An analysis of the use of financial information in local small companies

Abstract

This study examines the relevance and use of accounting information within local small companies operating within the manufacturing, wholesale and retail sector. Data was collected via a questionnaire from ninety-nine respondents and analysed using SPSS software. In general, owner-managers of small companies recognise the need to have financial information to back up managerial decisions but this is rather limited. Research findings indicate that small companies benefit from the annual financial reporting requirement particularly for comparing performance with previous years and for obtaining loan financing. Sixty six percent of respondents acknowledge that annual financial statement information does not provide sufficient information to aid managers in planning, controlling and decision-making. Management accounts drawn on a periodic basis are accordingly considered an essential source of information. The bank reconciliation statement and aged debtor analysis report are available within the vast majority of small companies surveyed and these are drawn on a more frequent basis relative to other internal reports, thereby signifying the importance of monitoring cash and trade receivables. In contrast, break-even analysis, ratio analysis and cost classification are done by less than sixty percent of surveyed companies. Whilst nearly the entire sample stated that owner-managers are the prime users of internal financial reports, the fact that several owner-managers are not sufficiently numerate may cast doubt on their ability to effectively utilise it in decision-making. The accountant, among other professionals, is the most common source of business advice for small companies, with 74.6 percent of respondents referring to their internal accountant and/or external account Traditional accounting services and advisory services provided by external accountants are considered to be good value for money by more than ninety percent of sampled companies.