Challenges Faced By Small Businesses In Accounting

Challenges faced by Small Businesses in Accounting

Discuss about the Accounting Problems faced by Small Businesses.

The accounting field is the integral part of every business corporations. Both the smaller and larger enterprises need to be skilled enough to structure their financial statement appropriately to develop the knowledge while investing a fixed amount of capital or incur costs from the market. However, it has been observed that the smaller firms often face the considerable challenges in developing the accounting process. In fact, in compare to the larger business, the smaller businesses face such challenges in a more prominent way. According to Eavis (2016), unlike many other larger corporations, the smaller business faces the considerable challenges with the lack of capital resources that are used for paying the professional services. For instance, in a process like bookkeeping or accounting, the smaller business enterprises need to ensure larger investments. The smaller businesses can face the challenges in many of the aspects that are related to the accounting process.

This study would thus reflect on such considerable factors of accounting that are much riskier to mange for the smaller businesses. The research aims and objectives would adjust the focus of the study depending on which he literature study will explore the conceptual and theoretical background of the subject. The use of the appropriate methodology will also be discussed in this study.

The research subject is widely focusing on the considerable accounting problems faced by the small business firms.  The business marketers associated with the small business enterprises need to consider the right accounting process in order to avoid the emerging challenges. Lesonsky (2014) observed that the smaller business firms face the recognizable challenges in their financial accounting process on a daily basis. For instance, the lack of the skilled accountant can be challenging for the smaller business to keep the record of the financial statement of the business. According to Lowry (2015), accounting is the conceptual idea that develops the understanding of the financial aspects of the firm. It develops the knowledge regarding the financial information of the company. The smaller businesses often face the considerable challenges concerning the accounting information. It is essential for these companies to develop the effective solutions by addressing these issues. It has been observed that the small businesses mostly face the problem in the operational process if there is the mismanagement of the accounting procedures (Resnik, 2015). In many of the cases, it is noticed that the small businesses strive to develop the accounting information rightly that create the adverse effects on the business performance. The research study is thus formulated to identify those significant challenges that affect the business procedures in a recognizable way. Moreover, the study will even identify the necessity of developing the right financial and accounting statements to organize the internal functionalities and develop the profitability parameter. The study will also help in providing the solutions to deal with diverse accounting problems.

Aim and Objectives of the Research Study

The accounting process has become much significant for a company to keep the information about the financial aspects of the company. In fact, the current business world is highly influenced by the hanging rules and regulations. Similarly, in keeping pace with such regulatory factors, the accounting process also needs to be developed in a structured and informative way. Moreover, as stated by Collis, Holt and Hussey (2017), the importance of the accounting process has been increasing due to such changes brought to the regulatory factors in this business world. Hence, in order to maintain such financial statement much appropriately, it is quite necessary for the skilled accountant to create the fair financial statement. The smaller businesses are mostly facing the challenges in maintaining the appropriate financial statement to comply with the changed rules and regulations. The challenges emerge from various ways, such as the lack of skilled accountant or the appropriate software tools for preparing financial statements (DeYoung et al., 2015). It is thus necessary for these smaller businesses to address these challenges and develop the fruitful solutions to mitigate these challenges. The research study will put forward the idea of dealing with such challenges and the necessary strategies to eliminate the shortfalls in preparing the appropriate financial statements.

The aim of the research is to identify the significant accounting challenges that the smaller businesses have been facing in current business world. The study also attempts to identify the solutions for mitigating such identified challenges within the smaller businesses.

• To critically analyse the importance of accounting in the smaller businesses
• To identify the key accounting problems faced by smaller businesses like Café or Small Restaurants
• To develop understanding related to the key aspects of small businesses that are mainly affected by the accounting problem
• To provide the preferable recommendation to mitigate the emerging challenges in the accounting field

• What are the major importances of the accounting process in the small businesses?
• What are the major accounting problems that the small businesses like café and restaurants facing in current time?
• How the accounting disparities affect the smaller businesses like café and restaurants?
• How these identified accounting problems can be mitigated?

Research Hypothesis

H₀: Small businesses face challenges with the accounting disparities

H₁: Small businesses do not face challenges with the accounting disparities

The literature review of this study focuses on the conceptual and theoretical analysis of the accounting process undertaken by the businesses to prepare their financial statement. According to Goffee and Scase (2015), financial accounting is crucial for the business organisation to prepare the structured financial report based on which the businesses develop the understanding regarding the capital investments and incurred profits. It is noticeable that the appropriate financial accounting process helps in identifying the business potentiality and growth probability in an operating location. It also determines that whether the business has the probability to ensure success in a competitive landscape. The literature review will explore such conceptual analysis to identify the importance of preparing the appropriate financial accounting report. Furthermore, the literature will also identify the probable challenges faced by the small businesses in this context. The study will also highlight the affected business segments. The identification of these areas will provide the better solutions for mitigating the challenges.

Literature Review

Accounting is a practice of keeping the record of the businesses’ financial transactions. According to Ismail and King (2014), the accounting process is formulated by using the standard guidelines, summarization, transactions, and identification of the financial information. It is often presented in a financial report or financial statements, such as balance sheet or income statement. Each of the companies maintains a proper schedule to publish the financial information. This financial report is generally published for the external stakeholders of the business. Accounting process is generally conceptualized as one of the business languages since it communicates the financial conditions and performance in a clarified way. LaviaLópez and Hiebl (2014) defined that accounting is a method of identifying, measuring as well as communicating the financial information to permit the suitable decisions and judgments of the information users. As per the definition of Lipi, Rama and Agaraj (2015), accounting is the art of classifying, recording, and summarizing the financial transactions and events to ensure the better outcomes. In defining the term, Madurapperuma, Thilakerathne and Manawadu (2016) argued that accounting is not only a process of recording the financial transactions; rather it defines the existing financial condition of the company much precisely. In the small business field, this accounting process holds the most priority since the businesses need to keep the focus on their financial transactions on each step. it is important to appoint the skilled accountants who can use the software tools in an efficient and smarter way to prepare the accurate financial statement It has been observed that small businesses often face the significant challenges in developing the data regarding the financial transactions that affect the business functions in a significant way. The further study would thus develop the ideas about those segments that are highly affected by the accounting disparities.

Accounting process has the significant role in the making the relevant business decisions and improving the financial performance of any business. According to Williams and  O’Donovan (2015), every stakeholder of the business require the complete understanding of the financial condition of the company to gather ideas about the business potentiality. Similarly, the failure to the maintenance of the appropriate accounting process can signify the greater loss to business that have the long term impact. If the financial accounts are not maintained properly, it might reduce the chances for receiving the business loans for the further growth. Cassar, Ittner and Cavalluzzo (2015) identified that the accounting disparity affect mostly the small businesses that have lesser capital resources to be invested on a business. The accounting disparity creates the negative impacts on the small businesses in terms of increasing the financial capital that is to be used for the purpose of business expansion. In such context, it is essential for the businesses to maintain the appropriate accounting records for dealing with the emerging issues in this segment.

Conceptual Understanding of Accounting

Chenhall and Moers (2015) implied that the current technological advancements have been providing the enormous opportunities to the businesses to develop their financial accounting process in a skilled way. The technological tools used for keeping the record of the financial statements are much effective to ensure thee accurate information (Senftlechner and Hiebl, 2015). It is thus quite necessary for the small businesses to use these effective software tools that can produce the accurate financial records for performing much effectively in this competitive business scenario. It helps the smaller business to work with more efficiency level and improve the overall record keeping process of the firm in a remarkable way. Williams (2014) recognised that accounting is one of the most significant tools used for establishing the budgeting and structuring the future plans in a sequential and systematic way. Considering such requirements, it can be implied that it is important for the small businesses to concentrate on the accounting process to prepare the future budget. In fact, the small business companies can receive the adequate information about the financial performance, sales expectations, and cost expectations by considering the appropriate financial accounting process. A budget formulation depends on these aspects and it can clarify the vision of the company to become more futuristic. Hence, it is noticeable that accounting is one of the most effective processes to be considered to ensure future success of the firm. However, on the contrary, Scholes (2015) argued that small businesses have been facing most of the challenges due to the inappropriate maintenance of the finical statements, accounting software, and lack of skilled accountants. It is often presented in a financial report or financial statements, such as balance sheet or income statement. Each of the companies maintains a proper schedule to publish the financial information. In addition to this, the regulatory factors are also taken into considerations to determine the issues with the accounting process in the small business enterprises. These specific issues create the negative effects on the smaller businesses in a most significant way.

Lack of Knowledge and Skilled Workforce

As per the analysis presented by Warren and Jones (2018), small businesses are generally associated with the smaller number of the workforce to manage each of the segments in an effective way. Therefore, the SMEs often face challenges to maintain a proper bookkeeping process to record the updated financial information. It is important for each of the businesses to update their accounting information accurately to understand the business potentiality, investment parameter, and probability of incurring costs from the market (Senftlechner and Hiebl, 2015). Therefore, it can be inferred that the lack of skilled workforce is one of the major challenges that the small businesses face in the accounting field. If the small businesses cannot maintain the proper calculations in terms of developing the appropriate financial statement, it would be much improper for the business to identify the major functionalities that is needed to be adopted. The lack of appropriate financial entry can thus be one of the most considerable challenges in such context.

Impact of Accounting Disparities on Small Businesses

Improper use of the accounting software tools and expensive features

On the other hand, Agrawal and Cooper (2017) identified that many of the small businesses often purchase the effective accounting software that is supposed to resolve the issues emerging with the accounting process. However, they fail to understand that there is the significant difference identified between the record storage and accounting process. These software tools can function properly to calculate data if the accounting process is clarified. Without the appropriate accounting information, these tools cannot provide accurate recorded financial information. Therefore, it is noticed that the lack of adequate knowledge in handling these software tools is another significant challenge faced by the small businesses. It is a quite difficult task for the SMEs since it generally requires having knowledge on both the technical and accounting skills. On the other hand, Prencipe, Bar-Yosef and Dekker (2014) observed that many small businesses cannot even afford this expensive this software tool. The small businesses struggle to manage the capital resources to manage the business functionalities. Unlike the larger business organisations, these SMEs have the limited capital resources that are to be invested in developing the position of the organization. Hence, the SMEs fail to resolve the solutions the issues in such contexts.

Challenges regarding bank loans

Bank loan is anther challenging factor observed in the accounting process in the small businesses. It is noticeable that the failure to the maintenance of the appropriate accounting process can signify the greater loss to business that have the long term impact. If the financial accounts are not maintained properly, it might reduce the chances for receiving the business loans for the further growth. It is important for the business to check the assets and liabilities to formulate the appropriate financial statements (Senftlechner and Hiebl, 2015). This financial statement is needed to be presented to the banks in order to derive loans for the business. However, the improper arrangements of the information related to such assets and liabilities would lead towards the inaccurate financial statement. It affects the reputational aspect of the business in a significant way. It even creates obstacles in generating loans from the banks. In fact, the businesses face challenges in generating funds from other sources. Therefore, the business faces trouble in establishing the business in a sequential way.

Emergence of the Employment Issues

The issues with the employment rate are also concerned in such context. it is noticeable that the smaller businesses often cannot afford the high salary package or wages for the employees. It creates the significant challenge due to the lack of skilled workers. It is noticeable that the failure to the maintenance of the appropriate accounting process can signify the greater loss to business that have the long term impact (Burns 2016). The lack of skilled workforce would ensure the significant loss to business since the accounting process cannot be handled skillfully. The inaccurate data record and the inefficient method of handling the accounting process leads towards significant loss that is beyond mending. Hence, the smaller businesses have such risk with the lack of efficient employees. The employment issue is thus signifying the considerable challenges for the future prospects.

Technological Advancements in Accounting

Strategies to mitigate the challenges

Managing credits and debts is quite a significant issue for the smaller business firms. The obtained ideas from the above study highlights that if the small businesses firms fail to maintain the appropriate accounting process can signify the greater loss to business that have the long term impact. If the financial accounts are not maintained properly, it might reduce the chances for receiving the business loans for the further growth. Therefore, it is essential for the firms to develop the fruitful business strategies that can mitigate the challenges and develop the profitable scenario for the business. As recognised by Stewart and Gapp (2014), many of the challenges emerge from various ways, such as the lack of skilled accountant or the appropriate software tools for preparing financial statements. Therefore, it is important to appoint the skilled accountants who can use the software tools in an efficient and smarter way to prepare the accurate financial statement (Senftlechner and Hiebl, 2015). The structured presentation of the financial statement provides the fruitful insights regarding the business potentiality. Moreover, this financial statement can be presented to the banks for applying necessary loans.

The literature review also depicts that the improper arrangements of the information related to such assets and liabilities would lead towards the inaccurate financial statement. It is thus necessary to create the clear insights regarding the facts and figures, and assets and liabilities. The development of the profit and loss statement would help in identifying the balance between the liabilities and assets. It will resolve the issues in receiving loans from bank. The maintenance of the financial statements develops the clear insights regarding the valuable aspects of the small businesses (Karadag 2015). Preparing the balance sheet or income statement will forecast the business potentiality to ensure the market segment and opportunity. Each of the companies maintains a proper schedule to publish the financial information. It is noticeable that the appropriate financial accounting process helps in identifying the business potentiality and growth probability in an operating location. This accounting process holds the most priority since the businesses need to keep the focus on their financial transactions on each step.

Gap in the Literature

In spite of providing the adequate information related to the subject matter, the literature study fails to identify updated method of dealing with the issues in a specific way. It is noticed that majority of the process is developed by considering the traditional method of accounting. The advanced method of developing the accounting process lacks the in-depth analysis of the research. Hence, it can be stated that this literature study is quite limited.

Budgeting and Accounting Process for Small Businesses

Research Design and Methodology

Research design and methodology is the technique of categorizing the different frameworks for analyzing and collecting data in the study. The research will consist of asset of dogmatic assumptions which is the basis of evaluation so will consist of few assumptions. Research methodology is chosen on the basis of the nature and purpose of the study (Kanbir, Clements and Ellerton, 2018). In this current study, applied research will be used as it related to a particular industry and the findings of the study will facilitate in identifying the problems faced by the organizations and mitigating them by providing suitable solutions.

Research design

There are three types of research design used in research and they are exploratory, conclusive and explanatory.  In this current study, sequential explanatory method will be used which will consist of both quantitative and qualitative analysis of the data(Hintze, 2015). The quantitative data analysis will conducted at first to develop relevant findings in the study and then the qualitative analysis will validate the result and provide a different dimension to the findings.

Research approach

The research approach is of three types and they are inductive, deductive and abductive. The inductive and deductive approaches are differentiated based on the relevance of hypothesis in the study. Abductive approach provides a shocking facts and justifies these facts in the remaining part of the study. In this currents study, deductive approach is the suitable approach which will have to be selected (Sekaran and Bougie, 2016). The study will consist of suing mixed method where both primary and secondary analysis of data will be executed. Moreover, both quantitative and qualitative analysis of data will be used in this study.  The mixed approach is used to move the range of data to a different continuum by accepting theories that are supported by significant actions.

Type of data will be used

The study will use both primary and secondary data collection method to collect data. This will enable to compare the findings of the primary data analysis with the secondary collected data.

Data collection

The primary data collection will consist of using both open ended and close ended questionnaires. The qualitative analysis will consist of open ended questionnaires asked to the higher level managers within the organization (Cleary, Horsfall and Hayter, 2014). The collected data will be analyzed to evaluate common patterns which will determine the findings from qualitative data analysis.in quantitative data analysis, close ended questionnaire will be used where the lower level employees in different organization will answer (Lewis, 2015). The close ended question will facilitate in obtaining relevant answers from the study as the lower level employees lack knowledge in this subject. The research will also use secondary analysis of data where thematic analysis will be conducted and secondary content analysis will be conducted by collection data from different peer reviewed journals, articles, blogs and web articles.

Sampling Technique

Sampling is a method of reducing the chosen sample size in the study. There are certain occasions where the sample population is huge and analysis of such sample is cumbersome, costly and time consuming. Therefore, sampling is used to reduce the sample size such that sample population will represent the overall population in the study. There are two types of sampling method and they are probabilistic sampling and non-probabilistic sampling. The different probabilistic sampling methods are cluster sampling, stratified sampling, simple random sampling and systematic sampling(Bernardi, Meloand Schulten, 2015). Simple random sampling will randomly select respondents from the overall population where it provides equal opportunity the whole population of being selected. Systematic sampling is the method of random sampling where the nth variable from the overall population is selected where n is the interval. Stratified sampling is a method where population is divided into clusters that do not overlap with each other. The sample populations are randomly selected from this population and cluster sampling is a multi-staged sampling where all the other sampling methods are used to select sample respondents for the study. Snowball sampling, quota sampling, convenience sampling, and extensive sampling and judgement sampling are the different non probabilistic sampling method in the study (Gentleset al., 2015). Non probabilistic sampling is used in case of small sample size and in cases where there are less chances of finding respondents. In this currents study, simple random sampling will be used to collect 100 respondents for quantitative analysis of data and 10 respondents for qualitative analysis of data.  The study will also collect 15 peer reviewed journals initially and non-probabilistic sampling will be used to select 10 journal out of it.

Data analysis

The study will consist of mixed method which will consist of analyzing both quantitative, qualitative and secondary data.  The quantitative data analysis will consist of developing frequency responses, graphs, tables, and descriptive statistics. The study will also use regression analysis where the relationship between two variables will be determined in the study. The nature and degree of relationship and the F-statistics will prove the hypothesis. In this research Ms Excel will have to be used as a statistical tool for conducting the quantitative data analysis (Maxwell, Chmiel and Rogers, 2015). The qualitative data analysis will consist of content analysis where the patterns form the answer of the different managers will be examined to provide a diverse dimension to the study. The secondary analysis of data will consist of thematic analysis where different themes will be developed based on the objectives. The findings in the secondary analysis and the primary data analysis will be compared to check relevant findings.

Research ethics

The research will maintain the anonymity and privacy of the respondents and the data will not be used for any other purpose. The respondents will be made aware of the objective of the study and none of them will force to take part in the survey (Haggerty, 2016).  The data collected will not been manipulated to develop findings that are relevant to the study. The secondary data will be collected from high quality journals and all the regulations of the data protection act will be maintained

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