Finance – Funding For New Business – Part 6

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10. Sampling Procedures

Questionnaires will be designed taking into account ethical considerations. The participants may not write their name if they want to stay anonymous. Data collected in the course of the current research will be used only for the purposes of the current research. I guarantee confidentiality and non-disclosure of private information that might be at my disposal. The questionnaires will be destroyed after the results of the survey are documented.

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11. Methods of Data Analysis

The data analysis part of this paper will focus on the different indicators that can have a direct effect on the reviewed companies’ decisions when it comes to funding options. All in all, there were nearly seven hundred outcome indicators that have been used to describe each of the companies reviewed in the data gathering portion. Some examples of the outcome indicators used include but may not be limited to the total amount of liabilities owned by the business; total amount of assets owned by the business; total net worth of owner or principal owner; whether the business is run on a for profit basis or as a social enterprise; the actual number of employees; the legal status of the business; and the actual percentage of sales that has been exported, among others. Because of the sheer number of outcome indicators used in the data gathering portion plus the sheer number of the companies that has been reviewed and analyzed, it would be impossible to conduct an individual analysis for each outcome indicator or for each company. So, for the purpose of this discussion, only the most relevant findings, that the researchers can use to answer the primary and secondary research goals and objectives will be the focus of the discussion for the entire data analysis section.

One significant finding obtained from the data gathering part of the paper was the fact that companies in the United Kingdom, or at least the ones that were reviewed and analyzed, were fairly scattered. There were 12 regions that we included in the analysis namely: the east, east midlands, London, northeast, Northern Ireland, northwest, Scotland, Southeast, Southwest, Wales, west midlands, and Yorkshire and Humberside. What we can see from the 2500 companies that we have reviewed is the fact that the companies were fairly scattered. While this may not have a direct significance on a business’ funding option decision, it may certainly be an indicator of the distribution of economic activity in the country. In the case of the United Kingdom, it would be safe to say that the distribution of nationally-recognized businesses in the United Kingdom is fairly equal. However, there are significantly more nationally-recognized businesses in the nation’s capital that is London, compared to any other area in the country. This only makes sense because after all, it is the capital city and businesses; especially foreign ones are expected to consider it as a starting point or the entry point in their decision to be a participant in the different U.K. market segments.

12. Secondary analysis

Numerous industries or market sectors were included in the review. Included in the data gathering portion were data on companies that operate in the following industries: agricultural (192 companies); manufacturing (213 companies); construction (376 companies); wholesale and retail (390 companies); hotels and restaurant (196 companies); transportation (210 companies); real estate (479 companies); healthcare (176 companies); other companies (268 companies). Based on the number of companies analyzed and their respective business or market sectors, the largest among the groups are the real estate companies, followed closely by the construction and the wholesale and retail industries.

The smallest among the groups of companies are the healthcare industries. The type of industry where the subject companies operate in is an important thing to consider at this point because not all companies may have the same set of metrics that they use in making funding option-related decisions. Companies operating in the real estate industry, for example, would most likely go for the equity financing type of funding than the bank financing type because of the fact that most real estate companies would not be able to afford the added risk of default and illiquidity that may be brought about by unexpected events such as the global slowdown of the real estate business or the sudden decreased in the demand and the price of housing and land values.

These risks can only be offset when an equity financing type of funding option was chosen. The downside, of course, would be the owner would lose the exclusivity of his ownership of the company because a portion of the company would then be owned by the public shareholders which would most likely be made up of institutional and retail investors. This common practice in making funding option-related decisions among real estate companies may not be applicable to a company operating in the healthcare or wholesale and retail industry. This is the main reason why knowing the type of industry that the company operates in is an important part of conducting a balanced decision when it comes to choosing the most appropriate funding option.

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The legal status of the business is also an important part of making any decision that may be related to funding options. Basically, a company that has chosen to offer its shares to the public in an event called an IPO (Initial Public Offering), or in cases wherein the company already has a history of doing an IPO before, an FOO (Follow-on Offering), would automatically be legally classified as a corporation. A corporation can be defined as a business entity that is not only owned by a person or a small group of person who established the company or the founders; rather, the owners will be comprised of all the people who owns a certain amount of the company’s outstanding shares, with individuals having the largest block of shares having a controlling stake over the company.

In the case of the survey that was done in the paper, there were four possible choices when it comes to the businesses’ legal status: sole proprietorship (single owner), partnership, limited liability partnership, and Limited Liability Company.  Of the 2500 companies reviewed, 814 had sole proprietorship (single owner) as their legal status; 431 were partnerships; 45 were limited liability partnerships; and 1,210 were Limited Liability Companies. In most cases, the owners of businesses that are run by only a single owner or in other cases, family-run businesses choose the bank finance option (either through short, medium, and or long term loans) whenever asked to find additional sources of funding either to start a new business venture or expand the operations of their current business processes.

This is truer in cases wherein the businesses owned by only a handful of people, a single person, or by an entire family is doing well financially and has a lot of surplus cash from the previous fiscal years that it can use to fuel its next expansion projects or maybe to start a new business venture. In most cases, these financially healthy businesses do not even have to look for funds because the capital funds that they are looking for are already available in-house, meaning, in the business’ coffers.


Businesses only consider either banking or an equity financing option when they know that their current level of cash is not enough to cover all their capital expenditures. In cases where the business is not that financially healthy, sole proprietorship-based businesses would still be more in favor of the bank financing option because all that they would have to do is to make sure that they would be able to pay the amortized principal plus the respective interest values in time (otherwise they would suffer penalties) and all the profits, among other positive outcomes of any particular business venture, would not have to be shared to the public, which is what would happen in case the funding option that was chosen was equity financing.

In this case, 841 companies were owned by a single owner only. This means that approximately 30% of the total number of companies reviewed is owned by a single owner. As mentioned in our most recent explanation, most of these single proprietorship businesses would prefer to raise capital by themselves or if not, to borrow a certain amount of money from the bank, often by requesting for a loan with either a fixed or a fluctuating interest rate. The equity financing option for funding is often chosen as the last resort because sharing the company that they own wholly or has inherited from their parents is, in fat, the last thing that the real and original owners or the founders want.

On the other hand, 1,210 companies had a legal business status of Limited Liability Company. Basically, a Limited Liability Company is a form of business venture that, in terms of business ownership, blends various elements of a partnership and a corporation. So, when it comes to funding options, it can become very flexible because the ownership of the company is already distributed not just to a single person or a family as in the case of a sole proprietorship; so if in case a large amount of capital is needed to be raised, the decision will be based on the votes of the owners or the partners and more often than not, the resulting decision would be what would really be best for the company for the current situation. In a Limited Liability Company, it may already be hard to protect the ownership interests of the owners and some of the most prominent members and owners of the company.

The owners would not be reluctant to do an IPO if that is what is really needed because the company’s ownership has already been distributed to the owners in the first place. Now, what difference would it make if a small portion (the float) of the company’s outstanding shares will be offered to the retail and institutional investors? Nothing, so a significant portion of these 1,210 companies would most likely choose the equity financing option. After all, it carries with it the least amount of risks such as the risk of bankruptcy and risks of downsizing due to illiquidity. However, this is not to say that all LLC’s take the equity financing option when it comes to looking for sources of funding.

Some LLCs that are in complicated situations (e.g. LLCs that are not qualified to make an initial public offering or those that are not qualified to make a follow on offering) may also consider the bank financing way of looking for capitalization funds. After all, the decision on which funding option to choose not only depends on the preferences of the owners or the risks that are associated; it also highly depends on the current situation that the company is in and the circumstances it currently faces.

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13. Data Analysis Plan

Another factor that can be considered in determining the best or most appropriate funding option for a certain company would be the origin of the business.  In general, a business may begin after the current owners or shareholders established it; after a large company acquired a smaller one as its subsidiary; after a family member inherited the company from his father or basically any family member; among others. This factor is, in fact somewhat related to the business’ legal status which we just recently discussed. Businesses that began after it has been established by the current owners or the shareholders may either be classified as a partnership, an LLC, or a corporation, depending on the number of owners and the type of ownership that has been granted to the owners.

As mentioned earlier, the equity financing option would be the most appropriate funding option to recommend for these types of company, provided that they can submit all the necessary requirements and are actually eligible to it compared to the bank financing one because firstly, they already have nothing to lose because they not a single person owns the company in the first place and so there is no need to protect the ownership of the company in exchange for access to huge amounts of capital through the capital market—something which can only be obtained and accessed by going public; and secondly, the equity financing option is less risky because it is not a debt instrument unlike bank loans. Of the 2500 companies reviewed for this research, 1,789 were established by their current owners or shareholders; 449 were established after a purchase or an acquisition; and 252 were established based on inheritance and or gift.

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