In lieu of an abstract, here is a brief excerpt of the content:

89 C H A P T E R 5 The Bottom Line: Business and Household Blurred Boundaries between Business and Household In this chapter we examine the entrepreneurs’ business and household income over a five-year period. Income is the typical measure of microenterprise success, but as we demonstrate, measurement presents a number of challenges. We also expand the discussion of financial position to include assets , liabilities, and net worth. Although often overlooked in anti-poverty research , these are appropriate outcome measures for research on enterprise, even very small enterprise. Everything just went into the pot, and then everything came out of it. —Judy, retail textiles In many cases, business and household are not distinct financial entities. Sometimes the entrepreneurs said they made no profit, but later talked about what they did with their business “profits.” Some admitted that they did not keep “books,” often because the businesses were so small they could keep track in their heads. Others tried to keep books, but acknowledged reaching into business accounts to pay for household expenses or reaching into household accounts to pay for business expenses. In many cases, there was only one pot of money, sometimes kept in the bank, and other times kept at home. Sometimes these financial transactions were carefully tracked and/or recorded, but quite clearly in many cases they were not. Because of the imprecise nature of financial records, confusion and difficulty in reporting financial outcomes, and the blurring of boundaries between business and household, it was difficult for many of the entrepreneurs to say with certainty whether they made profits and how much. Collecting accurate data on personal and business finances is a challenge. A variety of problems, including accuracy of recall, misunderstanding of terms, awareness, social desirability, and beliefs that finances should be private can reduce the reliability of financial data. In our conversations with the entrepreneurs we found that the most serious issues were confusion about terms and blurred boundaries between the business and household, both of which made it difficult to generate a clear picture of financial outcomes. Indeed, based on this experience, we have serious doubts about the quality of most survey data on the financial position of microentrepreneurs. Anita’s case illustrates the difficulty of measuring business and household finances. The way she talked about her bookkeeping at first led us to conclude that she kept finances entirely separate: “I had no profit left after I paid for the loan . . . and the rent and other expenses I had to cover. I kept a register and the accountant also kept records on our profits (although there weren’t any). I finished paying the loan with my income from my job.” But she later said she used her job income to cover household and outstanding business expenses. It was clear that she subsidized her business from her wage income, but it was difficult to assess if finances were mingled and unaccounted for. Based on the measurement problems exemplified by Anita’s case, we divided the entrepreneurs into three groups, using the following rules to distinguish the level of financial separation between business and household. “Separate” suggests that three conditions were met: (1) there were separate accounting systems for business and household; (2) the business was not subsidized by household funds without accounting for it (an exception to this is made in the business start-up phase when they were learning how to keep separate accounts); and (3) household expenses were not covered by business funds other than through salary or draw or without accounting for it. Returning to Anita’s case, we determined that she kept separate accounts because she kept separate bank accounts, she paid her children for working for the business (she took no “draw” herself), and because she demonstrated understanding and basic implementation of separate accounts. (Whether or not it was a good idea to subsidize her business to the extent that she did was a separate matter.) In thirty-two cases (37 percent) the entrepreneurs kept household and business records separate. Cora said that in the beginning she borrowed from her business to pay for household necessities and then paid the business back, but then she said, “I think I took out more than I put back though, . . .” However, by the time of the interview, she reported having separate accounts and keeping finances strictly separate. Sherri had also improved her accounting practices: There were times last year that I ended up spending—writing checks out of my own account...

Share