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Marlow and Carter, 2006

Executive summary

Evidence from past research suggests that women face barriers accessing finance to begin new enterprises, they start with only one-third as much capital as men and are less likely to use external financing as the business grows. Furthermore, studies have shown that accountants can play an important role in obtaining finance for their clients and are an important source of advice and support. New research from ACCA seeks to understand the extent to which gender affects the ability to access finance, the extent to which this is ‘supply’ or ‘demand’ led and the accountant’s role in the process.

Little was known about female self-employment until the mid 1980s. Although many studies had been undertaken investigating small business owners, the bulk of the work concentrated upon the male-owned enterprise and there was an assumption that patterns of female behaviour should reflect those of men. As such, theory building in the area of entrepreneurship had been based upon the experience of men, with their behaviours taken to denote the norm.

Since the 1980s, a growing body of research has explored the impact of gender on self-employment, which broadly supports the argument that this concept does negatively affect women, such that their ventures underperform in comparison with those of their male counterparts. Overall, it would appear that women-owned businesses tend to be smaller than those owned by men, and their owners are more likely to be sole traders, to locate in traditionally female occupational sectors, and operate on a part-time basis and from the home. Regarding business finance, it emerges that women-owned businesses start with lower levels of capitalisation, lower ratios of debt finance and are less likely to access private equity or venture capital. Such undercapitalisation has enduring and negative effects upon business survival and growth prospects.

ACCA’s research

To add to the evidence pertaining to the impact of gender upon self-employment, this study has focused specifically on the issue of business finance and particularly on the role accountants have as advisory intermediaries in this respect.

It is well established that accountants act as valued and trusted advisers to their small-firm clients, hence their perceptions of the manner in which gender has an influence are of considerable interest.

To explore the issues, this study first traces the development of knowledge in the area of gender and self-employment, including the role of accountants as business advisers. It then goes on to investigate perceptions of business owners and those of accountants via quantitative surveys, before examining these in more depth via qualitative interviews among a range of stakeholders.

Key findings

From the wealth of data and information realised from this study, the main findings are summarised here.

The small-firm owners’ perspective

In contrast to self-employed men, women:

• own smaller businesses in terms of employment and turnover
• are more likely to operate from home and on a part-time basis
• are more likely to have entered self-employment from part-time work or after a career break
• at start up spend less time engaged in activity related to acquiring finance
• start businesses with lower investment
• are more likely to use credit card debt as a source of start-up capital
• have more formal qualifications
• deny any experiences of overt discrimination, but all could offer examples where gendered presumptions had influenced their experience of self-employment.

In terms of business finance, in contrast to self-employed women, men:

• invest three times more in their businesses at start-up
• utilise bank funding during and after start-up.

For both men and women:

• supply of funding is not considered problematic
• women tend to be more risk averse regarding demand.

In terms of customers:

• male business owners are more likely to have male customers and vice versa for women, which may influence performance given the greater resources commanded by men.

In terms of advice:

• both men and women value accountants as business advisers
• women are more likely to use a broader range of advisers, including Business Link.

The accountants’ perspective

• Men are more likely than women to seek advice about a range of formal funding options whereas women are more likely to seek advice about informal finance sources such as friends and family.
• Female small-firm owners tend to be more risk averse regarding business funding than their male counterparts.
• Women are less likely than men to seek advice about a range of management issues, with the exception of employment regulation.
• Female clients are more likely to own service sector businesses, to be less growth oriented, to operate their firms on a part-time basis and from home.
• Female accountants believe that gender should not affect their experiences as business owners but all could report examples where this had occurred.
• Gender does not influence interaction with established clients but might influence clients in their initial choice of accountant, in that men would prefer to deal with male professionals.
• No evidence is offered for a ‘funding gap’ in terms of small-firm finance.
• Preferred funding sources are personal savings, friends and family, credit cards, bank loans and overdrafts plus grants.
• Very few firms seek private equity or venture capital.
• Small-firm owners utilise accountants as general business and funding advisers as they are knowledgeable, professional, familiar and readily accessible.
• Business advice is regularly given beyond the realms of fee-generating compliance services.
• Much informal advice delivered outside the realms of traditional or formal fee-paying services is not fully compensated.

Concerned stakeholder opinions

The bankers stated that:

• applicant gender has no impact upon funding decisions
• women are less likely to seek bank funding – they make approximately 20% of applications
• women apply for smaller amounts of funding than their male counterparts
• women are more likely to be concentrated in service sector firms
• funding applications compiled with the support of accountants are more likely to be appropriately presented and organised, which facilitates the decision process
• accountant support adds credibility to funding applications as their scrutiny implies some degree of due diligence and so reduces information asymmetry.

The professional business advisers stated that:

• client gender is not influential upon advice sought or provided
• however, examples were identified of how gender influences sector location and management tactics
• supply of business finance is largely unproblematic
• accountants are useful as funding advisers but are limited in the range of professionally informed business advice they can offer
• accountants are limited in their ability to direct small-firm owners to appropriate sources of advice.

The community enterprise support advisers working specifically with women commented that:

• gender does shape women’s experiences of self-employment
• women’s businesses are more likely to be located in the home and have to ‘fit’ around other domestic and caring demands
• women tend to be more risk averse in their attitude to funding
• women lack self-confidence as firm owners.

The community enterprise support advisers working specifically with men and women commented that:

• the supply of funding is not problematic but this is because small amounts of funding are sought and generally from informal or micro credit sources
• their clients favour the service sector given ease of access to it, hence generalised disadvantage prompts some degree of gender convergence
• the influence of accountants as either business advisers or funding advisers is marginal because of the nature of the enterprises involved.

Conclusions

Findings from this study support earlier evidence that gender does affect the experience of small-firm ownership in that women tend to own smaller enterprises, locate them in the service sector, and are more likely to operate from home and on a part-time basis. The earlier evidence suggests that such structural differences arise from gendered characterisations that constrain women’s access to the necessary human, social and financial resources to establish and grow small enterprises.

Nonetheless, it is recognised that women’s experiences are not homogeneous and attention should be paid to the manner in which issues such as class, race, age, etc will interact with gender and so affect self-employment.

Regarding gender and finance for small firms, while there is an initial refutation that gender has any influence upon the manner in which small businesses are funded, it would appear that the characteristics of female-owned firms will shape access to finance. In terms of business advice, the findings indicate that accountants offer a valuable service to their small-firm clients as both general and funding advisers. However, it is sometimes problematic for accountants to charge for such services. Bank loan officers also recognise the value of accountants in supporting funding applications from small-firm owners in that, while each application is dealt with fairly and equitably, those informed by accountants are appropriately organised and credible. The two professional business advisers interviewed, however, are not fully convinced that accountants can act as appropriate and informed business advisers given their lack of expertise and experience in issues beyond finance and compliance.

Overall, the research finds no evidence for a funding gap. The supply of finance is considered to be adequate but there are notable differences in demand for business funding in that women are consistently portrayed as being more risk averse and cautious than their male counterparts.

Recommendations

Women entrepreneurs

Women business owners should be encouraged to ensure that business start-up capitalisation meets the needs of their business and is sufficient to enable start-up and business growth.

Women-owned businesses are often concentrated in traditionally female sectors of the economy. Their success will depend on breaking out of low-value sectors and entering higher-value markets.
Female business owners should consider spending a higher proportion of their time engaged in activity related to acquiring finance at start-up and throughout the life of their business.

Women-owned businesses should consider alternative sources of finance to those traditionally used at start-up and during the life of the business; that is, to consider moving away from using credit cards to fund the business and instead using, for example, bank overdrafts, factoring and leasing.

Accountants

Accountants are in an excellent position to provide high-quality advice to women entrepreneurs and bring credibility to the finance application process. Accountants should, therefore, be aware of the need to assist women entrepreneurs in accessing a wider range of external financial products.

Undercapitalisation at start-up has an enduring negative effect on business survival and growth prospects. Accountants have an educational role in advising women entrepreneurs of the importance of capitalisation at start-up and during the business growth process.

Stakeholders

Finance providers
Women-owned businesses constitute an important new market segment. Given the potential size and value of this segment, it is clearly not in banks’ interests to discriminate against women. But banks must ensure that the services provided to entrepreneurs are appropriate and suited to both male and female business owners. Given that women are more likely than men to under-capitalise their business at start-up, banks must have a role in encouraging women both to ensure that their business is fully capitalised and to consider sources of finance such as bank overdraft, factoring and leasing.

Given that funding applications with the support of the accountant facilitates the lending decision process, banks should work with business owners and professional business advisers to ensure that applications for finance are made in consultation with accountants.

Professional business advisers and community enterprise support advisers
Enterprise support advisers have an educational role in advising women entrepreneurs of the importance of capitalisation at start-up and during the business growth process.
Professional business advisers should work more closely with the accountancy profession to ensure that accountants can direct small firms to appropriate sources of advice.

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