Operating budgets in Maltese SMEs : an analysis

Abstract

Purpose: This research explores the general role of operating budgets in Maltese SMEs. Specifically, this study aims to analyse and assess the use of operating budgets by Maltese SMEs for control, performance evaluation, and reward purposes. Design: In order to reach the research objectives, a qualitative research approach was adopted. Semi-structured interviews were conducted with twenty-one Maltese SMEs from different economic sectors in Malta. Findings: The research participants confirmed that operating budgets are a good indication of forthcoming revenue and expenses, and that they are used to plan and assess operations. When it comes to the use of operating budgets for control purposes, the findings show that most Maltese SMEs prefer to exercise tight control by frequently reviewing the operating budgets and by having a low tolerance for budget deviations. Maltese SMEs only make use of operating budgets when evaluating the performance of the whole organisation and not for individuals. Despite this, employees are rewarded when the budgeted targets are met. However, this is not done on an individual basis. Conclusions: This study sheds light on the day-to-day use of operating budgets in Maltese SMEs. It particularly highlights the importance of operating budgets for the majority of Maltese SMEs when it comes to their use for control, performance evaluation and rewards. Although operating budgets are crucial for SMEs, they are not the only relevant factor for performance evaluation and rewards, since non-financial factors should also be considered. Value: SMEs are a vital component of the Maltese economy since the majority of businesses are SMEs. This study highlights how important operating budgets are for day-to-day operations. They also aid SMEs in growing and reaching their objectives as well as having a better overall performance.