The basic ideology behind designing a conceptual framework is to logically integrate all the relevant aspects of a concept to arrive at a process that can provide the best possible explanation of the problem stated (Kumar & Rao, 2016). Uyar and Guzelyurt (2015) suggested that the lack of finance is one of the major issues influencing the establishment and development of SME start-ups in South Africa. Thus, this indicates the presence of a significant gap in the existing finance options and preferable finance options for SME start-ups. The choice of a type of external finance is so important that most small business failures are attributed to its inadequacy or inappropriateness (Kumar & Rao, 2016). Since small firms differ from large firms in several respects, they use different financing options and methods. Unlike large and publicly traded businesses, SMEs have limited or no access to certain types of external financing such as long-term debt and issuing equity. Therefore, they are more dependent on short-term debt in many cases (Uyar & Guzelyurt, 2015).
The above scenarios justify the need for developing a Framework for SMEs to access external finance, which framework must be built on a combination of the determinants of an entrepreneur’s business awareness and management skills, with business processes that lead to preferable external finance options for SMEs. As financing needs and options change with the size and age of a firm, it becomes imperative to design a framework that can provide guidelines for the identification and analysis of the business success factors that would improve SME access to external finance during start-up phase. Sources of external finance for SME Start-ups include finance from the South African government grants, commercial bank finance and private equity finance.
Therefore, to evaluate the relationship between the key determinants of the success of SME start-ups and access to external finance by SME start-ups, it is hypothesised that:
H1: There is a relationship between start-up awareness and management skills.
H2: There is a positive relationship between start-up awareness and the choice of
personal/social networks as a source of finance.
H3: There is a positive relationship between start-up awareness and the choice of government as a source of finance.
H4: There is a positive relationship between start-up awareness and the choice of corporate as a source of finance.
H5: There is a positive relationship between management skills and the choice of
personal/social networks as a source of finance.
H6: There is a positive relationship between management skills and the choice of
government as a source of finance.
H7: There is a positive relationship between management skills and the choice of
corporate as a source of finance.
The conceptual framework may take various forms indicating the main research variables and how they are related (Koopman, Powers, Wang, & Wei 2011). Figure 3.1 is a depiction of the conceptual model to be used in this study.
Figure 3. 2: Proposed Conceptual Model
H1 H4 H3 H2 Personal/Social Finance Corporate Finance
The above model will be assessed using empirical data from a sample of SME owner- mangers in Pietermaritzburg, South Africa. The research methodology and data analysis techniques used to collect and analyse the data are described in the chapter that follows. 3.6 SUMMARY
Start-up awareness as key determinants of the success of SME start-ups are related to external issues, which the start-up entrepreneur cannot control, but in the context of which he needs to make choices and decisions. Although they relate to external issues, they are still dependent on the entrepreneur making the correct decisions. On the other hand, management skills are related to internal issues controlled by the entrepreneur, and relate directly to his/her skills.
Through this literature review, the key determinants of the success of SME start-ups are identified and analysed with objective of developing a Financing Framework, which when implemented by SME start-up owner-managers, could positively improve their access to external finance.
This chapter reviewed in some detail the different key determinants of the success of SME start-ups and their importance in general, and concluded in the postulation of several hypotheses and development of a conceptual research model which will be empirically evaluated using the methodology explained in the next chapter.
4 CHAPTER FOUR
RESEARCH METHODOLOGY 4.1 INTRODUCTION
According to Olsen (2012), research methodology is a systematic manner to solve the research problem, a science that studies how research is done scientifically since a research study is an effort to expand knowledge in a particular field of study. Research methods provide ideas, instruments and models that demonstrate how to conduct sound research (Babin & Zikmund, 2015).
This chapter describes the research methodology adopted to achieve the aim and objective of the research. A brief description of the research philosophy and design is followed by an explanation of the sampling procedure, as well as data collection methods. The validity and reliability of the measuring instrument, as well as the administration of the questionnaire, are also described. The chapter concludes by describing the statistical analysis of the data.