the limitations of the SCF data used in this study.

  9. Brush et al. (2002) assessed the role of gender in linking suppliers of financial capital and entrepreneurial firms. Significantly more men-owned businesses had been able to acquire venture capital at all stages of business development than women-owned businesses.

  10. Brush et al. (2004) reviewed the literature on women’s entrepreneurship to determine underlying explanations for the difference in sales and size of women and male-owned businesses. They focused on human capital (education, experience derived from paid employment or managerial responsibilities, industry experience related to venture and to prior self-employment), social capital (participation in appropriate networks, spending sufficient time and effort in building networks and using the networks appropriately), financial capital (the amount of capital in starting and acquiring businesses and use of personal savings), cognitions (motivations, family and work balance and risk preferences) and finally strategic choices (choice of industry, choices related to business strategy and the choice to grow the business or not).

  11. Family economics literature suggests a different issue to be considered in study of the role of gender in financing small and family firms. Jianakoplos and Bernasek (2008), suggest that women’s bargaining power in household financial risk decisions is influenced by whether the wife earns more or less than her spouse. Yilmazer and Lyons (2010) offer another example that shows the relationship between couple’s bargaining power and financial discussions. Understanding of household financial decision making and risk taking within married households and female gendered households needs to be examined in the context of using household resources in a business owned by a member of the household as well as in understanding the flow of business resources into the household. For example, in a qualitative study, Kirkwood (2009) examined role the spouse plays in an entrepreneur’s motivations for entrepreneurship and found that women and men tend to have different expectations of their spouse at the time when they think about starting a business.

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Acknowledgments

The authors wish to thank the participants of the 2nd Workshop on Family Firm Management Research in Nice, France for their helpful comments on an earlier version of the present paper, and especially the two anonymous referees and the editors of the special issue on family business, Linda Niehm and Jane Swinney, as well as the editor of the journal, Jing Xiao, for excellent suggestions and guidance.

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Authors and Affiliations

  1. Department of Personal Financial Planning, University of Missouri-Columbia, 239 Stanley Hall, Columbia, MO, 65211, USA

    Tansel Yilmazer

  2. Consumer Sciences & Retailing, Purdue University, 812 W. State Street, West Lafayette, IN, 47907, USA

    Holly Schrank

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  1. Tansel Yilmazer
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Correspondence to Tansel Yilmazer.

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Yilmazer, T., Schrank, H. The Use of Owner Resources in Small and Family Owned Businesses: Literature Review and Future Research Directions. J Fam Econ Iss 31, 399–413 (2010). https://doi.org/10.1007/s10834-010-9224-1

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