Symptoms of accounting practices that contribute to small business failures

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