Between 300 and 400 Iowa companies, mostly small firms, file for bankruptcy every year, and most of them go out of business. So, too, do scores of other small companies that choose to shut down without going through the bankruptcy process. The result is a loss of hundreds of jobs. Many of those jobs could have been saved if the owners had considered a full range of strategies to acquire capital.

Lack of cash flow is consistently the No. 1 reason small firms go out of business. By the time many companies recognize their cash-flow problems, however, it may be too late. It’s in the early stages of a business when planning ahead can help the firm survive.

When people think of finding cash to keep their businesses afloat, they immediately think of bank loans and selling stock. However, for a lot of small firms these sources of cash are hard, if not impossible, to tap. This might be especially true in an emergency, which is often the result of a softening economy. Perhaps the owners’ credit rating is low, or they cannot find a bank — or anyone, for that matter — willing to invest in their risky venture.

In our search for alternatives to banks and public markets, we came across a Swedish study that examined how their domestic firms obtained financing. The authors found that when Swedish entrepreneurs needed to find ways to stay afloat, they used a number of imaginative and resourceful solutions that did not involve new debt or market equity. The authors labeled these resources “bootstrap financing.”

In an effort to learn if owners of Iowa small businesses consistently employ bootstrap financing, what techniques they were using and what motivated them to choose particular ones, we surveyed 56 failed Iowa businesses and 57 ongoing ones. We found that Iowa small business owners choose bootstrap financing in much the same way as those in Sweden.

The strategies fall into five broad categories: delaying payments; minimizing accounts receivable (by choosing customers who pay quickly, for example, or requiring advance payment); minimizing investments and expenditures; private owner financing; and sharing resources (equipment, office space or employees) with other businesses.

We also found that the Iowa small business owners’ preconceived notions of themselves, their businesses and their markets influence which techniques they choose. For example, we found that those who perceive themselves as having less ability chose private owner-financing techniques, such as borrowing against their insurance polices. Payment-delaying techniques, such as holding back suppliers’ payments until the last possible moment, are most likely to be used by those who perceive a very risky climate. An effort to minimize payments due is preferred where business environments appear to have the most opportunity.

We drew two conclusions. First, small business owners should acquaint themselves with all possible ways to find or collect cash and do so before they experience cash-flow difficulties. Not only should they consider using any or all of the bootstrap financing techniques that have been identified so far, but they should also be ready to develop new alternatives that have yet to be regularly employed.

The second conclusion is that owners should be wary of their own proclivities toward certain techniques based on possibly unfounded notions of their environment and themselves. Iowans are known for their resourcefulness; our entrepreneurs can use this attribute and their imaginations to find ways to manage financial crises.

Rick Carter is chair of the departments of accounting and finance, and Howard Van Auken is a professor of management at the Iowa State University College of Business.