Walden University ScholarWorks Walden Dissertations and Doctoral Studies Walden Dissertations and Doctoral Studies Collection 2018 Strategic Working Capital Sourcing Strategies for the Survival of Small Businesses Gregory Smith Walden University Follow this and additional works at: https://scholarworks.waldenu.edu/dissertations Part of the Business Administration, Management, and Operations Commons, Finance and Financial Management Commons, and the Management Sciences and Quantitative Methods Commons This Dissertation is brought to you for free and open access by the Walden Dissertations and Doctoral Studies Collection at ScholarWorks. It has been accepted for inclusion in Walden Dissertations and Doctoral Studies by an authorized administrator of ScholarWorks. For more information, please contact [email protected]. Walden University College of Management and Technology This is to certify that the doctoral study by Gregory Smith has been found to be complete and satisfactory in all respects, and that any and all revisions required by the review committee have been made. Review Committee Dr. James Glenn, Committee Chairperson, Doctor of Business Administration Faculty Dr. Kim Critchlow, Committee Member, Doctor of Business Administration Faculty Dr. Allen Endres, University Reviewer, Doctor of Business Administration Faculty Chief Academic Officer Eric Riedel, Ph.D. Walden University 2018 Abstract Strategic Working Capital Sourcing Strategies for the Survival of Small Businesses by Gregory Smith MBA, Embry-Riddle Aeronautical University, 2014 MSC, University of the West Indies, 2005 BSC, University of the West Indies, 1991 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University July 2018 Abstract Fifty percent of small businesses fail before attaining their 5-year anniversary. The lack of sufficient working capital is one of the major reasons for small business failure. Pecking order theory was employed as the conceptual framework for this multiple case study to explore the working capital sourcing strategies of 6 purposely selected successful small business owners in the Southeast region of the United States used to sustain their businesses beyond 5 years. Data sources included semistructured interviews and company documents. Data analysis included thematic coding of the material using statistical software. The modified Van Kaam method was used to analyze the interview data. Secondary company documents such as financial reports were analyzed to triangulate findings from the interviews. Based on composite analysis, 6 themes emerged: (a) each of the participating small business owners encountered barriers in sourcing working capital for their businesses, (b) small business leaders used their personal internal sources of funds to start and initially operate their businesses, (c) customers provided a revenue stream to support the working capital needs of small businesses, (d) small business leaders used various bootstrapping measures to support their working capital needs, (e) using strategic and operational planning aids such as completing a business plan assisted business leaders in their working capital sourcing decision-making, and (f) personal credit provided a foundation for obtaining external business credit. The implications for social change include the sustainability of small businesses beyond 5 years, which could lead to the maintaining jobs and assisting small businesses to succeed in stabilizing and potentially increasing incomes for benefiting families and communities. Strategic Working Capital Sourcing Strategies for the Survival of Small Businesses by Gregory Smith MBA, Embry-Riddle Aeronautical University, 2014 MSC, University of the West Indies, 2005 BSC, University of the West Indies, 1991 Doctoral Study Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Business Administration Walden University July 2018 Dedication I dedicate this study to my family. To my wife, Adrien Ira Smith, you have been my rock and my foundation. You listened to my concerns, heard my pleas and provided advice and encouragement. To my mother, Agatha, Ramona Smith, you gave me life and you gave me love, joy, peace, faith and supported me throughout my life with your prayers and words of wisdom. To my late father, Michael “Happy” Smith, you did not have much words but I saw your love for your family and me in your hard work and your adherence to high values. You instilled the values of a man in me such as being responsible and committed to the end to the tasks you undertook. To my other siblings, you made the early sacrifices in my life so that I could pursue my studies. Without all of you, I would not be where I am today. I am thoroughly appreciative of all of you. I am so grateful to God the Almighty and his Son, Jesus Christ. Your holy spirit comforted me, guided me, protected me and strengthened my faith in all good things to come. To my children Keron, Kera, Kerry-Ann, Kerol and Khamaria thank you for your love and support and believing in me. I hope that this journey will also act as an inspiration to you all in your journeys to accomplish all of your dreams. I love all of you and hope we continue to be as one. Acknowledgments Thank you God the Almighty, his son Jesus Christ and the Holy Spirit for your protection, guidance and grace during this journey “consider it a great joy, my brothers, whenever you experience various trials, knowing that the testing of your faith produces endurance. But endurance must do its complete work, so that you may be mature and complete, lacking nothing” (James 1:2-4). Thanks to my Chair, Dr. James Glenn, for your guidance and patience working with me through this iterative process. You made yourself available, sometimes at short notice. You provided excellent advice and direction when I was not sure of how to proceed and you were always calm and offered wisdom in helping me to devise approaches to my challenges. I would also like to thank my committee members Dr. Kim Critchlow and Dr. Al Endres for your feedback and guidance. Table of Contents List of Tables .......................................................................................................................v Section 1: Foundation of the Study ......................................................................................1 Background of the Problem ...........................................................................................1 Problem Statement ...............................................................................................2 Purpose Statement ..........................................................................................................2 Nature of the Study ........................................................................................................2 Research Question .........................................................................................................4 Interview Questions .......................................................................................................4 Conceptual Framework ..................................................................................................4 Operational Definitions ..................................................................................................5 Assumptions, Limitations, and Delimitations ................................................................7 Assumptions ............................................................................................................ 7 Limitations .............................................................................................................. 7 Delimitations ........................................................................................................... 8 Significance of the Study ...............................................................................................8 Contribution to Business Practice ........................................................................... 9 Implications for Social Change ............................................................................... 9 A Review of the Professional and Academic Literature ..............................................10 The Pecking Order Conceptual Framework ......................................................... 11 Alternative Theories.............................................................................................. 15 Working Capital .................................................................................................... 20 i Sources of Working Capital .................................................................................. 22 Factors Affecting the Working Capital Sourcing Strategies of Small Business Owners ....................................................................................... 31 Survival of New, and Small and Medium Enterprises .......................................... 35 Challenges in Small Business Financing .............................................................. 42 Small Business Operations ................................................................................... 44 Summary of Literature Review ............................................................................. 50 Transition .....................................................................................................................52 Section 2: The Project ........................................................................................................53