How do small business owners actually make their financial decisions? Understanding SME financial behaviour using a case-based approach

Conventional approaches to the study of SME finance tend to focus on the changing financing options and preferences as small businesses move through different stages. However, one of the limitations of such approaches is that they do not explain how small businesses make decisions that lead to their financial structures. This paper suggests that small business owners deliberately choose how they manage their firms’ finance as a direct consequence of their personal objectives for owning a business. This paper summarizes the findings of a qualitative study with 11 small business owners using a novel qualitative model developed by Holmes and Gupta [2015, Opening Aladdin’s cave: Unpacking the factors impacting on small businesses. In A. Moore & J. Simon (Eds.), Small business conditions and finance (pp. 37–56). Sydney: Reserve Bank of Australia.]. The results uncover a series of underlying factors (such as personal perspectives, life events and future outlook) which shape the goals and perceptions of small business owners, and influence their financial decision, actions and future funding options, thereby reinforcing the view that small firms are an extension of their personal objectives.