Abstract
The purpose of this study was to examine and evaluate SMEs’ implementation of minimum accounting practices which are some of the real underlying symptoms that lead to small and medium-size (SMEs) business failures, especially in rural and semi-urban areas. The study was conducted in Thohoyandou, the Central Business District (CBD) of Thulamela Municipality in the Vhembe district in Limpopo province, South Africa. The study used data based on responses to a structured questionnaire from randomly selected SMEs in Thohoyandou, an area whose SME business environment is similar to the challenges and opportunities faced by many other rural and semi-urban areas in South Africa. Due to cost and time constraints, the study sample was limited to 40 SMEs. The study findings confirm that SMEs often fail to comply with fundamental accounting practices like maintaining complete accounting records, which limits business information vital for decision making, as they think there is no need to keep them and that it exposes their financial position. The relevance of the study is to show how non-adherence to adequate accounting practices can negatively affect SMEs financial performance which consequently contribute to their inevitable failure. The study recommends development of training policy guidelines to sensitize SMEs of the need to comply with relevant accounting practices including internal controls and the legal requirements. Keywords: accounting practices, SMEs, symptoms, record keeping, failures. JEL Classification: M41
Highlights
The goal of this study was to determine the symptoms of accounting practices that contribute to failure in small businesses in South Africa, especially in rural areas
We present both the statistical and descriptive findings of the data collected from questionnaires which include demographic characteristics, the profile of a firm, accounting bases, reasons for the chosen accounting bases, financial reporting standards, accounting records used, financial statements prepared, and challenges faced by these businesses, among others
Most studies aimed at prediction of small business failures have largely stressed pitfalls in over-all financial management as the main reason
Summary
Less than 50% of newly established businesses survive beyond five years and this is experienced in South Africa, and a common phenomenon in the rest of the world (Annekie et al, 2003). Small business enterprises (SMEs) are an excellent source of employment generation, help in the development of local technology and develop indigenous entrepreneurs, irrefutably remain critical to the development of the economy (Erdem & Erdem, 2011). The assessment of the problems the SMEs encounter and development of training programs to address these problems should go a long way to assist these SMEs to be equipped with the necessary accounting practices, financial and managerial skills to survive. Most research on causes of small business failure has so far focused on challenges of access to finance or broad financial management. As a departure from the usual approach, the purpose of this study is to investigate some of the accounting practices that if ignored can be symptomatic to small business failures, especially in rural areas. Relevant policy recommendations are made to reduce SMEs mortality rate
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