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Financial management practice amongst SMEs

Berry, Anthony J. and Sweeting, Robert and Goto, Jitsuo and Taylor, Mary (2002) Financial management practice amongst SMEs. UNSPECIFIED. Manchester Metropolitan University.

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Abstract

While deficiencies in financial management have been repeatedly cited as a root cause of business failure (Najak and Greenfield 1994) two arguments are advanced for such deficiencies in SMEs; that new accounting is not relevant and that SME managers are unable to make use of accounting. Here it is argued that accounting ideas are relevant to SMEs but that a process of innovation combining both knowledge to overcome a barrier of belief and an external shock are necessary in order for innovation to take place. These ideas were explored through a survey of SMEs from both service and manufacturing business in the Greater Manchester region. It was observed that the use of accounting techniques is negatively related to growth in turnover. However the use of accounting techniques that were related to product market was found to be positively related to growth in turnover and that owner/managers belief in the importance of accounting in business decisions was strongly related to growth in turnover. These results were the more interesting when it was observed that growth was negatively related to size. A second theme of the research was the significance of the role of external advisors. Prima facie it was suggested that external advisors may be key agents of change, but the study found that their (accountants, academics and consultants) perceived value was relatively low. The findings of this survey suggest that when accounting is perceived to be relevant then its use does support business growth but innovation in accounting in SME requires further research.

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