REFILOE GLADYS BENEDICT - UJ IR

AN INVESTIGATION OF THE ACCOUNTING RECORDS

MAINTAINED BY BLACK BUSINESSES IN QWAQWA

By

REFILOE GLADYS BENEDICT

FULL DISSERTATION

Submitted in fulfilment of the requirements for the degree

MASTERS COMMERCII

in

ACCOUNTING

in the

FACULTY OF ECONOMIC AND FINANCIAL SCIENCES

at the

UNIVERSITY OF JOHANNESBURG

SUPERVISOR: PROFESSOR D COETSEE

MAY 2012

ii

DECLARATION

I hereby declare that this dissertation, submitted to the University of Johannesburg (UJ) for the

degree of Master of Commercial in Accounting has not been previously submitted by me for any

degree at any University elsewhere. I confirm that this study is a product of my own work in

design and execution and that all the material contained in it has been duly acknowledged.

Name……………………

Signed……………………

Date……………………..

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DEDICATION

To God be the glory for all the great things He has done.

This dissertation is dedicated to my wonderful husband,

Olumide Henrie;

and my beautiful children

Korede Lehlohonolo, Ibunkun Rorisang and Opefoluwa Bokang

may our lives as a family be filled with affection,

happiness and the love of God…Amen

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ACKNOWLEDGEMENTS

I thank the almighty God for keeping me alive till today and seeing me through my endeavours.

I will always be indebted to you and love you all the days of my life. With much respect and

appreciation, I thank my supervisor Professor D. Coetsee. You were very thorough in the

scrutiny my work and constructive in your recommendations and amendments. Thank you for

your inspiration.

To my wonderful families: the Makobanes and the Benedicts. I don’t know how to start

expressing my gratitude to you. For your love, guidance, discipline, support and, most especially,

your prayers, I thank you. May God preserve your lives and keep you. Also, thank you to my

siblings. I love you all. I thank my entire extended family.

Warm regards to all my respondents, without whose cooperation this study would not have been

possible. Thank you for taking time to answer the questions. I am keeping my promise and the

responses are strictly for research purposes.

To my research assistants, friends and helpers, Shibe (Angie), Pusheletso (Pushi), Ronel and her

Husband, Gissele (Gisy), Thembekile (Thembi) and others, I do not underestimate your

contributions. I recognise, respect and thank you. To my colleagues at work, I thank you for your

immense contributions and understating.

I acknowledge the contribution of the Research Development Office of the University of

Johannesburg, for supporting and funding this research, together with the National Research

Fund (NRF). Special thanks and recognition to the Head of our Department, Mr. Dirkie van Der

Watt, for his understanding and quick responses to enquiries. I respect you. Keep up the good

work!

Last but not the least, I thank the University of Johannesburg. “You’re the best”. I acknowledge

the support and constant empathy from the administrative and library staff. To all whose names I

did not mention, also thanks – I acknowledge every one of you from my heart.

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ABSTRACT

Towards addressing the detrimental economic effects past dispensations had on the marginalized

majority, different Government initiatives and other interventions have been put in place to

encourage the participation of Blacks in the economy of South Africa. These development

initiatives seek to address poverty and unemployment levels, some focussing on growing small,

medium, and micro enterprises (SMMEs). Growth and sustainability of such businesses can only

be achieved through the maintenance of appropriate financial information, on which economic

decisions are based, but such information can only be generated or processed if relevant and

adequate accounting data, through accounting recordkeeping, are maintained.

The study examines whether this is also applicable to micro or survivalist businesses, and was

carried out to investigate the accounting records maintained by small Black-owned businesses in

QwaQwa. In the literature study it became vital to elucidate the uniqueness of micro and

survivalist businesses as they are often generalised under the rather broad umbrella of the term

‘SMMEs’. The literature further indicates that there is no prescribed regulation or framework

specifically for accounting recordkeeping in micro and survivalist businesses.

The dissertation analyses responses to questionnaires administered to a purposively selected

sample of 88 small Black-owned businesses in QwaQwa, and interpreting 44 respondents

interviewed. The interviews became necessary due to insufficient responses to the section in the

questionnaires addressing the third research objective. Hence, both a quantitative and a

qualitative research design were eventually used. Data collection took place at respondents’

business premises. Responses to the questionnaires were analysed using Statistical Package for

the Social Sciences (SPSS), which was used to generate descriptive statistics. The researcher

documented the interview proceedings in written format. Common responses from interviews

were clustered in themes then interpreted.

Results show that small Black-business owners maintain some basic form of accounting records

such as sales records, payment records and stock records, however, since they operate mainly on

the cash basis, debtors’ and creditors’ records were seldom maintained. These findings are

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consistent with previous studies into the kind of accounting records maintained by small

businesses. Small Black-business owners also perceived maintaining accounting records to be

important in determining the profitability and future sustainability of their businesses.

These owners, however, demonstrated limited understanding of accounting concepts and

principles or how these applied to their business. They identified a need for some form of

interventions to improve their knowledge of accounting recordkeeping and risk management. A

further need identified was the availability of funds to finance their businesses. Therefore,

financial help together with training and development are needed to better their businesses. This

may go a long way in improving growth and stability, as well as reducing the poverty and

unemployment rate in the country.

In order for micro and survivalist business owners to realise some of the benefits of maintaining

relevant accounting records, it is recommended that the owners are trained on how to keep basic

accounting records that are useful and easy to convert into accounting information, and that may

add value to their businesses and ensure the monitoring of profitability and sustainable growth.

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TABLE OF CONTENTS

PAGE

LIST OF TABLES xv

LIST OF FIGURES xvii

LIST OF ACRONYMS xix

CHAPTER 1: BACKGROUND, OBJECTIVES AND SCOPE OF DISSERTATION 1

1.1 Introduction 1

1.2 Small businesses in South Africa 1

1.3 Motivation for study 2

1.4 Statement of the problem 3

1.5 Research question 4

1.6 Research objectives 4

1.7 Research structure 6

1.8 Methodology 7

1.9 Significance of the dissertation 7

1.10 Delimitation of the dissertation 8

1.11 Outline and structure of the chapters 8

1.12 Conclusion 11

CHAPTER 2: LITERATURE REVIEW 12

2.1 Introduction 12

2.2 Black involvement in the economy 14

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2.3 Empowerment and black economic empowerment 15

2.3.1 Legislation 16

2.3.2 Broad-Based Black Economic Empowerment 17

2.3.3 Empowerment initiatives and shortcomings 18

2.3.4 Conclusion 20

2.4 Description, classification and nature of small businesses 21

2.4.1 Definition and classification of small businesses 21

2.4.2 Formal and informal businesses 24

2.4.3 Importance of small businesses 26

2.5 Financial management for small business 30

2.6 Financial reporting 32

2.6.1 Applicability of financial statements to big and small businesses 36

2.6.2 Differential reporting 36

2.6.3 Conclusion 41

2.7 Financial accounting records and bookkeeping 42

2.7.1 Nature of accounting records 42

2.7.2 Importance of records and bookkeeping 43

2.7.3 Financial accounting records that should be kept by small businesses 44

2.7.3.1 Cash records and bank account 46

2.7.3.2 Sales/revenue records 47

2.7.3.3 Debtors records 48

2.7.3.4 Purchases records 48

2.7.3.5 Creditors records 49

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2.7.3.6 Wages and salaries 49

2.7.4 Conclusion 49

2.8 Need for training in accounting 50

2.9 Conclusion 51

CHAPTER 3: RESEARCH METHODOLOGY 53

3.1 Introduction 53

3.2 Research objective 53

3.3 Research methodology 54

3.4 Research design 55

3.4.1 The research instruments 55

3.4.1.1 The questionnaire 56

3.4.1.2 The interviews 57

3.4.2 Data analysis and interpretation 58

3.4.3 Scientific Validity 58

3.5 Method of sampling 60

3.5.1 Sampling and source of data 60

3.5.2 Recruitment, participation and ethical issues 62

3.6 Conclusion 62

CHAPTER 4: PRESENTATION AND DISCUSSION OF QUSTIONNNAIRES 64

4.1 Introduction 64

4.2 The questionnaire 64

x

4.3 Section A: General Information 65

4.3.1 Gender of respondents 65

4.3.2 Age of Respondents 67

4.3.3 Qualification 68

4.3.4 Conclusion 69

4.4 Section B: Nature of business 69

4.4.1 Existence of the business 69

4.4.2 Type of ownership 71

4.4.3 Type of industry 72

4.4.4 Means of starting business 73

4.4.5 Conclusion 74

4.5 Section C: Accounting records 75

4.5.1 Banking facilities 75

4.5.1.1 Customer payment 75

4.5.1.2 Banking facilities 76

4.5.1.3 Type of bank account 77

4.5.1.4 Internet banking 78

4.5.1.5 Telephone banking 79

4.5.1.6 Bank card 80

4.5.2 Conclusion on banking 81

4.5.3 Accounting records 82

4.5.3.1 Recording revenue 82

4.5.3.2 Recording of expenses 83

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4.5.3.3 Debtors and creditors records 85

4.5.3.4 Cash book 87

4.5.3.5 Frequency of preparation of financial statements 88

4.5.3.6 Financial statements 89

4.5.3.6.1 Statement of financial position (Balance sheet) 90

4.5.3.6.2 Cash flow statement 91

4.5.4 Conclusion 92

4.6 Section D: Finance 93

4.6.1 Purpose of financial statement 94

4.6.2 Funding of business 95

4.6.3 Start-up funding of business 96

4.6.4 Conclusion 97

4.7 Section E and F 98

4.8 Conclusion 98

CHAPTER 5: PRESENTATION AND DISCUSSION OF INTERVIEWS 100

5.1 Introduction 100

5.2 Research method and presentation 101

5.3 Presentations and discussions based on interviews 102

5.3.1 Type of accounting records 102

5.3.2 Perception regarding accounting records 103

5.3.2.1 Question 103

5.3.2.2 Descriptive presentation of results 103

5.3.2.3 Interpretation: Perception regarding accounting records 105

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5.3.3 Perception regarding management of financial risks 106



5.3.3.3 Interpretation: Perception regarding management of financial risks 108

5.3.4 Perception regarding the respondents’ knowledge 108



5.3.4.3 Interpretation: Perception regarding respondents’ knowledge 110

5.3.5 Perception regarding the respondents’ knowledge 111



5.3.5.3 Interpretation: Perception regarding respondents needs 113

5.4 Conclusion 113

CHAPTER 6: RECOMMENDATIONS AND CONCLUSION 115

6.1 Introduction 115

6.2 The literature review 116

6.3 Questionnaires 117

6.4 Interviews 117

6.5 Conclusion 118

6.6 Recommendations 120

6.6.1 Accounting training 120

6.6.2 University engagement with informal micro and survivalist businesses 120

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6.6.3 A simple, relevant and comparable guideline for micro businesses 120

6.6.4 Database for informal businesses 121

6.7 Further Research 121

REFERENCE LIST 123

APPENDICES 135

Appendix 1 Questionnaire 135

xiv

LIST OF TABLES

Table 1.1 Research structure 6

Table 2.1 Categories of SMMEs (National Small Business Act, 2004) 23

Table 2.2 Government Development Institution for Small Business

(Agupusi, 2007:6) 29

Table 2.3 Financial reporting standards and application to categories 37

Table 3.1 Objectives 2 and 3 of the dissertation and the instruments used 56

Table 4.1 Sections of the Questionnaire 65

Table 4.3 Ages of Respondents 67

Table 4.4 Highest Qualification 68

Table 4.5 Existence of the business 70

Table 4.6 Type of ownership 71

Table 4.7 Type of industry 72

Table 4.8 Means of starting business 74

Table 4.9 Customer payment 75

Table 4.10 Banking facilities 77

Table 4.11 Use of internet banking facilities 78

Table 4.12 Use of telephone banking 80

Table 4.13 Use of credit card facilities 81

Table 4.14 Recording of revenue 82

Table 4.15 Recording of expenses 84

Table 4.16 Records of debtors 85

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Table 4.17 Recording of creditors 86

Table 4.18 Maintaining cash book 87

Table 4.19 Frequency of preparing financial statement 88

Table 4.20 Preparation of income statement 89

Table 4.21 Preparation of balance sheet 91

Table 4.22 Preparation of cash flow statement 91

Table 5.1 Importance of maintaining accounting records 104

Table 5.2 Financial risk management 107

Table 5.3 Knowledge of maintaining accounting records 110

Table 5.4 Training needs 112

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LIST OF FIGURES

Figure 1.1 Focus of the study 6

Figure 2.1 First and Second Economies (DTI, 2004) 25

Figure 2.2 Links between Accounting Records and Financial Statements

(based on elements of financial statements) 33

Figure 2.3 Barriers of applicability is IFRS for SMEs 40

Table 3.2 Features of Qualitative & Quantitative Research (Neil, 2007) 59

Figure 4.2 Genders of Respondents 66

Figure 4.3 Ages of Respondents 67

Figure 4.4 Highest Qualification 68

Figure 4.5 Existence of the business 70

Figure 4.6 Type of ownership 72

Figure 4.7 Type of industry 73

Figure 4.8 Means of starting business 74

Figure 4.9 Customer payment 76

Figure 4.10 Banking facilities 78

Figure 4.11 Use of internet banking facilities 79

Figure 4.12 Use of telephone banking 80

Figure 4.13 Use of credit card facilities 81

Figure 4.14 Recording of revenue 83

Figure 4.15 Recording of expenses 84

Figure 4.16 Records of debtors 85

Figure 4.17 Recording of creditors 86

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Figure 4.18 Maintaining cash book 87

Figure 4.19 Frequency of preparing financial statement 88

Figure 4.21 Preparation of balance sheet 91

Figure 4.22 Preparation of cash flow statement 92

Figure 5.1 Importance of maintaining accounting records 104

Figure 5.2 Financial risk management 107

Figure 5.3 Knowledge of maintaining accounting records 110

Figure 5.4 Training needs 112

Figure 6.1 Empirical situation of the focus of dissertation 119

xviii

LIST OF ACRONYMS

ANC African National Congress

ASGI-SA Accelerated and Shared Growth Initiative

BBBEE Broad-Based Black Economic Empowerment

BEE Black Economic Empowerment

CIPC Companies and Intellectual Property Commission

DTI Department of Trade and Industry

ETU Education and Training Unit

FDC Free State Development Corporation

FRS Financial Reporting Standards

GAAP Generally Accepted Accounting Practice

GEP Gauteng Enterprise Propeller

GNP Gross National Product

IASB International Accounting Standard Board

ICT Information and Communication Technologies

IDC Industrial Development Commission

IFRS International Financial Reporting Standards

NEF National Empowerment Fund

PFMA Public Finance Management Act

RSA Republic of South Africa

SAMAF South African Micro Fund Apex Fund

SARS South African Revenue Services

xix

SEDA Small Enterprises Development Agency

SMEs Small Medium Enterprises

SMMEs Small Medium Micro Enterprises

SPSS Statistical Package for the Social Sciences

UK United Kingdom

USA United States of America

VAT Value Added Tax

1

CHAPTER 1

BACKGROUND, OBJECTIVES AND SCOPE OF DISSERTATION

1.1 INTRODUCTION

This dissertation is an investigation of the financial accounting records maintained by small

Black-owned businesses in the rural area of QwaQwa in the Free State Province of South

Africa, hereafter referred to as QwaQwa. This chapter presents the background to the

dissertation, the rationale behind it, and the research problem. It further highlights the

research questions and objectives which will later serve as a guide in developing the research

data collection instruments, namely the questionnaire and structured interviews. Finally, it

demarcates the field of study and outlines the structure of the dissertation.

1.2 SMALL BUSINESSES IN SOUTH AFRICA

De Farias, Nataraajan and Kovacs (2009:1) pointed out that small business, including those

that are solely owned, family owned and sometimes partnerships, are becoming an area of

focus in the economic development of most countries. In South Africa, coupled with

legislation on redistribution of wealth, affirmative action and post-apartheid governance,

small businesses (especially those of previously disadvantaged groups) are being given

considerable attention (Edigheji, 2004: 11). Many studies (Cahan & Van Staden, 2009;

Rwigema & Venter, 2005; Brink, Cant & Lighthelm, 2003), which have generated different

findings, have been conducted on small businesses in South Africa. Access to capital or start-

up funds is just one of the many persistent problems that small Black-owned businesses face

(Allee & Yohn, 2009; Drew, 2007a). To overcome this challenge, many have participated in

augmented loan programmes (Beech, 1997:1), some of which are administered by private

institutions, banks and government institutions.

2

Identified problems, which are relevant to the current study, include lack of managerial

competences (Van Auken, 2001:242), and a lack of knowledge and use of financial

information (Allee & Yohn, 2009:2). These authors claim that these factors may result in the

taking of wrong economic decisions that affect the business adversely.

In QwaQwa, the geographical focus of this dissertation, one of the major institutions, apart

from the commercial banks, that provide Black entrepreneurs with finance is the Free State

Development Corporation (FDC). This was established during preliminary investigations.

Nevertheless, it may be the case that access to finance fails to solve all the problems faced by

small businesses. The use and knowledge of financial information is important, and the

researcher believes that a small business owner can have financial information only if some

form of accounting record is maintained. Hence, this serves as the main motivation for the

research. This opinion is backed by Rajaram and O’Neill (2009:100), who argue that these

business owners need to have “the knowledge and accounting skills” to confidently ascertain

the “fundamental question” of whether or not their businesses are making a profit.

1.3 MOTIVATION FOR THE STUDY

The importance of accounting records as a basis for financial information (Rajaram &

O’Neill, 2009:100), as well as the researcher’s previous interaction with some business

owners in QwaQwa, provide the basic motivations for this study. The researcher’s attention

was drawn to this topic because of the role of small businesses in the sustainable

empowerment and eradication of poverty amongst Black people in the rural area of QwaQwa.

The area is also convenient and cost-effective for the researcher to gather information

because it was the researcher’s place of permanent residence. It is important to also state that

the researcher took part in a community service initiative that entailed helping and teaching

small businesses in QwaQwa how to keep accounting records of their businesses. This

initiative also exposed the researcher to the need of investigating what financial accounting

records are being maintained by these Black-owned small businesses. The study into these

matters is intended to locate needs for better practices or training.

3

It is the researcher’s opinion that investigating the accounting records of these businesses and

understanding their owners’ perceptions on the importance of accounting information may be

helpful in recommending interventions that may contribute towards their sustainability and

long-term success. In this way, the researcher therefore hopes that this dissertation may be

able to assist, in creating more awareness among entrepreneurs of the importance of keeping

accounting records for small businesses.

Preliminary investigations also identified a need for better management of small businesses.

Although business plans and marketing research may have been prepared and presented, it

seems that the majority of these small Black business owners lack the accounting skills to

record, control, report and manage their finances and business transactions (FDC, 2006). The

study therefore also aims to fill a knowledge gap, as although there is a wealth of existing

knowledge about small businesses and their importance to the economy, little research has

been conducted on micro businesses or the type of accounting records that they keep. As will

be seen in the literature review, studies already conducted on the accounting recordkeeping of

small businesses have received little attention compared to those on financial statements of

formal businesses, e.g., companies and registered small businesses.

1.4 STATEMENT OF THE PROBLEM

The problem in this dissertation is twofold: to investigate and evaluate the financial

accounting records maintained by small Black-owned businesses in QwaQwa, and to gather

their perceptions on the importance of maintaining financial accounting records.

A preliminary study, through non-scheduled interviews with FDC and small Black-owned

businesses in QwaQwa, coupled with observations of the industrial areas and commercial

venues, showed that small Black businesses in the rural area were facing many difficulties in

remaining profitable and sustainable. Possible reasons for this were considered to be lack of

proper financial information at their disposal and absence of accounting records.

4

1.5 RESEARCH QUESTIONS

Having stated the research problem and explained the background and motivation of this

study, it is important to clarify the research questions (Badenhorst, 2010:26). The following

three research questions were posed in this dissertation:

1. What financial accounting records should be maintained by small businesses?

2. What financial accounting records do small Black-owned businesses in the rural area of

QwaQwa maintain?

3. How important do small Black-owned businesses in QwaQwa perceive the maintaining

of financial accounting records to be?

1.6 RESEARCH OBJECTIVES

Bak (2004:16) suggested that research objectives may either be academic (primarily to fill

knowledge gaps) or strategic (non-academic audiences). The objectives here are both primary

and strategic as they fill the knowledge gap about small Black-owned businesses in QwaQwa,

and the findings may also be useful for policymakers. The three research questions that were

earlier identified resulted in the following research objectives:

1. To explain, through the use of relevant literature, the nature of the financial

accounting records that should be maintained by small businesses.

2. To investigate what financial accounting records are being maintained by small

Black-owned businesses in QwaQwa.

3. To understand how small Black-owned businesses in QwaQwa perceive the

importance of maintaining financial accounting records.

5

The focus of the dissertation is depicted graphically in Figure 1.1 (below), with illustration of

the relationships between the key focus areas and topics of this study. This Figure presents a

simplified model for small businesses working to be more informed and more profitable,

thereby reducing unemployment and poverty rate. If financial information can be generated

and the owner is able to keep accounting records, it should lead to better economic decisions

and profitability.

Figure 1.1 Focus of the dissertation

This is however an idealised model and most small businesses do not have the knowledge

and expertise to use the financial information generated from the financial accounting records

to inform them about their profitability, financial position and economic decisions.

SMALL BLACK-

OWNED BUSINESSES

IN QWAQWA Informal, Micro and Survivalist

FINANCIAL

ACCOUNTING

RECORDS

FINANCIAL

INFORMATION

FOCUS OF THIS

DISSERTATION

MAINTAINS

GENERATES

INFORMS

SUSTAINABILITY

PROFITABILITY

FINANCIAL

POSITION

ECONOMIC

DECISIONS

OF THE

6

1.7 RESEARCH STRUCTURE

A logical research process is followed in this dissertation, which may serve as a tool for easy

understanding and cross-referencing. The problem statement has been broken down into three

research questions, then research objectives formulated in such a manner that, if they are

achieved, they will provide answers to the research questions. The research objectives are

achieved at different stages of this dissertation. The first objective, to explain the use of

financial accounting records in small businesses, is the subject of Chapter 2, the literature

review. The second, to investigate the accounting records of the population, is researched

through the use of a questionnaire as the research instrument in Chapter 4. The last research

objective, to identify the perceptions of the respondents about the importance of maintenance

accounting records, is researched through the use of structured interviews in Chapter 5. Table

1.1 (below) lays out the structure of this dissertation:

Table 1.1: The structure of this dissertation by objective and chapter

Objective Research Question Chapter Linkage Data Collection

Objective 1

To explain, through the

use of relevant literature

and past researches, the

nature of the financial

accounting records that

should be maintained by

small businesses

Research Question 1:

What financial

accounting records

should be maintained by

small businesses?

Chapter 2:

Literature Review

Secondary Data:

Literature Review

Objective 2

To investigate what

financial accounting

records are being

maintained by small

Black-owned businesses

in the rural area of

QwaQwa


What financial

accounting records do

small Black-owned

businesses in the rural

area of QwaQwa

maintain?

Chapter 4:

Presentation and

Discussion of

Questionnaire

Primary Data:

Questionnaire

7

Objective 3

To understand how

small Black-owned

businesses in the rural

area of QwaQwa

perceives the importance

of maintaining financial

accounting records


How important do small

Black-owned businesses

in QwaQwa perceive the

maintaining of financial

accounting records to

be?

Chapter 5:

Presentation and

Discussion of Interviews

Primary Data:

Interviews

The initial plan was to obtain all the data through the questionnaire, however, it was

discovered that some sections (E & F) of the questionnaires, which required open-ended

responses, were not appropriately completed by the respondents and so could not be

subjected to meaningful interpretation. Hence, it became necessary to introduce the interview

method of obtaining information from the respondents. Through structured interviews, it was

possible to gather information needed to answer the third question pertaining to the perceived


1.8 METHODOLOGY

For the purpose of this study, data was collected through a questionnaire and interviews. The

questionnaire items were informed by the literature review and collected data analysed in the

form of descriptive statistics and interpretative analyses. A more comprehensive explanation

of the research design and methodology is in Chapter 3.

1.9 SIGNIFICANCE OF THE DISSERTATION

It is anticipated that the findings in this dissertation could provide more insight into the types

of financial accounting records maintained by small Black-owned businesses. The researcher

also believes and wishes that the findings of the dissertation will improve the understanding

of financial accounting records that are maintained in small businesses in QwaQwa. This

understanding may lead to interventions which may foster more profitability and sound

economic decision-making by small Black-owned businesses. These may be possible if these

8

business owners become more aware of the usefulness of the financial information that may

be generated from accounting records and its impact on profitability and the continued

existence of their businesses.

1.10 DELIMITATIONS OF THE DISSERTATION

An academic dissertation at this level is usually limited to a narrow scope, for which reason

the research focused on selected businesses of the broad sector of the Black-owned

businesses in QwaQwa. It should also be noted that only such businesses were visited and, as

such, the results of this dissertation may not be generalized and consequently applied to all

the small Black-owned businesses throughout South Africa. For the purpose of this

dissertation, the term “Black” only refers to Africans, excluding Indians and Coloureds.

Even though references may be made to small, medium, and micro enterprises (SMMEs), for

the purpose of this dissertation the term ‘small businesses’ refers to survivalist enterprises

and micro businesses (more clarification on this is provided in Chapter 2). Such businesses

are of an informal nature, and carry on business mainly for survival, generally defined as

providing income below the poverty line (DTI, 2005). According to Van der Nest (2004:36),

the government has identified the importance of separating the small and medium entities

from the micro and survivalist ones.

1.11 OUTLINE AND STRUCTURE OF THE CHAPTERS

The outline of the dissertation is as follows:

Chapter One – Introduction:

Chapter One of the dissertation contains the introductory background to the dissertation and

the statement of the research problem. The need for the dissertation and its significance are

9

clearly stated, with a comprehensive explanation of the rationale, aims and objectives, as well

as demarcation of the topic.

Chapter Two - Literature Review:

Chapter Two provides a review of related literature on the subject, from different authors and

researchers who have carried out similar and relevant studies. This chapter is divided into

sections and subsections that address: the description, nature, classification and importance of

small businesses; the development of small businesses in South Africa; the role of economic

empowerment; financial management for small businesses; differential reporting; the nature

and importance of financial accounting records; and the financial accounting records

applicable to small businesses. The literature review forms a significant part of this

dissertation as it serves as a source of information for the data instruments. All references are

duly acknowledged in the reference list. This chapter focuses on the first research objective:

to explain, through the use of relevant literature and research, the nature of the financial


Chapter Three - Research Design:

Chapter Three focuses on the research design used in tackling the last two research

objectives, and describes the methodology used in this research, namely the sampling

methods, the population, the data collection methods and the research instruments used in the

data analysis process.

Chapter Four - Presentation and Discussion of Questionnaire:

Since the questionnaire is mainly quantitative in nature, the results presented in Chapter Four

are mainly as percentages and figures. This was further explained through discussions that

supported the analyses of the findings of the questionnaires. The questionnaire emanated

from the statement of the research problem as well as the ensuing research questions.

Specifically, the second research objective of investigating: to investigate what financial

10

accounting records are being maintained by small Black-owned businesses in QwaQwa was

addressed in this chapter.

Chapter Five - Presentation and Discussion of Interviews:

As stated above, some interviews were conducted to elicit more qualitative information from

respondents. The questions posed were replicas of the ones not satisfactorily answered in the

questionnaire. The discussion in Chapter Five details the outcome of the conducted

interviews. As with the questionnaire, the interview schedule was guided towards addressing

the applicable research objective as well as the research question (i.e., Objective No.3 and

Question No.3).

The five questions posed in the interviews were:

1. Which type of financial records do you keep?

2. What is your perception of the importance of maintaining efficient accounting records?

3. Explain how you manage your financial risks?

4. Do you have the knowledge to maintain efficient accounting records and to manage

your financial risks?

5. What are your needs (if any) to be able to control and manage your business

effectively?

Particularly, the focus of the interviews relates to research objective three, namely: to

understand how small Black-owned businesses in QwaQwa perceive the importance of

maintaining financial accounting records.

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Chapter Six - Conclusions and Recommendations:

Chapter Six draws a broad conclusion to the whole document. Some recommendations were

made and directed towards the small black-owned businesses. The chapter also indicates

possible further research that may follow from this particular dissertation.

1.12 CONCLUSION

This chapter has served as an introduction to the research report. The background and the

statement of the research problem were discussed extensively, with explanation of the

rationale, objectives and the importance of the dissertation. In so doing, the statement of the

problem and the purpose of the dissertation were also explained. The dissertation investigates

the financial accounting records that are maintained by small Black-owned businesses

(mainly micro and survivalist) in QwaQwa. To address the research problem, three research

questions were posed.

Using a structured table, this chapter also explained how the three research objectives were to

be achieved and how they relate to each respective chapter. The findings in this dissertation

should add to the body of knowledge on matters relating to Black-owned businesses and may

inform policymakers’ intervention initiatives. The main focus of the study was illustrated in

Figure 1.1, on accounting records maintained by small businesses that are survivalist and

informal. In the next chapter, literature and research that have already been carried out on

related research topics are reviewed.

12

CHAPTER 2

LITERATURE REVIEW

2.1 INTRODUCTION

This chapter reviews literature on the definition, nature, importance of and accounting

recordkeeping of small businesses. Despite some aspects of this chapter making reference to

Small, Medium, and Micro Enterprises (SMMEs), which include survivalist, micro, very

small, small, and medium enterprises, the focus is on survivalist and micro businesses, as

stated in the delimitation section of the previous chapter.

This chapter provides an overview of the literature on small businesses in South Africa and

their financial accounting records, having served as a background to the questionnaire and

interviews used in the collection of data. There is therefore a link between this chapter and

the items in the data collection instrument, broken down into specific aspects of the research

problem that move from the more general, Black involvement, to the specific, accounting

records of small businesses.

As indicated in Chapter 1.6, this chapter addresses the first objective of this dissertation,

which is to explain, through the use of relevant literature, the nature of financial accounting

records that should be maintained by small businesses. The literature review, therefore,

should be able to answer the first research question:

What financial accounting records should be maintained by small businesses?

13

2. Black involvement in the economy

The structures that represent the major subheadings of the chapter are:

1. Introduction

3. Empowerment and BEE

4. Description, classification and nature of small business

5. Financial management for small business

Conceptual Framework

6. Financial reporting

9. Conclusion

7. Financial accounting records and bookkeeping

8. Need for training in accounting

14

2.2 BLACK INVOLVEMENT IN THE ECONOMY

This section of the literature review provides a brief history of South Africa as it pertains to

past legislation and the effects on the participation of Blacks in the economic activities of the

country.

The National Treasury of the Republic of South Africa (RSA) assembled an international

team of economists from the Harvard Centre for International Development to analyse the

country’s economy and its growth prospects, as a drive towards the objectives of the

Accelerated and Shared Growth Initiative (ASGI-SA) (Haussmann, 2008:1). This was

important because South Africa, newly emerging from apartheid, needed to change. The past

dispensations left a legacy of poverty, inequality in wealth distribution and skewed access to

educational and employment opportunities (DTI, 2005:23), with a particularly adverse impact

on the involvement of the Blacks in the economy of the country. This, in the light of the new

democracy, required drastic interventions that would be corrective but which proved an

important test for the new government.

The aforementioned team of economists, according to Haussmann (2008:3), agree that the

new legislature in South Africa, after the successful democratic elections of 1994, has been

able to replace a system that denied basic economic and political rights to the majority with

an atmosphere that is conducive for trade openness, macroeconomic stability, and

redistribution of wealth and property rights. Lundahl and Petersson (2009:8) share similar

sentiments when they purport that the ultimate aim of the post-apartheid development

strategy is to abolish or reduce the extent of poverty and to close the large income gaps

between the different population groups.

Hausmann (2008:5), analysing the reports of ASGI-SA, pointed out that unemployed South

Africans are predominantly Black, female, young and poorly educated. He also indicated that

over 85% of those with a university degree are working and fewer than 35% of those without

a Matric (Grade 12) have jobs. These figures reaffirm the impact of past dispensations and

illustrate the high unemployment rate. As argued by Lundahl and Petersson (2009:2), South

15

Africa has had two main economic problems: i) increasing the growth rate, and ii) improving

the distribution of income and wealth. The majority of active citizens are without

employment, with Haussmann (2008:6) reporting a 40% unemployment rate among those

between the ages of 35 and 50, and over 75% of those between 20 and 25 years old. Some

factors resulting in the low employment rate in South Africa, according to Haussmann

(2008:8), may be as a result of the decline in the mining and agricultural sectors, which had

been the highest employer of unskilled labour or people with low education qualifications. To

tackle these figures, intervention in support of more self-employment and self-creation of

jobs was seen as vital, and as a thrust towards achieving these mandates the government had

to introduce different aggressive strategies, such as the following examples provided by

Cahan and van Staden (2009:4).

The Employment Equity Act legalized affirmative action policies and indicates that

employment on all levels must reflect the make-up of the population. Also, the

introduction of the policy of Black Economic Empowerment (BEE) which, for

example, requires businesses to have a proportion of black ownership or to do major

projects in partnership with black-owned business.

Blacks in South Africa had been systemically excluded from participating in economic

activities, such as having their own businesses (Haussmann, 2008; Lundahl & Peterson,

2009), but after 1994 the new government started putting different initiatives in place, geared

to eradicating the legacies of marginalisation and poverty.

2.3 EMPOWERMENT AND BLACK ECONOMIC EMPOWERMENT

Some government interventions directed at redressing the effects of previous legislation are

discussed in this section, examining their initial objectives, their implementation and their

shortcomings. In response to the above-mentioned racial inequalities, particularly in terms of

economic participation, it is important to highlight some recursive interventions undertaken

by the new government.

16

2.3.1 Legislation

Under the apartheid regime, South Africa experienced wide marginalisation of Black people

from the economic activities of the nation. Esser and Dekker (2008) write that one of the

major consequences of their deliberate exclusion from meaningful participation in the

economy culminated in limited access to proper education, skill development and

employment opportunities; hence, they lacked significant property and asset ownership. The

systemic exclusion of non-Whites, prior to 1994, also had a detrimental effect on the

Coloureds and Indians, and especially the Africans (Blacks), who generally remained very

poor and were not given opportunities to use their talents, for instance in starting their own

businesses and so improving their standard of living (Esser & Dekker, 2008).

After 1994, the shortcomings of the past dispensations had to be addressed and corrective

measures in the form of empowerment and upliftment of Blacks became inevitable.

According to a study by Kovacevic (2007:4), the legislation that followed the abolition of

apartheid, enacted between 1994 and 2001, was the world’s most rigorous form of

affirmative action. The Broad-Based Black Economic Empowerment (BBBEE) Act of 2003

strove for the “effective participation of black people in the economy [in order to achieve the]

economic unity of the nation” (RSA, 2003a). Its purpose was:

To establish a legislation framework for promotion of black economic empowerment;

to empower the Minister to issue codes of good practice and to publish

transformation charters; to establish the Black Economic Empowerment Advisory

Council; and to provide for matters connected therewith. (RSA, 2003a)

Ngwenya (2007:25), in his research report, identified some of the interventions, in the form

of government Acts, which were put in place for the purpose of redress:

National Small Business Act of 1996

Competition Act No. 89 of 1998

17

Employment Equity Act, No. 55 of 1998

National Empowerment Fund Act No. 105 of 1998

Preferential Procurement Policy Framework Act no. 5 of 2000

Skills Development Acts

Broad-Based Black Economic Empowerment Act 53 of 2003.

2.3.2 Broad-Based Black Economic Empowerment

The Broad-Based Black Economic Empowerment (BBBEE) Act of 2003 specifically states

that the South Africa’s policy of black economic empowerment is not simply a moral

initiative to redress the wrongs of the past. Black Economic Empowerment (BEE) in the

BBBEE Act is a pragmatic growth strategy that aims to realise the country’s full economic

potential, with Broad-Based Economic Empowerment defined in the BBBEE Act (RSA,

2003a) as follows:

broad-based black economic empowerment means the economic empowerment of all

black people including women, workers, youth, people with disabilities and people

living in rural areas through diverse but integrated socio-economic strategies that

include, but are not limited to-

(a) increasing the number of black people that manage, own and control

enterprises and productive assets;

(b) facilitating ownership and management of enterprises and productive assets

by communities, workers, cooperatives and other collective enterprises;

(c) human resource and skill development; …

For Van der Nest (2004:11), BEE can also be seen as a way of deepening the economy and

stimulating growth in the country by releasing the economic potential of the black population,

with the BEE initiative and the recently modified version, the BBBEE Act, acting as

incentives for the black population to start their own businesses. This allows them, for

18

instance, to solicit tenders from the government entities and to get sub-contracts in other

larger projects.

BBBEE, which is based on redistribution according to race rather than the wealth or income

(Kovacevic 2007:4), can be achieved:

when businesses fulfil rigorous race quotas in a quest for a (demographically

representative) staff. Redistribution legislation has made it more difficult for skilled

white workers to find employment domestically resulting in an outflow of skill.

Between 1994 and 2001, the percentage of enterprises that perceived the emigration

of skilled manpower as (significant) rose from 2 percent to 33 percent. This disturbing

skills shortage in many sectors of the economy is accompanied by slow economic

growth rates that barely keep pace with population growth.

Through earmarked objectives that endeavour to promote economic transformation and

empowerment of Blacks as active participants in the economy (RSA, 2003a), they were

given opportunities to start, improve and grow their businesses, so that they could sustain

themselves and not depend on government grants, for which not everybody qualifies.

2.3.3 Empowerment initiatives and shortcomings

The introduction to the BBEEE Act emphasised the importance of rectifying the past

imbalance (RSA, 2003a). Dixon, Durrheim, Tredoux, Tropp, Clack and Eaton (2010:401-

405) recommend, among other things, wealth redistribution and the participation of Blacks in

economic activities as practical measures of addressing some of the effects of the past

legislation of South Africa. This is also important because a new democracy and the mere

removal of the apartheid legacy will not be sufficient to correct imbalances of the past. A

corrective intervention will be necessary for redress. According to Ngwenya (2007:8):

19

This Act is part of a plethora of legislation enacted to give effect to citizens’ right to

equality as enshrined in the Constitution of the Republic; specifically to promote the

right to equality in the workplace through the elimination of unfair discrimination by

requiring employers to implement employment equity in the workplace to achieve

workforce diversity that reflects the demographics of the nation and improves the

efficiency and productivity of the national workforce.

For those not formally in the workplace, the government has helped communities to take the

initiative and be more independent, apart from a few who did not know about the BBBEE

Act or legislation, especially those in rural areas who could not take advantage of projects

confined largely to urban areas (Ngwenya, 2007:8).

Kovacevic (2007:4) has pointed out the perpetuation of small black elite by the current

system without helping the masses who are mostly in dire need as part of the shortcomings of

the BEE policies and as a crisis that requires urgent attention. She added (2007:4) that

although BEE professes to promote the meaningful participation of black people in the

economy, its implementation is actually negated by increased political cronyism that benefits

only a select few.

In 2003, Kovacevic (2007:4) indicated that, for example, 60% of empowerment deals

amounting to 25.3 billion rand went to the companies of only two black businessmen, hence

presenting a situation where a few wealthy Blacks are being enriched at the expense of a

majority living in poverty with lack of economic participation. He therefore concluded that in

these cases of government employment, where racial preferences commonly outweigh skill-

based qualifications, Black employees certainly benefit, but the masses of poor Black citizens

who rely on basic government services, such as health care and water, face exorbitant costs.

The above mentioned are major limitations to the implementation of empowerment and

upliftment initiatives aimed at Black entrepreneurs. Consequently, to some extent, the

majority are instead relying on the benefits the government is providing rather than

20

developing themselves in the fight against poverty. The result is that not everyone will

benefit (Kovacevic, 2007:44).

On one hand, these discussions suggest that the ANC-led government has tried to encourage

the employment of Black previously disadvantaged people in all levels of business, and has

also tried to encourage Black entrepreneurialism and business ownership. On the other hand,

at a macro level, the ANC’s labour policies appear to be having a limited effect as

unemployment remains very high (Haussmann, 2008:18). Instead of focusing on BEE,

Haussmann recommends that the government can achieve empowerment through job

creation, training and supplier development for people currently on the lower levels of

income distribution.

These developments over the years have highlighted the importance of boosting small

businesses at the grassroots level, as a strategy towards poverty eradication, wealth re-

distribution and sustainable empowerment.

2.3.4 Conclusion

Entrepreneurs in the rural areas have also engaged in business activities for different reasons,

for instance to eradicate poverty, create jobs and survive. Despite the interventions it seems

that job creation and poverty alleviation rates have been slow, and that a more sustainable

intervention is needed, namely the establishment and fostering of small businesses. This is

because, despite the success of some of the intervention initiatives, to a great extent the

economic and income divides still exist in the country. As previously stated, this dissertation

focuses on these smaller entrepreneurs and particularly on their accounting records.

Something more practical and ‘hands-on’ is needed so that everybody can participate in the

economic activities of the country. Prior to focusing on the type of accounting records that

are suitable for small businesses, the next section therefore discusses the description,

classification and importance of small businesses.

21

2.4 DESCRIPTION, CLASSIFICATION AND NATURE OF SMALL BUSINESSES

As Vosloo (1994:3) states, differences exist in the various interpretations of the concept

“small business” that is encountered within the same country. According to Bullock and

Hertz (1982:2), the need for a standardized international definition is not always realised or

accepted. In attempts to reduce poverty and unemployment, anyone who is willing and able

to start a small business may do so, which explains why there are informal businesses, such

as sole traders and partnerships, which cater for the bulk of micro and survivalist businesses.

2.4.1 Definition and classification of small businesses

In an effort to provide guidance on the issues surrounding the definition of small businesses,

the Department of Trade and Industry (DTI, 2005:1) have provided a definition of small

business in South Africa as follows:

Small business is a separate and distinct business entity, including co-operative

enterprises and non-governmental organisations, managed by one or more which,

including its branches or subsidiaries, if any, is predominantly carried on in any

sector or subsector of the economy, and which can be classified as micro-, very small,

a small or a medium enterprise.

Ntsika (1999:2) states that this above-stated definition could be considered as official and

applied generally where suitable. He also observed that it categorises small businesses into

four types: micro, very small, small and medium enterprises. To assist in the qualitative

classification, his view is that small businesses are enterprises that are more established and

likely to operate from business or industrial premises are registered for tax and meet other

formal registration requirement. The quantifiable aspects, on the other hand, are annual

turnover, the number of employees in service, the total assets of the business and the activity

level of the business.

22

Van der Nest, (2004:45), however, classified small businesses in South Africa as small and

medium enterprises (SME’s), or small, medium and micro enterprises (SMME’s), with the

micro being those that carry on business normally for survivalist purposes. The

Government’s White Paper on the promotion of small business acknowledges important

differences and needs between survivalist and micro enterprise on the one hand, and small

and medium enterprises on the other. This implies that what is viewed as important and vital

to a survivalist or micro business owner may not necessarily be of much importance to a

medium or small business owner. Van der Nest (2004: 52) also defines SMMEs as any

business activity/enterprise engaged in industry or agri-business/services, whether single

proprietorship, cooperative, partnership, or corporation.

Burns (1989:2) characterised a small business as an independent economic unit that is

motivated by profit-making, and highlighted some attributes of such an independent

economic unit as having: independent ownership, independent management, a simple

organisational structure and a relatively small influence on the market. Its owners are

associated with the entrepreneurs, the providers of capital, the managers, the decision makers

and those who share in the profit. The view here is that small businesses are mostly owner-

managed and less complicated. This is applicable to micro and survivalist businesses in rural

areas.

Other classifications of small businesses were established to serve as qualitative and

quantitative frameworks for profiling and rendering possible financial assistances to small

businesses. Business Partners (1999), a Small Business Development Corporation, has laid

down quantitative and qualitative criteria for small businesses in South Africa. The

quantitative criteria are total assets of less than R1,5 million, annual turnover of less than R5

million and fewer than 100 employees, while the qualitative criteria are independent

decision-making; simplified organisational structure and legal liability of the owner(s). This

shows that the classification of small businesses is complicated and may overlap.

The National Small Business Act (RSA, 2004) grouped SMMEs into 5 categories, as

summarised by the Education and Training Unit (ETU, 2010) in Table 2.1 (below).

23

Table 2.1 Categories of SMMEs (National Small Business Act of 2004) (RSA, 2004)

Category of SMME Description

Survivalist

enterprises Operates in the informal sector of the economy

Mainly undertaken by unemployed persons

Income generated below the poverty line, providing minimum

means to keep the unemployed and their families alive

Not much training

Opportunities for growing the business very small

Micro enterprises Between one to five employees, usually the owner and family

Informal – no license or formal business premises

Turnover below the VAT registration level of R300 000 per year

Basic business skills and training

Potential to make the transition to a viable formal small business

Very small

enterprise Part of the formal economy, use technology

Less than 10 paid employees

Includes self-employed artisans (electricians, plumbers) and

professionals

Small enterprise Less than 100 employees

More established than very small enterprises, formal and

registered, fixed business premises

Owner-managed, but more complex management structure

Medium enterprise Up to 200 employees

Still mainly owner managed, but decentralised management

structure with division of labour

Operates from fixed premises with all formal requirements

The National Small Business Act (RSA, 2004) suggests that the categories under the ambit of

the term SMMEs may be grouped as informal and formal businesses. While survivalist and

micro businesses are mostly informal, the small and medium businesses are normally formal.

2.4.2 Formal and informal business

Jäckle and Li (2006:558), in a study on the formality of micro enterprises in Peru, posits that

entrepreneurs wanting to start up business need to decide either to go into the formal or

24

informal sector, depending on, among other things, the size of the business, the age of the

entrepreneurs, and the location of the business. They (2006:567) added that any informal

business that plans to grow must consider switching to the formal sector. On the other hand,

Esselaar, Stork, Ndiwalana and Deen-Swarray (2007:87-89) have suggested that informal

businesses that utilise information and communication technologies (ICT) are very profitable

and successful, based on a study of 280 small businesses in eight African countries.1 Blurtit

(2011) states that the formal business sector of a country is made up of all recognised sources

of income on which income taxes may be paid.

In South Africa, informal businesses, unlike the formal, are the economic sector of the

country that is not governed by any form of legislation and not included in the calculation of

the Gross National Product (GNP) (ETU, 2010). Hence, the term ‘formal’, from the view of

the researcher, implies that the business is registered with a regulatory body, such as

Companies and Intellectual Property Commission (CIPC) (formally CIPRO) and perhaps

registered for taxation with the South African Revenue Service (SARS). Informal business is

normally sole or family traders and could include partnerships, while the formal businesses

may be close corporations and private companies. The ETU (2010) stated that formal small

businesses (mainly of White and some Indian ownership) are predominantly situated in urban

areas, while the informal businesses (mainly of African and Coloured ownership) are situated

in townships, informal settlements and rural areas.

The ETU (2010) suggested that by far the largest sector is the survivalist sector, which

implies that most people are active in the informal sector where they have little institutional

support as a result of not being registered with any governing or regulatory bodies.

These suggestions are further explained in Figure 2.1 (below), which shows the difference

between the first and second economies.

1 However, the small businesses on which this dissertation focuses do not utilize ICT.

25

Figure 2.1 First and Second Economies (DTI, 2005)

The first economy, represented by the upper part of the triangle, is mainly registered with

some agencies and is recognised by commercial banks, which may provide them with loan

facilities. The second economy is represented by the larger, base section of the triangle. As

they constitute the economically active poor and the very poor masses, they fit the description

of the micro and survivalist businesses, respectively.

Former president, Thabo Mbeki, coined the term ‘the second economy’ to describe the

informal sector (Devey, Skinner and Valodia, 2006) and to point to the structural barriers to

participation in the formal economy faced by many South Africans. Devey et al. (2006) see

the second economy as structurally disconnected from the mainstream one, whilst Kirsten

(2006:2) also argues that the second economy is the space within which those who are

marginalized will operate, that is the Black majority. Table 2.1 and Figure 2.1 show that

survivalist and micro enterprises are operating in the informal sector of the economy, and that

they normally generate income below the poverty line, providing minimum means to keep

their families alive (survival).

26

Devey et al., (2006:9) have confirmed the popularity of informal employment, as opposed to

the formal sector, by indicating that it is common not only to developing countries but also to

many other parts of the world. In terms of government support, Devey et al. (citing ETU,

2010), believe that “most [of] government [‘s] small business initiatives have been of little

benefit to the informal sector”. In this regard, Rogerson (cited in Devey et al., 2006:14)

opined that the DTI funding allocations for SMMEs have inevitably favoured and been

biased heavily towards support for established small and medium enterprises (often white

owned), rather than emerging micro-enterprises and the informal economy. Notwithstanding,

the importance of small businesses to the economy has always been recognized.

In an effort to describe the neglect of micro businesses, Devins, Gold, Johnson and Holden

(2005:540) have identified a lack of policy interventions that connect with the needs of the

micro businesses. For them, this marginalisation might have resulted from the assumption

that micro businesses are embraced by the term ‘small business’ or ‘SME’ (Devins et al.,

2005:547). It was therefore important for the researcher to explain the uniqueness of micro

and survivalist businesses as opposed to the common generalisation of the term SMMEs as

often referred to in literature.

2.4.3 Importance of small businesses

The importance of small businesses was enunciated by Mutezo (2005:35), noting that the

small and micro enterprises in South Africa employ 54 percent of the economically active

population and contribute close to 35 percent of Gross Domestic Product. Research carried

out by the Bridges Organisation (2000:2) indicates that small business development is

increasingly being recognised as important and must be tailored to a country’s circumstances.

Drew (2007b:1), together with van der Nest (2004), state that small business support offers

interventions aimed at eradicating poverty and ensuring growth. He specifically states further

that:

Small businesses are the backbone of any nation. If properly nurtured, many of these

firms have the potential to turn big fishes in the business world. But, the paradox is

that the failure ratio is also high in case of small businesses. Many businesses start

27

but fail to capitalise due to a number of reasons, lack of financial resources being one

of the most prominent reason (Drew, 2007b:1).

The Business Partners and Council (1999:14 as quoted by van der Nest, 2004) also state that:

Small businesses are an important source of competition, and challenges to larger

companies might prompt them to more innovative marketing and or supply. Small

businesses promote healthier participation in, and contribution to, the diffusion of

economic activity thereby eradicating the past unjust marginalisation.

There have been two main reasons for people being able to start their own business (Reijonen

and Komppula, 2007:670), namely the freedom it brings and a desire for financial

independence. However, van Gelderen, Thurik and Patel (2011) also found that the majority

of aspirants are held back by two factors, the employee mentality and the lack of guidance on

how to implement business ideas. The concepts of enterprise and entrepreneurship, as

opinioned by Van der Nest (2004:46), embrace much that would be considered as expressions

of small business activity, and such words as ‘enterprise’, ‘entrepreneurship’ and ‘small

business’ often appear interchangeable, although there are many small businesses that do not

demonstrate much enterprise. However, he states that a small business is important for a

variety of reasons, including diversity, social stability, and the competitiveness it provides

with other businesses. Ntsika (1999:16) agrees that the small business sector can play a major

role in creating jobs and wealth in any economy.

Consequently, the small business sector has drawn much attention from policymakers

because small businesses are valuable sources of innovation and creativity and are usually not

price-competitive, but compete through service and technology. Small businesses are

important partners to larger enterprises, whose initiatives they often reinforce and supplement

rather than replace (Business Partners and Council 1999:14).

Business Partners and Council (1999:14, in van der Nest, 2004), consider the most important

roles of small businesses in the South African economy as fourfold. Firstly, developing

28

economies have a strong demand for basic consumer goods, of which the small business

sector is a natural supplier. However, these small businesses ensure continuity of products

and services in rural areas that are often out of reach of larger enterprises or in markets that

larger companies do not endeavour to enter. Secondly, small businesses, compared with other

mainstream businesses, are by far the most cost effective and efficient job creators in the free

enterprise economy.

Hence, small businesses help the government to reduce the unemployment rate, which is

particularly high in South Africa. Thirdly, small businesses are important in the eradication of

the wealth and income disparity among the racial groups. This is possible through the free

enterprise characteristics of SMMEs. Small businesses contribute to the achievement of self-

sufficiency and human self-confidence. Fourthly, small businesses are viewed as a vehicle of

transition from the small scale to the large scale, because the informal business sector of the

country’s economy, represented mainly by the micro and survivalist businesses, should be

encouraged in a manner that serves as a logical starting point for the Black entrepreneur.

Even though the level of formalisation in terms of management and ownership structure are

key distinguishing characteristics between smaller companies and medium-sized enterprises

(Van Broembsen, 2003:2), “all levels of entrepreneurs are found in businesses of all sizes”

(Rajaram & O’Neill, 2009:100). Hence, entrepreneurs of informal small businesses, rather

than more structured ones, are characterised by the reality that they, “due to limited start-up

resources, use the small business as port of entry into the business world” (Vosloo,

1994:159).

Due to acknowledgement of the importance of small businesses to the economy, the

government has established many institutions to promote small businesses. Agupusi (2007:6-

8), as shown in Table 2.2 (below), summarised some of these and the activities that they

render towards achieving that goal:

29

Table 2.2 Government Development Institution for Small Business (Agupusi, 2007:6)

Institutions Activities

Small Enterprise

Development

Agency (SEDA)

SEDA offers a range of business development services. It provided

financial services through integrated support agencies across the

nation with more than 284 Enterprise Information Centres in the

municipalities across the nation.

Khula Enterprise Khula Enterprise facilitates access to finance for small businesses. It

has various financial products and works with major commercial

banks and private organisations such as Business Partners. Khula’s

operations involve loans and credit guarantees through commercial

banks. It also offers a mentorship programme.

National

Empowerment

Fund (NEF)

NEF provides various start-ups for small businesses and rural and

community transformation. Its financial capacity ranges from R250

000 to R10 000 000. NEF focuses specifically on disadvantaged

individuals.

Industrial

Development

Commission (IDC)

IDC generates its funds independently of the government. It provides

various sector-focused financing products ranging from R1 000 000,

with specific focus on SMEs and empowerment.

South African

Micro Fund Apex

Fund (SAMAF)

SAMAF is modelled on the Grameen Bank in Bangladesh. It provides

loans of up to R10 000 to micro and survivalist enterprises in poor

areas. Its main focus is on poverty alleviation.

Gauteng

Enterprise

Propeller (GEP)

GEP is a Gauteng Provincial Government (GPG) agency established

under the auspices of the Department for Economic Development to

provide non-financial and financial support and to co-ordinate

stakeholders for the benefit of SMMEs in Gauteng Province.

Based on the discussions in this section, it is evident that the small businesses investigated in

this dissertation are informal in nature and are either classified as micro or survivalist. It may

mean that they have no access to established government interventions. It nevertheless

remains that some of the matters applicable to formal businesses are also applicable to

informal ones.

30

Stokes and Wilson (2010:225) have emphasized the importance of financial management to

owner-managed-small (survivalist and micro businesses are mainly owner-managed)

businesses by summarising four major factors that contribute to the failure of small

businesses: 1.) availability of finance, 2.) management capacity of owners, 3.) marketing

problems and 4.) difficulty in complying with new laws and regulations, such as income tax

laws. Although all four factors are important, the focus of this dissertation is on the financial

aspects, therefore reviewing literature on financial management of small businesses is more

relevant.

2.5 FINANCIAL MANAGEMENT FOR SMALL BUSINESS

According to Reijonen and Komppula (2007:15), small business success is about more than

just a great idea, prime office location or qualified employees. Small business owners must

continually improve their knowledge and skills and understand why they are in business.

Businesses have many functions, of which financial management is core, because it is the one

that sources the required funds (cash or loans) and makes the most efficient use of those

funds on projects (investments or trades) that will ensure the final bottom line of maximising

profits (Nieuwenhuizen, 2010; Stokes and Wilson, 2010). Financial management of small

businesses entails bookkeeping, planning, accounting and other accounting and actuarial

activities (Brazma, 2007c:3), e.g., evaluating, managing and advising on financial risks

(Haynes, 2010). Concerning the importance of financial management to small businesses,

Nieuwenhuizen (2010:319) has stated that:

Financial management is responsible for acquiring the necessary financial resources

to ensure the most advantageous result for the small business over both the short and

long term. The term ‘financial management’ also covers the responsibility for making

sure the business makes the best use of its financial resources.

Nieuwenhuizen (2010:318) also cautioned that financial management, although different

from other managerial and business functions and activities, should not be viewed in isolation

from other business activities, because these also have financial implications.

31

Bowes (2007:2) has stated that nurturing a small business is a cumbersome task and that the

most common reason for failure is lack of control over its financial matters. He therefore

emphasised the importance of time management, as activities, such as the day-to-day

bookkeeping tasks, on their own can be time-consuming (Bowes, 2007). This is applicable to

even micro and survivalist business. In South Africa, according to Van der Nest (2004:46),

small businesses face a wider range of problems and are less able to address the problems on

their own than are small businesses in other countries. She further identified some constraints

they face, relating to the:

legal and regulatory environment confronting SMEs, the access to markets; finance

and business premises (at affordable rentals); the acquisition of skills and managerial

expertise; access to appropriate technology; the quality of the business infrastructure

in poverty areas... (Van der Nest, 2004:46).

Ciobanu (2006:1) advises that before starting a small business, the entrepreneur needs to

conduct as much research as possible, and talk to other people who have started a small

business and are willing to give some guidance. The importance of finances cannot be over-

emphasized as it is difficult to carry on a trade without first injecting some capital into it.

Hence, financial help is essential to aspiring business-minded individuals who want to start

their own business (Riley, 2007:2). According to Drew (2007), sustained financial support is

important for the business plan, start up and continuous development of small businesses, and

that one of the major functions of the financial manager is to source funds. The small

business loan may also be very important (Drew, 2007:1).

Despite the importance of proper financial record keeping and financial management in a

small business, it may be a task that is beyond the expertise of many small business owners,

leading Brazma (2007a:2) to conclude that keeping a tab on various financial transactions

throughout the year is a tough act for a small business. Kelly (2006:11) confirms that small

businesses are the most difficult of all types of business to run. Emphasising the importance

of efficient financial accounting records, Brazma (2007d: 2) stated that both big and small

business enterprises need an expert to handle the financial affairs of the entity, and suggested

32

that small enterprises are in equal need of business accounting as larger entities. Van der Nest

(2004) also argues that in a small business, planning is probably the most difficult

management function to perform, with managers too involved in day-to-day operations to see

the immediate result of their efforts. Most managers spend the greater portion of their time

and energy on short range, day-to-day planning, hence the importance of proper tracking of

financial activities. Even the micro and survivalist businesses will, at one point, have to

manage their businesses in such a manner that allows for monitoring and growth.

Brazma (2007b:1) and Nieuwenhuizen (2010) advise that it is the efficiency with which a

business is managed that counts in the end, notwithstanding the size of the business. They

claim that even survivalist and micro businesses deal with inflow and outflow of funds and

hence require financial management. Simply put, no matter the size of a business the

underlying objective remains the same, making profit (surviving).

From the above, it is evident that financial management plays a crucial role in controlling

financial matters in small businesses. To control these, small business owners need to

understand the financial record system and the nature of the information provided. In other

words, the crucial role played by financial management is facilitated by the availability of

financial reporting, which entails the preparation of financial statements.

2.6 FINANCIAL REPORTING

Financial reporting, referred to as the “pillars of accounting” (Service, 2011), sets out the

objectives, usefulness, underlying assumptions, measurement bases, characteristics and

features of financial statements (IFRS, 2011). Financial reporting as identified by the

standard-setters refer to a “general purpose financial reporting” with the objective of

providing useful information needed by stakeholders of a business entity to make sound

economic decisions (IFRS, 2011; Service, 2011). Hence, these users (stakeholders) will be

well informed about the financial performance, financial position, and cash flow of the

entities as identified in the statement of comprehensive income, statement of financial

position and statement of cash flow.

33

Wahlen, Baginski and Bradshaw (2008:1) have explained that financial reporting and the

analyses of financial statements of a business help investors and other users understand the

profitability of the business and evaluate the associated risk to that business. Financial reports

therefore further assist the users in determining future trends and, especially, to make

intelligent investments and economic decisions. Even though small businesses, by their

nature, may not have external investors, basic financial information inherent in financial

reporting may be useful to their management. It is only possible to generate this information

if appropriate accounting records are kept. The financial statements are derived from the

financial records, as illustrated in Figure 2.2 (below).

Figure 2.2 Links between Accounting Records and Financial Statements (based on

elements of financial statements)

Accounting relates to the collection of financial information (Rajaram & O’Neill, 2009)

performed before the preparation of financial statements. As mentioned above, accounting

records are required to provide the information required for financial statements. Financial

statements measure and communicate the financial results (performance) and financial

position of a business to users (Haiden, 2006; Rajaram & O’Neill, 2009).

Financial Statements

Accounting Recordkeeping

(income)


(expenses)


(asset) Accounting

Recordkeeping (liability)


(other)

34

The International Financial Reporting Standard for Small and Medium Enterprises (IFRS for

SMEs) (2011), developed by the International Accounting Standards Board (IASB) to cater

for the needs of small and medium entities, identifies the following financial statements:

Statement of financial position

Statement of comprehensive income

Statement of cash flows

Statement of changes in equity

Notes to financial statements.

Out of all the constituents of a set of financial statements, the statement of comprehensive

income (simply income statement) and the statement of cash flows seem to be the most

important to small businesses, because the income statement illustrates the performance of

the business during a particular period, while the statement of cash flows provides the cash

performance, and the sourcing and investment of funds. These statements are dynamic in that

they report what happened during a period and are not merely snapshots of a situation, e.g.,

the statement of financial position at a specific date. The financial statements are made up of

five elements (see Figure 2.2 for link to financial statements) that are defined as follows

(IFRS for SMEs, 2011):

Asset

An asset is a resource controlled by the entity as a result of the past, from which economic

benefits are expected to flow to the entity (IFRS for SMEs, 2011). An applicable example to

the small business will be cash and perhaps debtors.

35

Liabilities

A liability is a present obligation of an entity as a result of past events, the settlement of

which is expected to result in an outflow from the entity of economic benefits (IFRS for

SMEs, 2011). A good example applicable to the current study will be loans and trade

payables.

Equity

Equity is the residual interest in the assets after deducting all liabilities (IFRS for SMEs,

2011); e.g., start-up capital and net profits.

Income

Income is an increase in economic benefits during the accounting period, in the form of

inflows or enhancements of assets or decrease in liabilities resulting in increase in equity;

other than contribution from equity participants (IFRS for SMEs, 2011). Sales of goods and

services are examples.

Expenses

Expense is a decrease in economic benefits during the accounting period, in the form of

outflows or depletion of assets or increase in liabilities resulting in decrease in equity; other

than distribution to equity participants (IFRS for SMEs, 2011). Salary and rent are examples.

These elements are also applicable to small businesses; however, equity represents the

interest of the small business owners, which is normally not through shareholding. The

elements form the basis of the accounting records to be discussed further in Section 2.7.,

regarding financial accounting records and bookkeeping.

36

2.6.1 Applicability of financial statements to big and small businesses

The preparation of the financial statements should make a difference in the decision-making

of users or management; otherwise it is not relevant (Service, 2011). Financial statements

provide a historical perspective of financial information and allow for the comparison of

previous performance with present performance. Brazma (2007a:1) states that the recording

and preparation of these statements, if well-managed, indicate the position and performance

of any business (whether big or small), as well as assisting with economic decisions that

concern the business. Therefore, despite small businesses not being required to prepare their

financial statements in a particular manner, it is still important that they keep proper

accounting records and draw information out of the records about the performance,

profitability and financial position of their businesses. The question arises as to the extent to

which businesses should prepare financial information, bearing in mind that they may not

have outside users. Should small business be required to prepare financial statements similar

to big businesses? This is discussed more in the next section.

2.6.2 Differential reporting

The purpose of differential reporting, as indicated by Service (2011:64), is to allow smaller

and less sophisticated companies to produce financial statements using a simpler (different)

set of reporting standards than the International Financial Reporting Standard (IFRS) requires

larger companies to comply with. Service (2011:64) defines different reporting as the various

levels of compliance that are applied, depending on the category of a business. Thus,

differential reporting, in part, aims to determine which type of reporting standards small

Black-owned businesses should be “subjected to” in accordance with the most recent

legislation. The overall idea of differential reporting is that companies with complex

ownership structures should abide by more complex financial reporting standards (Van Wyk,

2009). Small businesses that are owner-managed should therefore be able to prepare less

complex financial information.

37

Differential reporting was introduced by the new Companies Act 2008, as amended in 2010

(RSA, 2008), and which also repealed and amended certain sections of the Close Corporation

Act, 1984. Van Wyk (2009:6) describes these as a move towards ensuring that “smaller

companies are not overburdened by the compliance requirements that are more appropriate

for larger companies”. Stainbank (2008), while reviewing studies by Maingot and Zeghal

(2006); Wells (2005); Cleminson and Rabin (2002); Hattingh (1999); Carsberg, Page, Sindal

and Waring (1985); and Mosso (1983), purports that small businesses in South Africa, the

United States of America (USA) and the United Kingdom (UK) are continuously confronted

with the cost of compliance with general purpose accounting standards, such as US GAAP or

IFRS, which exceed their benefits, and so have justified the introduction of differential

reporting.

All companies are required to prepare financial statements. The new Companies Act divides

financial reporting standards (FRS) in five categories, as summarised by Van Wyk (2011) in

Table 2.3 (below).

Table 2.3 Financial reporting standards and application to categories

Category of Companies Financial Reporting Standard

1. State owned companies

2. Non-profit companies that are required in terms of

Regulation (1)(b) to have their annual financial

statements audited

IFRS subject to PFMA

1. Public companies listed on exchange IFRS subject to exchange listing

requirements

1. Profit companies, not listed on exchange

2. Non-profit companies, other than state-

contemplated in the first row above, whose public

interest score for the particular financial year is at

least 350

Choice between:

1. IFRS or

2. IRFS for SME. Use of IFRS

for SME only if company

meets scope requirements of

IFRS for SME

1. Profit companies, other than state-owned or public Choice between:

38

companies (a) whose public interest score for the

particular financial year is at least 100 but less than

350; or (b) whose public interest score for the

particular financial year is at least 100, and whose

statements are independently compiled

2. Non-profit companies, other than those

contemplated in the first row above (a) whose

public interest score for the particular financial year

is at least 100, but less than 350; or (b) whose

public interest score for the particular financial year

is at least 100, and whose financial statements are

independently compiled

1. IFRS

2. IRFS for SME. Use of IFRS

for SME only if company

meets scope requirements of

IFRS for SME or SA GAAP

1. Profit companies, other than state-owned or public

companies, whose public interest score for the

particular financial year is less than 100, and whose

statements are internally compiled

2. Non-profit companies, other than those

contemplated in the first row above, whose public

interest score for the particular financial year is less

than 100, and whose financial statements are

internally compiled

No prescribed financial reporting

standard

The differentiation of financial reporting standards by the new Companies Act is only

applicable to formal registered companies. The informal small business included in this study

falls outside the scope of the Companies Act and therefore, similarly to the lower level of the

new Companies Act’s hierarchy, will have no prescribed financial report framework or

standard.

The IASB has also introduced differential reporting by introducing the IFRS for SMEs,

which defines differential reporting as “a set of high quality financial reporting principles that

is tailored for the capabilities of smaller businesses and for the needs of those who use small

company financial statements” (IFRS for SME, 2011).

The IASB specifically states (IFRS, 2011) that the IFRS for SMEs reacts to and/or takes

action regarding serious international demand from both developed and emerging economies

for a rigorous and common set of accounting standards for smaller companies. It can play an

essential role in helping SMEs gain access to capital (IFRS, 2011), because the IFRS for

SMEs improves the quality of reporting as compared to many existing national accounting

39

requirements. At the same time, it reduces the burden on entities in jurisdictions where full

IFRSs or national requirements that have convergence with IFRSs are now required (IFRS,

2011). Furthermore, the IFRS for SMEs provides enhanced comparability for users of

accounts both within a jurisdiction and across borders. This improves the overall confidence

in the financial statements of SMEs and reduces significantly the costs of developing and

maintaining standards on a national basis.

To address the matter in discourse, IFRS for SME was introduced to cater for entities with

lesser complicated equity structure. The purpose of IFRS for SME is to provide guidance at a

much simpler level than full IFRS, for entities that do not have public accountability and are

required to produce general purpose financial statements that are made available to the

general public (Van Wyk, 2009).

With regards to users’ needs, Schiebel (2008) argues that there is no clarity on common

information needs of external users of SMEs’ financial statements. To substantiate his

opinion, Schiebel (2008:11) draws on the literature relating to common information needs of

external users of SMEs’ financial statements and concludes that the research so far has

focused on “one group of external users and one region or country at a time”, and that “no

information is available about common information needs of various external groups on a

national or international level”. He (2008:18) further argues that the IASB has failed to

determine the information needs of external users of SMEs’ financial statements or the kind

of information those external users require from SMEs, and instead has relied on the

responses by the accounting regulators, professionals and academics, when the IASB should

have focused on the users and preparers of SMEs’ financial statements.

IFRS for SME is, however, not required to be applied by small businesses that produce

financial statements for the sole use of the owner-managers or specifically for tax filing

purposes. Consequently, micro and survivalist businesses are not mandated to prepare

financial statements based on any specific accounting framework or standard. These indicate

that there is no form of guidelines prescribed to micro and survivalist businesses in terms of

accounting recordkeeping and financial reporting.

40

The question that must be asked is how applicable is the IFRS for SMEs for survival and

micro businesses? What is important to the current study is that informal businesses may not

be able to comply with the requirements of the IFRS for SMEs different reasons: the size of

the business, the cost of compliance and, of most importance, available accounting records

and the basis of preparation.

This is illustrated in Figure 2.3 (below):

Figure 2.3 Barriers of applicability is IFRS for SMEs

Notwithstanding the difficulty in the applicability of IFRS for SMEs to micro businesses,

some form of basic accounting records should be kept. The need arises that these types of

small businesses be accommodated in an even more simplified set of standards. Van Wyk

(2009) has written that: “[t]he IFAC information paper notes that the final IFRS for SME

may not be appropriate for the smallest entities at the end of the SME spectrum, the micro-

entities”. A study by van Wyk and Rossouw (2009:99) on IFRS for SMEs in South Africa

shows that the IFRS for SMEs “may not be adequate for the purposes of smaller entities,

irrespective of their legal status”. They argue that there should be an accounting standard that

is of limited purpose as opposed to that of general purpose, because the users of financial

statements of small entities do not need extensive or complex information (van Wyk &

Rossouw, 2009:99). Results from their study indicated that the primary users of these

Applicability

of IFRS for

SMEs

Informal

Small

Businesses

Specific

Needs

Cash

Basis

Cost to

Comply

Lack of

Training

Too

Small

41

financial statements were tax authorities and banks, and warned that small entities might also

be uninterested in the IFRS for SMEs (2009:104), as it is perceived to be costly (Cleminson

& Rabin, 2002:342), complex to comprehend (Stainbank & Wells, 2007:31), and too difficult

to implement (Topazio, 2007:30).

The inclusion of South African GAAP (SA GAAP) in the new Companies Act’s hierarchy

below IFRS for SMEs may address the type of financial reporting that will be expected of

micro businesses. However, such SA GAAP as applicable to the lower level has not yet been

developed. Such interventions may eventually serve as an encouragement for small

businesses to appreciate the importance of maintaining accounting records and preparing

financial reports, and thereby creating an avenue for sustainable growth, profitability and

possible transition into the formal sector.

2.6.3 Conclusion

The aforementioned financial statements, as prescribed by IFRS for SMEs, are required to be

prepared by some formal business structures such as private companies. These requirements

depend on whether the entity is governed by the Companies Act, or other regulating of

legislative requirements (e.g., SEDA) that recognises IFRS for SMEs as the suitable

accounting standard for reporting purpose.

There is, however, no specific financial records requirement for small businesses that are

regulated as such. The researcher is of the opinion that some sort of guidelines may need to

be put in place to ensure that even the micro and small business owners are financially

accountable for their business operations. These may assist in ensuring these businesses are

well-managed in a profitable and sustainable manner.

The discussion has been narrowed down to the application of accounting records to

survivalist and micro businesses, for which no specific accounting requirements have been

developed. The following section of the literature review therefore discusses the financial

accounting records that small businesses should maintain based on literature.

42

2.7 FINANCIAL ACCOUNTING RECORDS AND BOOKKEEPING

2.7.1 Nature of accounting records

Carmona and Ezzamel (2005:2), state that “accountancy has been around since ancient times

when the Sumerians and the Egyptians kept records for the quantities of their agricultural

products”. They believe that this record-keeping developed especially during trading and

when money was first used around 2000 BC. According to Radford (2007:3), “accounting

[involves] the classification, analysis and dissemination of financial information to those

parties who require such information in order to make informed judgments and decisions

based on the material”. In general, financial accounting is concerned with the recording,

classification, interpretation and communication of financial transactions of a business entity

(Dempsey & Pieters, 2010).

Rajaram and O’Neill (2009) define ‘accounting’ as the collection, analysis and

communication of financial information tasks that are usually performed before the

preparation of financial statements. Radford (2007:2) defines ‘bookkeeping’ (also book-

keeping or book keeping) as the recording of all financial transactions undertaken by an

individual or organization, a definition that applies to business entities as well as non-profit

organizations. He also explains bookkeeping as "keeping records of what is bought, sold,

owed, and owned; what money comes in, what goes out, and what is left" (Radford, 2007:2).

A record of all financial transactions, which are events that involve money, need to be

recorded. Accordingly, Radford (2007:2) argues that each account records an historical log of

the changes in the monetary values relating to different aspects of the business.

The basis for accounting recordkeeping is that each transaction is recorded in at least two

accounts. This double entry recording was developed by Luca Pacioli in the 15th

century in

Italy, to keep track of the increasing capital investment in trading ventures (Dempsey &

Pieters, 2010). Under the double entry recording for each financial transaction, there is at

43

least one account being debited whilst, at the same time at least one other account is being

credited. The result of this process is that the total debits of the transaction are equal to the

total credits, so that the overall net value is zero. For every debit entry there must be a

corresponding credit entry (All Business, 2006).

2.7.2 Importance of accounting records and bookkeeping

According to Conner (2007), bookkeeping is a vital aspect of any business, whether big or

small. Seagren (2007:1) states that complete and accurate financial record keeping is essential

to business success as it provides the financial data that helps the business owner-manager to

operate more efficiently. On the contrary, inaccurate and incomplete records may result in

false recording of the business assets, liabilities, income and expenses. These are the elements

of financial statements that were discussed in an earlier section.

As stated above, proper recordkeeping is vital for the preparation of financial statements,

such as the income statement (profit and loss) and cash-flow projection to determine the

financial performance of the business. Seagren (2007:1) indicates that these statements, in

some cases, are crucial for maintaining good relations with creditors and financial

institutions, whilst for Keogh (2007:12) the keeping of financial records will aid a business to

monitor its own performance and at the same time keep up with legal requirements. The

survivalist and micro business owner, for instance, will be able to know the amount of sales

for the day, amount owed to the creditors and amount expected from debtors. Without

accounting, managers would not be able to measure the success or failure of the business, or

to make the right economic and business decisions. In the case of tax calculation and

payment, record keeping may help with the calculation of tax that is payable to the

government through the revenue service.

Jones (2008) suggests that many businesses fail due to inadequate or non-existent filing and

record-keeping systems, and that failure of businesses may be attributed to lack of monitoring

profitability, bank balances and cash flow forecast in comparison to actual cash flow on a

routine basis. However, it is important to note that the reporting burden (cost of compliance)

44

on enterprises, especially small businesses, may be enormous (Brooks, 2007:1). This has

been discussed above, under the section of financial management. Bookkeeping gives the

business owner a clear idea of the cash position in the business and the state of its finances

(Töpfer, 2007).

Javed (2009:1) has written that all financial statements are essentially historical documents;

however he warned that even though these documents provide information on past events,

most users of financial statements are more interested in future bearings of the business. As

shareholders in public companies “are concerned with future earnings and dividends”, so

small business owners are interested in the survival and profitability of their businesses

(Javed, 2009). He pointed out the importance of historical documentation to the future when

he (2009:1) submitted that: “despite the fact that financial statements are historical

documents, they can still provide valuable information bearing on all of these concerns”.

Apart from the importance of measuring the performance of a small business, proper

accounting records give the business an impetus to climb the corporate ladder, moving from

a survivalist to a micro business, and even transcending into a small or medium business in

the future (Bazma, 2007a:1). A small business that requires a loan, for instance, may find the

process of securing it easier if records of financial activities of the business (as well as assets

and liabilities) can be supplied to the bank.

Research conducted by Rajaram and O’Neill (2009); Schwarze (2008); Niewenhuizen and

Kroon (2002) and Zhou (2010) have singled out accounting, including a cash basis type of

bookkeeping, as a minimum requirement for the micro business owner. They suggest that it

will allow him or her to ascertain the business’s profitability.

2.7.3 Financial accounting records that should be kept by small businesses

In the introduction to this chapter it was stated that the ultimate aim of the literature review is

to achieve the first research objective of this study, namely to identify the financial

accounting records that should be kept by small businesses. This section, based on the

45

literature review, discusses some of the accounting records that should be kept by small

businesses as recommended by different authors.

Accounting, according to Flynn and Koornhof (2007), should be carried out on a cash basis

(cash accounting) or on an accrual basis (accrual accounting). Cash accounting records the

cash flows (inward and outward), while the accrual-based accounting records transactions

when they occur (i.e., debtors and creditors) (Rajaram and O’Neill, 2009). Cash basis will

record when cash is either paid or received, whilst the accrual basis will record when it is

earned or incurred. The simplicity of the cash basis of accounting may make it more common

among small businesses than the accrual basis of accounting. Further, small businesses might

not purchase or sell products on any credit terms. A proper understanding of the concepts of

debtors and creditors may require some level of formal education training, which may not be

suitable for people in the informal businesses.

Keogh (2007:12) has also indicated some basic accounting records that small businesses

should be required to keep. For instance, the business will issue and receive invoices and

statements for goods sold to customers and for goods purchased by the business. The

business also receives cash which it pays into the bank account, from which bank statements

are received at intervals. These are the basic documents (source documents) from which a set

of accounting records can be generated and kept. Therefore, Keogh (2007) explains that

business owners are usually responsible for recording the daily purchases, sales, receipts and

payments.

Schwarze (2008) recommends that micro business owners should be able, at the very least, to

prepare a cash book of cash transactions, if they sell on credit; prepare an accounts receivable

record and perform proactive debtor management; prepare records of inventories, if

applicable; perform a break-even analysis and prepare and manage a cash budget. A study by

Orford et al. (2003:48), in Schwarze (2008), investigated the financial administration of

formal Black-owned businesses in South Africa, and similarly to Schwarze, identified the

following essential financial records:

46

keeping a cash book

keeping an accounts receivable record

keeping a record of inventory

performing proactive debtor management.

Prinson (2007:24) identified specifically some of the accounting records necessary for small

businesses to keep. They include:

Cash in bank (asset)

Revenue and expenses journal (income and expense)

Invoices and sales receipt (income)

Petty cash (asset)

Inventory record (asset)

Debtors (accounts receivable) (asset)

Creditors (accounts payable) (liability)

Payroll (salary) records (expenses).

The above discussion has identified several accounting records that could be maintained by

small businesses. These accounting records identified, form the basis for questions that are

included in the questionnaire distributed. Each of the different accounting records are

explained further below, with a reference to the section in the questionnaire in which they

have been addressed.

2.7.3.1 Cash records and bank account

Cash handling and recording are also important for micro and survivalist businesses as they

will determine the amount of cash available at any time (Prinson, 2007:31). Questions 7 and

10 of the questionnaire were posed to establish how respondents record their cash/bank

transactions.

47

Some small businesses open bank accounts (cheque account or savings account) in their

names, however, others may not open any bank accounts and function totally on a cash-in or

cash-out basis. A bank account opened could have different forms and could have different

facilities (Flynn & Koornhof, 2007; Pinson, 2007). Cheque books may be used as a form of

record and a means of transacting, however the more modem tendency is for the banks to

issue cards for ease of transacting without carrying cash. Some more sophisticated facilities

may include internet banking, telephone (or cell phone) banking, alternatively businesses

might also acquire facilities from their bank to record revenue transaction through credit and

bank cards. The question therefore arises as to what form of record is kept for cash

movements (inflow and outflow) in the business. Business receives periodic banking

statements, which indicate the inwards and outwards flow of cash in the bank account. The

questions arise whether the small business owners are sufficiently equipped to use the bank

statements to control their cash flows.

The cash book records the transactions in a business’s bank account. Having referred to

inflows and outflows of cash on several instances, a cash book or bank account makes it easy

and possible to measure the cash flow of the business that is cash received versus cash paid.

This is important for assessing the liquidity and the availability of running capital needed in

the business. Keogh (2007) explains that this record is of primary importance in keeping a

regular check on income and expenses of the business, therefore making it possible to know

how much money is available at any given time. As indicated above, it is possible that these

small businesses may not maintain a cash book or even a bank account. They may still be

able to track the inward and outward movement of cash in their businesses by keeping

records of the sources of income (sales) and channels through which cash is spent (expenses).

There is also a possibility that survivalist business owners live from hand to mouth and

therefore see no need to have bank/cash records. Ideally, and notwithstanding, the business

owners should keep a record of money received (income) and money paid (expenses) for

control purposes.

2.7.3.2 Sales / revenue records

48

Data about the recording of sales/revenue is captured in Question 8 of the data collection

instrument. The sales record is probably the most important record of a business because this

is the source of the main motive for doing business, namely profit (Christie, Brozovsky &

Hicks, 2010:41). Without sufficient revenue, the profitability on a business is under threat.

The revenue record tracks all transactions made by the business to its customers, including

both cash and credit sales, if applicable. Many small businesses, however, do not operate on a

credit basis, that is, they will create no debtors or creditors (du Plooy, Goodey, Lotter, Nortje

& Meyer, 2007).

The cash register captures the necessary information when a customer pays at the till. The

customer is then issued a till slip or cash register receipt. The compilation of cash register

totals should amount to the value of sales that incurred (du Plooy et al., 2007:63). This is only

applicable to small businesses that utilise some form of ICT, but, as indicated above, this is

not the case with many micro and survivalist businesses.

In the absence of a cash register, the receipt book records the cash received from costumers

(Flynn & Koornhof, 2007). Invoices could also be issued, especially for sales on credit. If

small businesses keep these records they are mostly handwritten and not electronically

generated.

2.7.3.3 Debtors records

This is only applicable to businesses that sell goods or render services on credit. In these

cases, the customers only pay cash at a future date. The debtors’ record captures all credit

sales and provides the amount owing by the debtors. As with cash, debtors are important

assets of a business and the record of them helps the business to guard against losing cash

inflow through non-payment. Therefore, it is important that credit control procedures are put

in place to monitor debtors. Questions 9 and 10 of the questionnaire were used to collect data

regarding debtors’ records from respondents.

49

2.7.3.4 Purchases records

Similarly to the sales records, a purchase record will show the purchases of goods and

services by the business. Purchases could also be on a cash or credit basis (du Plooy, Goodey,

Lotter, Nortje & Meyer, 2007; Flynn & Koornhof, 2007). When on a credit basis, the

business does not pay cash on purchasing but only pays at a future date (du Plooy et al.,

2007). Question 6 of the questionnaire was used to collect data pertaining to purchase (cash

or credit) records.

2.7.3.5 Creditors Records

This record is a mirror image of the debtors records, in the sense that it captures the same

information, only that the business owes suppliers for goods and services purchased on credit,

(du Plooy et al., 2007; Flynn & Koornhof, 2007). This only applies to businesses that buy on

credit, which is rarely the case with survivalist and micro businesses as they are probably not

sufficiently credit-worthy to have such benefits. Questions 9 and 10 of the questionnaire were

used to collect data regarding creditors’ records from respondents.

2.7.3.6 Wages and Salaries

Since many survivalist and micro businesses are owner-managed, the owner managers take

money from the business for themselves, in the form of paying themselves salaries and wages

or drawings. This information needs to be documented and taken into consideration when

determining the profitability of the business, so that a true picture of performance is

established. It is important to state that no questions on wages and salaries were included in

the questionnaire, since many survivalists and micro businesses do not have any employees.

50

2.7.4 Conclusion

This section, based on the recommendations of different authors and real-life practicality,

identified some of the accounting records that should be maintained by small businesses. It is

important to state that there is no regulated format for these above-mentioned records as it

applies to micro and survivalist businesses. These accounting records identified are vital to

this dissertation because they formed the basis for the questionnaire developed to assess the

second research question.

2.8 NEED FOR TRAINING IN ACCOUNTING

Many studies call for training of accounting skills for small business owners. For instance, in

a study conducted by Schwarze (2008) on developing financial management skills for micro

businesses in South Africa, the use of financial control measures were identified. 88% of the

micro-enterprise owners prepared some form of cash book, 38% prepared cash budgets and

63% performed breakeven analyses (Schwarze, 2008). This was after these business owners

had attended training on basic product/service costing, break-even analysis and cash budgets

to supplement the business plan. Other research showed that each type of business had its

own different needs regarding accounting information (Christie et al., 2010:41), and it was

found that the accounting methods used by small business were mainly cash accounting and

tax accounting, which provided information for the specific need for managing their business

and for compliance with government legislation.

Most micro-enterprise owners, according to Schwarze (2008), do not possess the critical

financial management skills required. This lack of skill was traced to lack of accounting and

bookkeeping skills. Stone (2003, in Rajaram & O’Neill, 2009) has suggested that there may

be a correlation between the failure of small businesses and a lack of accounting skills.

Recommendations were made on how members of the accounting profession could become

involved in developing these skills (Schwarze, 2008), including specific training that would

address the unique needs of small businesses but which was not too broad or general; and

51

assigning mentors to small business owners who would teach financial, accounting and

management matters.

Studies by Rajaram and O’Neill (2009); Taylor (2003); Stone (2003); Kotze and Smit (2008);

and Rajaram (2008) have also identified lack of or insufficient accounting skills in the SME

(small and medium-sized enterprises) sector, as a potential barrier that needs urgent attention.

Rajaram & O’Neill, (2009:100) specifically concluded that, “unless the SME sector is able to

record and monitor their financial performance, they will not be able to determine whether

they are making a profit or loss”.

2.9 CONCLUSION

This chapter sought to achieve the first research objective, namely to explain, through the use

of relevant literature, the nature of financial accounting records that should be maintained in

small businesses. In doing this, it provided an insight into the nature and history of small

businesses in South Africa. Small businesses, which are defined as survivalist and micro

businesses in this dissertation, are vital to poverty eradication, job creation and overall

contribution to the productivity of the economy. The nature and importance of financial

accounting records was also discussed.

This chapter has discussed the history of South Africa in terms of participation by Blacks in

economic activities, and the role of upliftment, empowerment and BEE legislation has been

introduced. The importance of BEE was highlighted, as a means of empowering Black

business people to be more independent and develop themselves, as well as some of the

initiatives that were established by the government to foster economic participation by

promoting small businesses were discussed. Despite the initiatives, it appears that the

government is still not ensuring that people at the grassroots (especially those involved in

micro businesses) are involved in sustainable business activities. Some of the shortcomings

of these government initiatives, coupled with the high unemployment and poverty rate,

necessitated a focus on the advancement of small businesses, commonly referred to as

52

SMMEs, a broad term that covers both formal and informal entities, with the micro and

survivalist business being the lowest in the hierarchy.

Even though small businesses are not governed by a particular set of regulations regarding

financial statement and record keeping, it is of paramount importance that some form of

accounting records is kept so that the entrepreneurs are able to evaluate the performance and

financial position of their business. It is important to note that there are no prescriptions that

small businesses should follow regarding keeping accounting records. Such guidelines may

be available in the nearest future. There will, however, be a need to train small business

owners on accounting matters so that they are capable of harnessing the advantages of

keeping proper records.

Despite the small and informal nature of the businesses on which this dissertation focuses,

there is a need for appropriate financial accounting recordkeeping, financial management and

financial reporting, to the extent that it is usable and applicable to these businesses. The

financial record keeping is crucial to small businesses as it creates a tool for measurement

and comparability of their performance and financial position. Maintaining proper accounting

records may facilitate the process of obtaining financial assistance or leverage from financing

institutions.

53

CHAPTER 3

RESEARCH METHODOLOGY

3.1 INTRODUCTION

This dissertation is an empirical study investigating the financial accounting records

maintained by Black businesses in QwaQwa, using both questionnaires and

interviews as data collection instruments. Having reviewed literature that gives insight

into the definition and development of small businesses in South Africa, and

discussed the importance of small businesses and keeping proper accounting records,

this chapter focuses on the methodology used to collect the primary data for this

dissertation. The data was then analysed so that they gave answers to the respective

research questions that were posed in the first chapter of this dissertation. This chapter

also discusses the research process, identifying the research objective, the research

methodology, the research design and the sampling method.

3.2 RESEARCH OBJECTIVE

As stated in Chapter One, the following are the three objectives:

1. To explain, through the use of relevant literature and past researches, the

nature of the financial accounting records that should be maintained by small

businesses.

2. To investigate what financial accounting records are being maintained by

small black-owned businesses in the rural area of QwaQwa.

3. To understand how small black-owned businesses in the rural area of

QwaQwa perceive the importance of maintaining financial accounting

records.

54

In the previous chapter, the literature review, the first research objective has been

addressed and answers to the Research Question 1 given. This chapter explains how

the research methodology was developed to achieve Research Objectives 2 and 3.

3.3 RESEARCH METHODOLOGY

The research methodology is an empirical study, which according to Bless and

Achola (1996:54) aims to give an accurate account of the characteristic of a particular

phenomenon, situation, community or person. In this dissertation, the community

consists of Black-owned businesses in QwaQwa, while the phenomenon and situation

are the financial accounting records kept by them.

Kruger (2000:43) regards the purpose of empirical research as to describe

systematically the facts, qualities or characteristics of a given population, events or

areas of interest as factually and accurately as possible, and thus to answer the

questions asked by the problem under investigation. The means by which this

dissertation achieves this purpose of empirical research lie in applying both the survey

instruments of a questionnaire and interviews.

Survey research, according to Trochim (2006:2), is one of the most important ways of

taking measurements in applied social research that involves asking questions of

respondents. Surveys are used extensively in social and information science to assess

attitudes and characteristics of a wide range of subjects (Basha & Harter, 1980). A

"survey" can be anything from a short paper-and-pencil feedback form to an intensive

one-on-one in-depth interview. The types are roughly divided into two broad areas,

questionnaires and interviews. Traditionally, questionnaires are usually paper-and-

pencil instruments that the respondent completes, which in this study addressed the

second research objective; while interviews are completed by the interviewer based

on what the respondent said, in this study for the purpose of the third research

objective (Bak, 2004:45).

55

3.4 RESEARCH DESIGN

Mouton (1996:107) defines a research design as a set of guidelines and instructions to

be followed in addressing the research problem. This includes the aim of the research,

the selection and the design of a particular method and reliable participants and

considerations. The development of an effective research design can be seen as the

basic plan which guides the data collection and analysis phases (economically and

accurately) of the research project and is consistent with the dissertation objectives.

Strydom and De Vos (2001:191) define a design sample as the element of the

population considered for actual inclusion in the dissertation.

3.4.1 The research instruments

Bless and Achola (1996:67) indicate that a survey is a piece of research in which

samples are selected from a population and studied to make inferences about the

population, and typically uses questionnaires and interviews to determine the

opinions, attitudes, preferences and perceptions of persons of interest to the research.

In this dissertation, both these means of survey instruments, namely questionnaires

and interviews, are used.

In survey research the questionnaire is regarded as an important information-gathering

technique. Questionnaires are a series of written questions on a topic about which the

respondents’ opinions are sought. De Vos, Fouche, Poggenpoel, Schurink, Schurink

and Strydom (2001:152) define them as a set of questions on a form, which are

completed by the respondent in respect of a research project. The questionnaire used

in this dissertation was originally designed to collect all the data necessary to resolve

both Research Objectives 2 and 3. However, after the questionnaires were completed

it was established that sufficient information had not been obtained to assess Research

Objective 3; hence a separate structured interview was introduced to resolve this

issue. The final structure of this dissertation, to assess both research questions 2 and 3,

is set out in Table 3.1 (next page).

56

Table 3.1 Objectives 2 and 3 of the dissertation and the instruments used

Objective Research instruments Chapter

Objective 2

To investigate what financial accounting

records are being maintained by small black-

owned businesses in the rural area of QwaQwa.

Questionnaires

4

Objective 3

To understand how small black-owned

businesses in the rural area of QwaQwa

perceive the importance of maintaining

financial accounting records.

Interviews

5

3.4.1.1 The questionnaire

A structured questionnaire was designed and used as the main instrument for

gathering data to assess Research Objective 2 (presented in Chapter 4). The

questionnaire method of data collection had the advantages of giving respondents

time to think about the answers and ensuring consistency by asking a uniform set of

questions to all the respondents.

The researcher administered this research instrument to selected respondents

personally, to ensure that they understand the items of the questionnaire and prevent

circumstances in which questionnaires were not sent back. The desirability of the use

of an accountable questionnaire for the dissertation ensures uniformity of the

questions posed to all the respondents at different times and places. It is also

important that the questions are uniform, to serve as a basis for unbiased analysis.

57

3.4.1.2 The interviews

Interviews are a more personal form of research than questionnaires. In the personal

interview, the interviewer works directly with the respondent and has the opportunity

to probe or ask follow-up questions (Basha & Harter, 1980).

The structured interview technique was applied to investigate the third objective of

the dissertation, to establish the respondents’ perceptions of the importance of

maintaining efficient accounting records and how they manage their financial risks.

The use of interviews is supported by Nthangeni (1992:4), who argued that “if we

want to know how people feel, what they experience and what they remember, what

their emotions and motives are like, and the reasons for acting the way they do… why

not ask them?” The following advantages were experienced in applying the interview

technique in this dissertation:

The interviewer could explain matters which were not clear to the interviewee

The interviewer could observer the behaviour of the interviewee

The interview method was more flexible than the questionnaire method.

Bradley (2007:1) suggests that interviews are used more frequently in the collection

of primary data, because an interview, as a technique of data collection, allows the

researcher to explain his or her questions to the respondents (interviewee); ensuring

proper comprehension of them. The researcher has observed from previous research

experiences that some respondents (especially government officials) prefer answering

questions “face to face” to engaging with any form of written document. This has also

allowed researchers to probe deeper, following the answers of the respondents.

58

3.4.2 Data analysis and interpretation

Since the dissertation is qualitative and quantitative in nature, data is analysed in both

statistical formats, namely charts, graphs and tables, in chapter 4 (questionnaires), and

in a more interpretative format in chapter 5 (interviews).

The statistical department of the researcher’s university was consulted for assistance

of data analysis. The Statistical Package for the Social Sciences (SPSS) and MS Excel

programme were used for this purpose. According to Burns and Burns (2011:98-99),

SPSS is a computer program used for survey authoring and deployment, data mining,

statistical analysis, and collaboration and deployment. Findings from the

questionnaires (Chapter 4), and discussion thereof, are separated from the findings

from the interviews (Chapter 5). The statistics department of the researcher’s

institution assisted with some aspects of coding and data capture of the items of the

completed questionnaires (basic statistics). Presentations in the form of descriptive

statistics, i.e., frequency tables and charts, were mostly used.

The descriptive statistics are based on distribution of the responses to the items of the

questionnaire. The distribution is a summary of the frequency of individual values or

ranges for variables (Field, 2011:18), as identified in the form of percentages, tables

and graphs.

3.4.3 Scientific validity

The nature of the research is quantitative and qualitative in nature. While quantitative

research involves analysis of numerical data, qualitative research involves analysis of

data such as words (e.g., from interviews), pictures (e.g., video), or objects (e.g., an

artefact) (Neill, 2007). The different features of quantitative and qualitative research

are set out (Neill, 2007) in Table 3.2 (below).

59

Table 3.2 Features of Qualitative & Quantitative Research (Neil, 2007)

Qualitative Research Quantitative Research

The aim is a complete, detailed

description

The aim is to classify features,

count them, and construct

statistical models in an attempt to

explain what is observed

Researcher may only know roughly

in advance what he/she is looking

for

Researcher knows clearly in

advance what he/she is looking

for

The design emerges as the study

unfolds

All aspects of the study are

carefully designed before data is

collected

Researcher is the data gathering

instrument

Researcher uses tools, such as

questionnaires or equipment to

collect numerical data

Data is in the form of words,

pictures or objects

Data is in the form of numbers

and statistics

Subjective - individuals

interpretation of events is important

,e.g., uses participant observation,

in-depth interviews etc

Objective - seeks precise

measurement & analysis of target

concepts, e.g., uses surveys,

questionnaires etc

Researcher tends to become

subjectively immersed in the

subject matter

Researcher tends to remain

objectively separated from the

subject matter

The table above clearly indicates that there is a movement from objective

(quantitative) to more subjective (qualitative research). Therefore the validity of both

must be assessed differently.

For the validation of the first research instrument, the researcher presented the

questionnaire to the supervisor, who made the necessary corrections so that the

questions focused on vital areas of the research topic as identified in Chapter 2. The

60

statistics department also perused the questionnaire to provide their input on the

design and to ensure that data gathered could be easily scored, as well as data

captured and analysed with their data processing software.

The validity of interviews is discussed in Chapter 5.2. The validity is created through

the prose followed to report and interpret the data obtained. The research aimed, at all

times, to reflect the true and sincere outcome of the findings. All references used in

this dissertation were acknowledged.

3.5 METHOD OF SAMPLING

According to Strydom and De Vos (2001:191), a sample is the element of the

population considered for actual inclusion in the dissertation. In the research

objective it was clearly stated that the source of data for the dissertation is Black-

owned businesses in QwaQwa. The basic principle of sampling is that by selecting

some of the elements in a population a researcher may draw conclusions about the

entire population. Zikmund (2000:342) defines the target market population as any

group of people, companies, hospitals, stores, or the like that shares some set of

characteristics.

3.5.1 Sampling and Source of data

Mouton (1996:134) defines a population as a collection of objects, events or

individuals having the same common characteristics that the researcher is interested in

studying. Basha and Harter (1980:1), in agreement with Mouton, stated that "a

population is any set of persons or objects that possesses at least one common

characteristic”. The target population for this research consisted of Black owners of

small businesses in QwaQwa.

A sample size refers to the number of items to be selected from the population to

make up a sample. Determining the size is generally a difficult and complex matter,

61

and according to Welman and Kruger (1999:60) it depends on the basic characteristics

of the population, the type of information required from the survey and the costs

involved. Sidhu (1995:175-176) defined sampling theory as the study of the

relationship between a population and the samples drawn from it. Since the researcher

personally administrated the questionnaires by assisting the respondents in completing

them, the sample size was limited to 100 small Black businesses in QwaQwa, which

represents the total population for the purpose of assessing Research Objective 2.

The number of respondents was limited to 100 since it is a time-consuming exercise

to self-administer questionnaires individually at different locations. The process was

also to identify owners of small businesses who fitted the profile defined for the

purpose of this dissertation. Out of 100, only 88 of the administered questionnaires

were usable for the purpose of data analysis, because others were not interested in

completing it in full. Therefore, only 88 questionnaires were completed fully and

analysed.

The sampling size for the interview was smaller than that for the questionnaire, with

44 interviews conducted, representing 50% of the appropriate completed

questionnaires. The reason for this was that interviews are more time-consuming and

foster deeper thinking from the interviewer. Basha and Harter (1980) claimed,

although interviews are generally easier for the respondent, especially if what is

sought are opinions or impressions, they can be very time-consuming and resource-

intensive for the interviewer.

A purposive sampling method was employed in selecting the samples that were

engaged in this empirical study. This includes both respondents for questionnaires as

well as interviews. With this type of sampling method, according to Brynard and

Hanekom (2008:55), the researcher only selects targeted samples that fit the defined

profile of the population, that is, the Black-owned small businesses as defined in

Chapter 1. For the purpose of the dissertation “Black owners” excludes Coloured and

Indian owners. QwaQwa is a traditionally Black area, and as Red Herring (Online)

observed, black Africans seem to be the least successful in business in South Africa.

62

3.5.2 Recruitment, Participation and Ethical Issues

The inclusion criteria for the study were that the respondents must be Black, have a

small business and stay in QwaQwa. These criteria were vital as they correlated with

the attributes of the target population. The researchers approached the business

premises and asked individual permission from the business owners to participate in

the survey. This protocol was observed for both the questionnaire and interview

participants (respondents). The business owners occasionally asked to see some form

of identification and/or letter of permission to conduct the study. The researcher

responded by presenting a student card and directing them to the cover letter of the

questionnaire.

Respondents were not involved under duress, and given the options of participating or

not. The purpose of the dissertation was explained to them before the researcher

obtained information from them; i.e., they were briefed before participating. The

researcher assured them of strict anonymity and the confidentiality of the information

they would give. Respondents were also assured that information gathered would be

for research purposes only.

3.6. CONCLUSION

This chapter has explained the research design used in this dissertation, including the

research objective, research methodology, the targeted population and sample of

respondents used and the data collection procedures. This is usually referred to as the

technical aspect of a thesis. The chapter also explained the reasoning behind use of

the two types of survey instruments, namely questionnaires and structured interviews.

Ethical considerations were observed in the recruitment and participation of

respondents.

Initially, the researcher set out purposively to recruit participants for data collection

through administering questionnaires. However, both questionnaires and interviews

63

were eventually used in data collection. It became important to use these quantitative

and qualitative methods so that all aspects of the research objectives would be

addressed.

The results of the application of the research instruments are presented and discussed

in the next two chapters. Chapter 4 deals with the responses to the questionnaires

while Chapter 5 focuses on the interviews.

64

CHAPTER 4

PRESENTATION AND DISCUSSION OF QUESTIONNAIRES

4.1 INTRODUCTION

The previous chapter outlined the research methodology, with questionnaires and

interviews to be used as data collection techniques. The research objectives stem from

the research questions posed in Chapter 1, intended to break down the research

problem, which is to investigate and evaluate the accounting records kept by small

Black businesses in rural QwaQwa. The first of the three research objectives was: to

explain, through the use of relevant literatures and researches, the use of financial

accounting records in small businesses, which has been addressed in the literature

review in Chapter 2.

The researcher used the content of the questionnaire to pinpoint the issues raised in the

second research objective; that is, to investigate what financial accounting records are

being maintained by black businesses in QwaQwa. This research objective was

addressed through analysing the responses on the structured questionnaire. The

primary data sources, which entailed Black-owned small business owners, were

purposively selected for this part of the dissertation.

4.2 THE QUESTIONNAIRE

The questionnaire was subdivided into six sections (Appendix 1 and Table 4.1, below)

to facilitate comprehension by the respondents and for easy data capture and analysis:

65

Table 4.1 Sections of the Questionnaire

Section Title and content Description

A General Information Background information

B Nature of Business Background information

C Accounting Records Main questions

D Finance Follow-up questions

E Financial Risks Answers Objective 3

F Importance of Accounting Records Answers Objective 3

This chapter covers the presentation of data and discussion of responses to sections A

– D of the questionnaires. Each of the sections is separately analysed and discussed,

with an introduction and conclusion. Sections E and F relates more to the third

research objective and hence will be presented and discussed in the next chapter. A

sample of 100 respondents was purposively selected and took part, of whom 88

accurately completed questionnaires suitable for data analysis.

4.3 SECTION A: GENERAL INFORMATION

Section A of the questionnaire focused on demographic information about the

respondents, and data gathered mainly pertained to the respondent as an individual,

namely gender, level of education and age.

4.3.1 Gender of respondents

The respondents consisted of (56.8%) males and (43.2%) females (Table 4.2 and

Figure 4.2). Even though the gender was not evenly distributed, females were fairly

well represented in the small Black business sphere.

66

Table 4.2 Gender of Respondents

Sections Frequency Percentage Cumulative percentage

Male 50 56.8% 56.8%

Female 38 43.2% 100%

Total 88 100%

Figure 4.21 Genders of Respondents

Some authors, Humphreys and Weinstein (2009) and Babaeva and Chirikova (1997)

for instance, have recognised the contribution of women in the economy, despite the

general belief that there are fewer females involved in business. Females make up 54%

of the population of QwaQwa (Ewisa, 2004), and are well represented in business.

This may also be because majority of the households are headed by females (Ewisa,

2004).

1 Started with Figure 4.2 so that the numbering synchronises with that of the Tables. Table 4.1 required

no further illustration; hence, no Figure 4.1.

Gender

67

4.3.2 Age of respondents

The respondents came from a wide range of age groups, as shown in Table 4.3 and

Figure 4.3. The majority (almost 80%) were over 30 years of age, and 40 of the

respondents were over 40 years, which suggest that they were mature individuals who

most probably had dependants, i.e., spouses, children and other relatives.

Table 4.3 Ages of Respondents

Frequency Percentage Cumulative percentage

21 – 30 years 19 21.6% 21.6%

31 – 40 years 29 33.0% 54.5%

Above 40 years 40 45.5% 100%

Total 88 100%

Figure 4.3 Ages of Respondents

Age

68

4.3.3 Qualification

The majority (+60%) of the respondents had attained an educational level of

matriculation (matric), with only 38.6% not having a matric qualification (Table 4.4

and Figure 4.4). This means that most had a basic education, being able to read and

write and probably basic arithmetic, notably addition, subtraction and multiplication,

i.e., the skills necessary to record accounting transactions. This is consistent with the

findings of Mwabu and Schultz (1996:336), who observed that education of Blacks

seeking employment is mainly at school level.

Table 4.4 Highest Qualification


Lower than Matric 34 38.6% 38.6%

Matric (Grade 12) 35 39.8% 78.4%

Post school Cert/Dip 19 21.6% 100%

Total 88 100%

Figure 4.4 Highest Qualification

Highest Qualification

Qualification

69

Cross tabulations show that the younger generation among the respondents were better

educated that the older ones, reflecting that the significance and accessibility of Black

to education has begun to improve over time, especially in the years following the end

of apartheid, when people could study a field of their choice (Esser & Dekker, 2008).

4.3.4 Conclusion

This section analyzed the demographic information about the respondents, indicating

that the majority of the Black small business owners are mature individuals over the

age of 30. At least 60% have attained a matric qualification or better, which suggests

they are sufficiently knowledgeable to engage in business activities and understand the

content of the questionnaire.

4.4 SECTION B: NATURE OF BUSINESS

This section of the analysis of the questionnaire gives an insight into the nature of the

businesses of the respondents, i.e., information about the industry, the type of

ownership, how the business was started and the number of years it has been in

existence. The respondents were asked the following questions:

How long have you owned the business?

What type of ownership has your business?

Under what type of industry is your business?

How was the business started?

4.4.1 Existence of the business

The vast majority (90%) of the businesses had been in existence for more than one

year, the frequency of 2 to 5 years being the majority (58%). Twenty percent had

existed for more than 10 years (see Table 4.5 below and Figure 4.5). Most of the

identified survivalist and micro businesses had therefore existed for a few years. Since

70

these businesses are means of survival to the business owners and perhaps their family

members, continuity is vital.

Table 4.5 Existence of the business


1 year 8 9.1% 9.1%

2 – 5 years 51 58.0% 67.1%

6 – 10 years 9 10.2% 77.3%

More than 10 years 20 22.7% 100%

Total 88 100%

Figure 4.5 Existence of the business

Years

71

One can assume that since most businesses had been operating for more than a year,

the respondents understood them well enough to give informed and valid responses to

the questions posed in the questionnaire. It is interesting to note that, opposed to a

common trend for SMMEs to fail in their early years (Stokes & Wilson, 2010:225),

many had existed for more than two years. The reason for this longevity may lie in

their being mainly survivalist, and as suggested by Devins, Gold, Johnson and Holden

(2005:540), more attention needs to be given to these businesses so that they can reach

greater potentials.

4.4.2 Type of ownership

Ownership is divided into sole-owner, family-owner and partnership (refer Table 4.6

and Figure 4.6). More than 60% of the small businesses are solely owned. The next

most popular type is the family-owned business, many of which are managed by

family members. In some cases the children are also involved in the running of the

business activities.

Table 4.6 Type of ownership


Sole owner 56 63.6% 63.6%

Family-owned 21 23.9% 87.5%

Partnership 11 12.5% 100%

Total 88 100%

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Figure 4.6 Type of ownership

In this study, the term ‘solely-owned’ implies not only one-person businesses but

means that the one person who is owner is the sole manager of the business activities.

Some family-owned businesses include distant relationships, such as cousins.

4.4.3 Type of industry

The type of industry is divided into services, manufacturing, and retail (refer to Table

4.7 and Figure 4.7). More than 80% of the businesses represent either the service or

retail sector.

Table 4.7 Type of industry


Services 36 40.9% 40.9%

Manufacturing 15 17.1% 58.0%

Retail 37 42.0% 100%

Total 88 100%

Ownership

73

Figure 4.7 Type of industry

‘Retail’ refers to basic trading of buying and selling, for instance, tuck shops and

vegetables stands. Manufacturing mainly consists of those businesses that are

providing products through some form of a production. Businesses that provide meals,

for instance, have been classified as manufacturing. Service businesses include, for

example, hairdressing salons, photocopying facilities and internet cafés.

4.4.4 Means of starting business

Out of the 88 respondents, 74 started the business on their own while others acquired

existing small businesses (Table 4.8 and Figure 4.8). This indicates that more

entrepreneurs started their own businesses from scratch than those who bought existing

businesses.

Industry

74

Table 4.8 Means of starting business


Buy 14 15.9% 15.9%

Start 74 84.1% 100%

Total 88 100%

Figure 4.8 Means of starting business

4.4.5 Conclusion

Section B has shown that the preferred type of business is sole ownership (one person

business) and that the majority have existed for more than a year. More than 50% have

existed within a 2 to 5 years period. Most of the business owners have started the

businesses themselves as most do not have the money or means to buy an existing

business. The preferred sectors were services and retail, which may be because it is

relatively easier to establish, with less startup capital.

Buy or Start

75

4.5 SECTION C: ACCOUNTING RECORDS

The second research objective for this dissertation is “to investigate what financial

accounting records are being maintained by Black businesses in QwaQwa”. Section C

of the questionnaire posed questions that facilitated achieving this objective. Questions

about the banking facilities used by the businesses were also asked, which are

presented first, followed by those on the accounting records that the respondents kept.

4.5.1 Banking facilities

This aspect of the questionnaire gathered information by asking the respondents the

following questions:

How do customers pay you?

Which bank facilities do you use in your business?

4.5.1.1 Customer payment

The question on how customers paid the respondents was to determine if they paid

with cash or by cheque, or if transactions were sometimes made on credit (Table 4.9

and Figure 4.9). This was discussed towards the end of the literature review (see

Chapter 2). It is possible that a business may have a combination of two or more

alternatives for their customer, in which case they were asked to indicate the most

commonly used method.

Table 4.9 Customer payment


Cash 56 63.6% 63.6%

Credit 22 25.0% 88.6%

Cheque 10 11.4% 100%

Total 88 100%

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Figure 4.9 Customer payment

Most of the Black-owned small businesses do not implement a system to grant credits

to their customers and do not have the financial standing to apply for credit for

purchases.

4.5.1.2 Banking facilities

The next question, “Which bank facilities do you use in your business?” was divided

into three questions, used to investigate what banking services and products the

respondents used. The rationale for this was that having a business bank account is a

form of recordkeeping, which means that if a business operates a bank account in the

appropriate manner it will be possible to obtain bank statements and check (or

reconcile) cash transactions.

Payment

77

4.5.1.3 Type of bank account

The type of bank accounts identified in Table 4.10 and Figure 4.10 are not always

business bank accounts. Many of the respondents indicated that business funds were

deposited into their personal bank accounts, which means that they did not separate

their personal money from that of the business. This is common among businesses that

have no formal structure.

Table 4.10 Banking facilities


Cheque 23 26.1% 26.1%

Savings 50 56.8% 82.9%

Transmission 4 4.5% 87.4%

Others 11 12.6% 100%

Total 88 100%

Other bank types included Post Office accounts and other banking facilities, such as

Mzansi accounts. First National Bank (FNB), for instance, gave their clients the option

to open a transmission account. These were captured under “Transmission” accounts.

Respondents who said they did not have a bank account were captured as “Others”.

Some of them claim to keep their cash in the house and not in the bank.

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Figure 4.10 Banking facilities

An evident factor is that the majority of the respondents were basic users of the

banking facilities and offerings, with 56.8% having mainly savings accounts. Only

26,1% of the respondents are using cheque accounts. As mentioned above, there is

normally no distinction between personal bank accounts and business bank accounts.

4.5.1.4 Internet banking

Only three (3.4%) out of the 88 respondents used internet banking frequently (Table

4.11 and Figure 4.11).

Table 4.11 Use of internet banking facilities


Yes 3 3.4% 3.4%

No 85 96.6% 100%

Total 88 100%

Bank Account Type

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Figure 4.11 Use of internet banking facilities

The limited use of internet banking facilities by these small businesses is due to the

availability of computers and internet connections. The majority of the businesses

owners are not interested in computer facilities since they are either uneducated in use

of basic computer programs or the cost of obtaining basic computer facilities is too

high.

4.5.1.5 Telephone banking

Only 1.1% respondents utilized telephone banking, which indicates the lack of

sophistication in the type of banking that these businesses conduct. As mentioned

above, in the case of Internet, it is possible that the business owners view telephone

and the airtime as cash outflows that may be too expensive for them to afford.

Facilities?

facilities? Internet banking

80

Table 4.12 Use of telephone banking


Yes 1 1.1% 1.1%

No 87 98.9% 100%

Total 88 100%

Figure 4.12 Use of telephone banking

4.5.1.6 Bank card

A similar response emanates from the response to the use of credit cards, with only 1%

identifying that they used credit card facilities (Tables 4.13 and Figures 4.13).

However, having cheque and saving accounts, the respondents were able to use the

debit cards, debit order and ATM facilities attached to saving cards.

Facilities?

Response

81

Table 4.13 Use of credit card facilities


Yes 1 1.1% 1.1%

No 87 98.9% 100%

Total 88 100%

Figure 4.13 Use of credit card facilities

Do you use credit card facilities?

Do you use credit card facilities?

Credit card

82

4.5.2 Conclusion on banking

Only a few of the respondents utilised all the facilities offered by banks. This may be

attributed to the availability of computers due to cost or lack of computer literacy. It is

important to relate the responses to the initial question of how many businesses had

bank accounts. Lack of proper marketing and outreach to micro and survivalist

businesses by major banks in South Africa is also possible. Schoombee (1999:419)

explained that small businesses (especially the micro) do not have good relationships

with banks as they are perceived as being high risk clients by the banks.

4.5.3 Accounting records

This aspect of the questionnaire gathered information by asking these questions:

How is your revenue (income) recorded?

How do you recognize your business expenses?

Do you keep debtors ledgers?

Do you keep creditors ledgers?

Do you keep cash book?

How often do you prepare financial statements?

What type of financial statements do you prepare?

4.5.3.1 Recording of revenue

Only 28.2% of the respondents did not record income, whilst others recorded it in one

of the ways illustrated in Table 4.14 below and Figure 4.14.

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Table 4.14 Recording of revenue


Cash register 20 22.7% 22.7%

Invoice 12 13.6% 36.3%

Receipt book 36 40.9% 77.2%

Income not recorded 20 22.8% 100%

Total 88 100%

Figure 4.14 Recording of revenue

Pinson (2007:21), explaining the difference between receipt book and invoicing, writes

that while the latter is the process of documenting the billing of a customer, the former

is issued (either manually or electronically) to the customer after payment is received.

Having said that, the small business owners do not understand the technical difference

between these terminologies but simply use them interchangeably. Most of the

Recording of Revenue

84

respondents, however, focus on maintaining some form of recording of cash received

to maintain record of revenue received.

4.5.3.2 Recording of expenses

To have an idea of the respondents’ understanding of the difference between cash basis

and accrual basis of accounting, the question on how expenses were recorded was

asked. As shown in Table 4.15 and Figure 4.15, only 7 (8%) respondents recognised

expenses on an accrual basis. The remaining 92% used a cash basis.

Table 4.15 Recording of expenses


Accrual (incurred) 7 8.0% 8.0%

Cash (paid) 81 92.0% 100%

Total 88 100%

Figure 4.15 Recording of expenses

Incurred or Paid

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Ease of recording and the possibility of using single entry recording are some of the

advantages that Pinson (2007:11) identified as the reason people use the cash basis of

accounting. It is clearly indicated in the response that the business owners do not

necessarily match income and expenses with the period that they occur, as this is

possible only when using the accrual basis of accounting (Pinson, 2007:11), where

income and expenses are recognised (recorded) when they occur and not when they are

received and paid, respectively.

4.5.3.3 Debtors and creditors record

Since the concept of accruals implies the existence of debtors and creditors, the

following two questions were posed to investigate if the respondents maintain records

of amounts owing to and by them (Tables 4.16-17 and Figures 4.16-17).

Table 4.16 Records of debtors


Yes 18 20.5% 20.5%

No 70 79.5% 100%

Total 88 100%

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Figure 4.16 Records of debtors

For debtors and creditors (Tables 4.16 & 4.17 and Figures 4.16 & 4.17), 80% of the

respondents did not keep a record of these accruals. This is because the majority of

their transactions are on a cash basis, as indicated above. When transactions are in

cash, there are no future date expectations of receipts (income) and obligations for

payments (expenses); hence there is no need to keep records of debtors and creditors.

Table 4.17 Recording of creditors


Yes 16 18.2% 18.2%

No 72 81.8% 100%

Total 88 100%

Figure 4.15 Debtors Ledger

87

Figure 4.17 Recording of creditors

The fact that the frequency of respondents’ preparation based on records of creditors

and debtors ledgers is higher than the responses on accrual basis suggests that the

respondents do not understand these concepts of accrual basis clearly (Tables 4.17 and

Figures 4.17). There were only 18.2% responses to the accrual basis in a previous

question. The overall results still show that only a small percentage of the respondents

apply some form of credit.

4.5.3.4 Cash Book

Presentations in Table 4.18 and Figure 4.18 show the responses to the question

regarding maintaining a cashbook. Out of the 88 respondents, 9 (10%) did prepare cash

books. This record (the cash book) refers to a record that captures cash inflows and

outflows relating to the business and may include receipts sales, income from services

rendered, rent and wages payment, and payment for goods.

Creditors Ledger

88

Table 4.18 Maintaining cash book


Yes 9 10.2% 10.2%

No 79 89.8% 100%

Total 88 100%

Figure 4.18 Maintaining cash book

Since most of the businesses in the study apply the cash basis, as indicated in previous

responses, the cash book should be a key record of transactions. However, it is

surprising that only 10% of the respondents did keep one. There may be two

explanations for this, the first is that respondents keep records of revenue (77%) and

expenses (92%) and therefore see the preparation of cash as duplication. The second is

that many of the respondents were not operating business bank accounts but personal

ones. It is difficult to distinguish business transactions from personal ones.

4.5.3.5 Frequency of preparation of financial statements

Cash book

89

The importance of accounting records and financial statements has been discussed in

the literature review chapter. The following questions investigated the type of financial

statements that businesses kept and prepared (Table 4.19 and Figure 4.19).

Table 4.19 Frequency of preparing financial statement


Monthly 55 62.5% 62.5%

Bi-annually 13 14.8% 77.3%

Annually 4 4.5% 81.8%

Never 16 18.2% 100%

Total 88 100%

Figure 4.19 Frequency of preparing financial statement

Table 4.19 and Figure 4.19 (above) show how often the respondents prepare financial

statements. It is important to state that those prepared by the business owners and

respondents are of the simplest format and not the types that are governed by

regulations and standards such as SA GAAP or IFRS. The kind of financial statements

being prepared are not even in accordance with the IFRS for SMEs discussed in the

literature review section (Chapter Two). However, it is surprising that these

Frequency of Preparation

90

respondents claim to prepare financial statements despite not keeping sufficient

accounting records to be able to do so.

Sixty-two percent of the respondents claimed to prepare their financial statements on a

monthly basis, while 18.2% claimed not to have prepared any financial statement. It is

the researcher’s opinion that these figures may not reflect the truth as they are not

consistent with the type of records they keep. From the researcher’s observation, the

respondents do not seem to have the necessary competence to prepare such statements;

hence their financial statements, or reports, are simply summaries of the income

(received from sales) and expenses (payments) of their preferred period of choice.

4.5.3.6 Financial statements

The next question, “What financial statements do you prepare?” was divided into sub-

sections according to the types of financial statements.

4.5.3.6.1 Statement of comprehensive income (Income statement)

64.8.7% of the respondents prepared income statements (Table 4.20 and Figure 4.20).

Table 4.20 Preparation of income statement


Yes 57 64.8% 64.8%

No 31 35.2% 100%

Total 88 100%

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Table 4.20 Preparation of income statement

The income statement records the difference between income and expenses to calculate

the profit of the business. If a business is preparing records on the cash basis and not

on the accrual basis of accounting, the income statement also provides the cash flow

from operating activities profit. In most instances, the income statement (being on the

cash basis) is also a statement of payments and receipts account.

4.5.3.6.2 Statement of financial position (Balance sheet)

Table 4.21 and Figure 4.21 show that the balance sheet (statement of financial

position) had not been used by many of the survivalists and micro businesses. Twenty-

seven out of 88 respondents prepared balance sheets. As in earlier discussions, it may

not be possible for these businesses to prepare a balance sheet if the elements (assets

and liabilities) were not recognised. Since most of the entities do not maintain

complete accounting records, it is not possible to prepare balance sheets.

Table 21

Income statement

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Table 4.21 Preparation of balance sheet


Yes 27 30.7% 30.7%

No 61 69.3% 100%

Total 88 100%

Figure 4.21 Preparation of balance sheet

4.5.3.6.3 Cash flow statement

The least prepared financial statement is the cash flows statement, with only 14.8% of

the respondents having prepared this type of statement (see Table 4.22 & Figure 4.22).

Table 4.22 Preparation of cash flow statement


Yes 13 14.8% 14.8%

No 75 85.2% 100%

Total 88 100%

Balance sheet

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Figure 4.22 Preparation of cash flow statement

Since the respondents indicated that their business activities were mainly operated and

recorded on a cash basis, any preparation of an income statement (statement of profit

and loss) would be on a cash basis. A cash flow statement to identify the cash flow

from operating activities therefore needs not be prepared. This is because the income

statement actually illustrates the cash received (inflows) and cash paid (outflows),

being not on the accrual basis. Further, the black-owned small businesses normally do

not have significant investment and financing activities that are presented in a

Statement of Cash Flows.

4.5.4 Conclusion

As the most important section in achieving the second research objective, Section C

has highlighted the accounting records maintained by the businesses. The findings

show that micro and survivalist business owners are more focussing on cash-based

Cash Flow Statement

94

transactions and records. The concept of accrual basis of accounting does not really

apply and they have limited understanding of this terminology.

Through the use of an invoice book, receipt book or cash register, the majority of the

respondents kept records of their business revenue. Some claimed that they did not

maintain records of revenue, which is disturbing considering that they will not be able

to assess their profitability.

Only 8% of the respondents indicate that they record expenses on an accrual basis. In

contrast 18% of the respondents have indicated they maintain records of creditors. The

reason for the difference could be that the respondents do not always understanding the

difference. It is, however, clear that the cash basis of accounting is the main basis used

by the black-owned small businesses.

However, only 10% of the respondents maintain records in a cash book. Although they

are managing the cash inflows and outflows, the majority does not complete a cash

book to record all cash transactions.

These findings are consistent with previous studies. Orford et al. (2003:48)

investigated the financial administration of some black-owned businesses in South

Africa and observed that keeping a cash book and record of accounts receivable was

uncommon. A study by Schwarze (2008), however, indicated that out of the micro-

enterprise owners sampled, 88% prepared some form of cash book. Contrary to this

current study, these business owners had attended some form of accounting training

prior to Schwarze’s study.

4.6 SECTION D: FINANCE

This section focusses on the respondents’ understanding of financial statements and

analyses the manner in which their business was funded and how it was financed.

95

4.6.1 Purpose of financial statement

Fifty percent of the respondents say that they use financial statements for the purpose

of financial planning (Table 4.23 and Figure 4.23). 6% do not prepare any form of

financial statement whatsoever.

Table 4.23 Purpose of preparing financial statements (and keeping records)


Financial planning 45 51.1% 51.1%

Management 24 27.3% 78.4%

Tax purpose 13 14.8% 93.2%

Do not prepare 6 6.8% 100%

Total 88 100%

Figure 4.23 Purpose of preparing financial statements (and keeping records)

Financial planning, to the respondents, was simply a tool or medium that indicated to

the business owner how much was available for spending. As indicated in previous

sections, most of the respondents record, some form of revenue and expenses, sufficed

Financial statement

96

for their financial planning, that is they simply compared cash received with cash paid

to determine profitability and cash available for spending.

4.6.2 Funding of business

Table 4.24 and Figure 4.24 show the respondents’ answers to how their businesses are

continuing being funded. Businesses are mainly funded from own contributions

(47.7%) and from family contributions (17%). Access to funding may still constitute a

major challenge to small businesses, as only 20% of the respondents utilized external

sources of funds. This may, however, be the result of the micro nature of their

businesses, one that does not warrant intervention of loans.

Table 4.24 How is the business currently funded?


Own contribution 42 47.7% 47.7%

From partners 13 14.8% 62.5%

From family 15 17.0% 79.5%

External finance 18 20.5% 100%

Total 88 100%

Source of Fund (currently funded)

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Figure 4.24 How is the business currently funded?

Funds from partners indicated that the business was a form of partnership (with a

distant family relation), as explained in the previous chapter. External finance indicates

funding from some financial institution or micro lenders. On this note, it is important

to state that the researcher visited the Free State Development Corporation (FDC) and

interviewed the office responsible for granting loans to business starters. One major

problem they claimed to have with the black-owned small business owners was the

repayment of their loans, many of which they claimed were irrecoverable.

4.6.3 Start-up funding of business

Table 4.25 and Figure 4.25 show respondents’ answers to how their businesses were

funded when started (or acquired). Earlier responses established that many businesses

did not have a dedicated business bank account; hence, personal loans might have been

taken from banks in the individual capacity of the owner. These types of personal loans

taken by business owners and used for their businesses are tantamount to capital or

own contributions. Funds were mainly from personal loans (42%) and from the family

(13.6%). Funds from partners indicated a form of partnership (normally with a distant

family relation). Therefore, funds from family and partners were combined.

Table 4.25 How did you fund your business when you started?


Own/family/partner 12 13.6% 13.6%

Bank loan 35 39.8% 53.4%

Personal loan 37 42.1% 95.5%

FDC 4 4.5% 100%

Total 88 100%

As most of the businesses are owned by one person (sole proprietary) a clear

distinction between the contribution of the owner and its own funds could not always

98

be made. Hence, even loans taken from financial institutions by the owners so that they

can invest it in their businesses are perceived as owners’ contributions.

Figure 4.25 How did you fund your business when you started?

Likewise, the bank loans are sometimes loans taken from the banks in the personal

capacity of the owners and not in the business capacity.

4.6.4 Conclusion

Financial planning, i.e., knowing how much is available for possible spending, and

management are the key reasons business owners prepare their financial statements. In

a similar study by Schwarze (2008), 38% of the respondents (micro business owners)

prepared cash budgets for financial planning. Even though some businesses were

started using bank loans (in the name of the business) and personal loans (in the name

of the owner), the businesses were being funded through own finances. The

questionnaire however did not cover insight into whether the loans obtained at start up

were paid up in full or were still being serviced.

Source of Fund (started)

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4.7 SECTIONS E AND F

Section E of the questionnaire asks how the respondents manage their financial risks.

This section enquires whether respondents used budgeting and forecasting for

managing risks or did not plan, thus living “from hand to mouth”. Many respondents

did not complete this section of the questionnaire. This section was therefore not

analysed further. The issues were thus, as stated before, included in the interviews

assessed in the next chapter.

4.8 CONCLUSION

This chapter analysed the data contained in the questionnaire, seeking to achieve the

second research objective of investigating the accounting records maintained by Black-

owned small businesses, and to answer the second research question. The

questionnaire was based on accounting records identified in the literature review (see

Chapter 2). The data analysis and discussion thereof are in the sequence of the

different sections in the questionnaire, that is, nature of the business; accounting

records; and financing of the business.

The findings indicate that the majority of the Black small business owners are mature

individuals who manage their businesses, mainly services and retail, with limited

education and lack of skills in accounting. These businesses were mainly started by the

current owners and not bought from existing ones. The majority of the businesses had

existed for more than two years, indicating that they were surviving.

It became evident that the Black-owned small businesses mainly used the cash basis,

but did not maintain cash records in cash books. The reason might be that they did not

see the need for maintaining a cash book as they utilised their personal bank accounts.

Only limited respondents claimed to use the accrual basis of accounting, thus

maintaining records of debtors and creditors.

100

Because of the lack of ability to prepare financial statements, these business owners

mainly prepared a simplified statement based on the difference between receipts and

payment. They understood this to be the income statement and therefore most

indicated that they have prepared income statements. They seldom prepared balance

sheets and rarely prepared cash flow statements that include all the activities normally

reflected on Statements of Cash Flows – i.e., operating, investing and financing

activities. There seems to be a dire need for training as the respondents did not have a

good understanding of accounting concepts or terminologies. Questions regarding the

need for training are thus included in the interviews.

The next chapter focuses on the analysis and discussion of data gathered mainly from

the interviews, with the objective of achieving the third research objective and

answering Sections E and F of the question, which proved abortive for the

questionnaire to achieve.

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CHAPTER 5

PRESENTATION AND DISCUSSION OF INTERVIEWS

5.1 INTRODUCTION

As mentioned in previous chapters, two data collection techniques were eventually used

namely questionnaires and interviews. While the questionnaires focussed on structured,

easily-coded questions, the interviews focussed on qualitative and open-ended questions

related to the perception of respondents. The previous chapter covered the presentation of

data, analysis and discussion of responses to the questionnaires, thereby answering the

research questions on the types of accounting records that are maintained by the small

businesses in QwaQwa.

It was indicated in previous chapters (3 and 4) that the information gathered from the

responses to Section F of the questionnaire, which focussed on the perception questions

that answer the Research Question 3, was insufficiently completed, hence, the interview

became inevitable. This was to obtain a level of certainty on the respondents’ perceptions

of the importance of maintaining accounting records and how they manage risks. This

chapter assesses research objective 3:

To understand how small Black-owned businesses in QwaQwa perceive the


The presentation and discussion of responses to the interviews are presented in this

chapter, separately presented and discussed from Chapter 4 because it collected and

measured different types of data and the numbers of respondents were different, with not

all of the 88 respondents available or taking part in the interviews. Only 44 respondents

were available for the interview questions. This chapter is divided into sections based on

the five questions posed in the interview schedule:

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1. Which type of financial records do you keep?

2. What is your perception of the importance of maintaining efficient accounting

records?

3. Explain how you manage your financial risks?

4. Do you have the knowledge to maintain efficient accounting records and to manage


5. What are your needs (if any) to be able to control and manage your business

effectively?

5.2 RESEARCH METHOD AND PRESENTATION

Forty-four willing respondents were engaged in the interviews, which took place at

respondents’ business premises, on average for 30 minutes. As indicated in the analysis of

the questionnaire in the previous chapter, the respondents came from a wide range of age

and gender groups. The researcher documented the responses in written format to create

the data analysed below. By formally documenting the responses, language issues are also

resolved. Most of the respondents’ first language was not English.

When analysing responses from interviews, the results are usually qualitative in nature

(Neill, 2007), and it may be possible, based on some common responses, to cluster some

into themes (Creswell, 2002). The responses to each question, except question one, are

classified in common themes or responses on a spreadsheet. Some figures were used to

illustrate the commonality among respondents about themes, after which a descriptive

review of each question is provided. A descriptive review only provides an objective

written comment on the facts found, without analysing their meaning. Lastly, an

interpretation of the descriptive data is provided. Interpretation assesses the meaning of the

findings, which is a move away from their objective presentation to a subjective review of

their meaning and consequences.

The issue of validity also needs to be addressed when interpreting responses obtained

through interviews (Creswell, 2002; Segrest, Domke-Damonte, Miles & Anthony, 1998),

103

as one moves from objectivity to a subjective interpretation. Each researcher may interpret

the data differently. Validity is created through the process followed to interpret the data,

which in this dissertation is created first through identifying the common themes and

responses, then providing a descriptive review of the responses prior to their interpretation.

5.3 PRESENTATIONS AND DISCUSSIONS BASED ON INTERVIEWS

This section analyses the presentations and discussion, based on the interviews.

5.3.1 Type of accounting records

The first interview question considered the type of accounting records maintained,

included as an introduction question to foster the debate. The aim was not to conduct a

thorough analysis but rather to follow up on the responses already answered in Chapter 4.

As established in the previous chapter, many of the respondents used the cash basis of

recordkeeping, and the common form of prepared financial statement was the income

statement.

Most respondents confirmed that they used the cash basis of accounting, believing that this

form of recordkeeping was appropriate as they did not allow their customers to buy on an

accrual basis. Duplicates of cash receipts are kept in some instances and used for

reconciliation at the end of the day. Most of the respondents confirmed that they prepared

income statements. It is important to note that the use of “income statement” in the context

was not in accordance with any particular accounting framework or standard, but referred

to any format of analysing income (cash receipts) and expenses (or cash payments). This

raises the question whether there may be a need for accounting guidance for businesses

that use the cash basis of accounting and thereby address the issue of ease of preparation of

financial statements that is uniform and comparable. Some indicated that they did not

maintain records because they did not have the background or knowledge of maintaining

accounting records.

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5.3.2 Perception regarding accounting records

The perceptions of accounting records were as follows.

5.3.2.1 Question

To have an understanding of the respondents’ perceptions about accounting records, the

following question was asked:

What is your perception of the importance of maintaining efficient accounting records?

This question is important as it is similar to the research question on which the third

research objective is based. Responses give an indication of how important the maintaining

of accounting records was for them, therefore they form the basis for achieving the third

objective of this study, namely to understand their perceptions regarding the importance of

maintaining accounting records.

5.3.2.2 Descriptive presentation of results

An analysis of the responses indicates commonality among the respondents in Table 5.1

and Figure 5.2 below:

Table 5.1 Importance of maintaining accounting records

No. of

Respondents % of

Respondents

Important

36

82%

Not Important

6

14%

Not Applicable

2

4%

105

Figure 5.1 Importance of maintaining accounting records

The majority (82%) of the respondents were well aware of the importance of keeping

accounting records, with only 18% of the opinion that it was either not important (14%) or

not applicable (4%) to their situation.

Respondents gave different reasons why it was important to keep accounting records, most

agreeing that keeping accounting records helped them to determine the profit and/or loss of

the business. Most stated that this helped them in monitoring the performance of their

businesses over time. Other reasons were:

In the case of businesses in the form of partnership, accounting records help to

identify the contribution, profit share and drawings of each partner.

The records may serve as means of keeping track of the inventory at hand, as well

as monitoring which goods are moving fast and which slowly.

The records can give indication of how sustainable the business is. For instance, are

the sales covering the costs?

106

Recordkeeping can help to monitor costs and therefore manage related decisions.

Accounting records may also serve as a financial planning tool for management

purposes and to reduce financial risks.

Accounting records are some of the required documentations when applying for a

loan, hence they can help to obtain finance.

5.3.2.3 Interpretation: Perception regarding accounting records

The majority of the respondents were of the opinion that it was important to maintain

accounting records. A general consensus was expressed that maintaining accounting

records would make it easier to assess whether their business was making a profit or loss.

Some, however, felt that it was not as important for business on a small scale since they

could manage their cash flows. Others stated that they were not keeping accounting

records because they did not have the requisite knowledge. This aspect is further assessed

in 5.3.4.

Rajaram and O’Neill (2007) and Schwarze (2008) confirm that accounting skills are

needed by small and micro-businesses because of their importance in ascertaining whether

or not they are making a profit. Responses from the interviews concur with the view of

previous studies, and the business owners are mostly aware of the importance of

maintaining accounting records. Rajaram and O’Neill (2009) also indicate that accounting

records may also be used in making decisions to develop new products and services,

borrow money to help finance the business and change the operating capacity of the

business. Responses from the interviews concur that financial records are needed to

borrow money, but provided several other reasons why it is important to maintain

accounting records.

107

The third objective of the study has been addressed, indicating that small business owners

or managers see accounting records as very important to the sustainability and profitability

of their businesses.

5.3.3 Perceptions regarding management of financial risks

The perceptions related to management of financial risks are discussed in this section.

5.3.3.1 Question

To have an understanding of the respondents’ perceptions about the management of their

business financial risks, the following question was asked:

Explain how you manage your financial risks

This question aimed to make up for the incomplete responses to financial risk question in

the questionnaires. From the outset, the meaning of financial risks was explained to the

respondents.


An analysis of the responses indicates the following commonality among the respondents:

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Table 5.2 Financial risk management

No. of Respondents

% of* Respondents

Budget

12

28%

Cash Control

34

77%

Others

6

14%

*Total does not add up to 100% due to multiple responses.

Figure 5.2 Financial risk management

Due to the respondents’ lack of understanding of the concept of financial risk, most

perceived it as simply any adverse situation that may result in losing cash.

The classification in the table previous page is derived from the different responses

provided. Most (77%) respondents are of the perception that controlling cash is the best

way to manage financial risks. This was expected since most of these businesses operate

mainly on a cash basis. Budget (28%), the second highest, includes responses where some

form of planning of the future was indicated against which the actual results are measured.

A more relaxed interpretation of budget was applied in the classification.

109

Other responses to managing financial risks include:

Some viewed management of risk as being liquid (having cash to run the business),

which meant saving (“banking”) cash not in use, only to be withdrawn when needed

to purchase. Some respondents believed that the use of banking facilities, such as

business accounts, were a way of managing risks as they did not have to carry cash.

Others viewed risk as not being able to collect money from trade debtors, although

most were not providing goods or services on credit. Knowledge of customers helps

to ensure that credit sale and services are collected.

Some respondents managed risks by maintaining expenses within the scope of

available cash, thus simply exercising strict controls over expenses.

Soliciting the assistance of family members or partners (in case of partnerships) who

had some business management expertise.

One respondent indicated that she had someone prepare her books and, hence, had

no problem in managing financial risks.

5.3.3.3 Interpretation: Perception regarding management of financial risks

The lack of understanding of the term and concept of ‘risk’ makes it difficult to draw a

conclusion on this particular question. However, since most of the respondents were using

the cash basis of accounting it is evident that they believe that controlling cash is the most

important (Schwarze, 2008; Töpfer, 2007).

Management of risk may be an area of small business management on which business

owners need training, as it was evident that most of the respondents had no proper grasp of

the terminologies. Many of the respondents provided vague responses to the question,

based on their understanding of risk. The majority were aware of risks and tried, to their

best knowledge, to minimise it as far as possible. However, they require more skill and

knowledge to manage their financial risks appropriately.

110

5.3.4 Perceptions regarding the respondents’ knowledge

The theme of the perceptions of knowledge is analysed as follows.

5.3.4.1 Question

To understanding if respondents had knowledge of proper accounting records and

management of financial risks, the following question was asked:

Do you have the knowledge to maintain efficient accounting records and to manage


This question intended to obtain the respondents’ perception of their knowledge of

maintaining accounting records and how to manage financial risks. It is important to

understand how the felt about how much accounting literacy they had. This question was

necessary to guide them to answer the last question, namely to identify their needs.

Due to there being no specific guidelines for these small businesses on how to maintain

accounting records or prepares financial statements, it is vital to have the respondents’

opinion on the adequacy of their knowledge of accounting. The question also covered their

ability to manage their financial risks.


An analysis of the verbal responses indicates the following commonality among the

respondents:

111

Table 5.3 Knowledge of maintaining accounting records

No. of

Respondents

% of

Respondents

Yes

9

20%

No

34

77%

Partial

1

3%

Figure 5.3 Knowledge of maintaining accounting records

Only 23% (9 and 1) of the respondents had some knowledge of maintaining accounting

records and management of financial risks, clearly confirming that the majority had none.

Although some were maintaining accounting records they did not know whether or not

they were appropriate. Others mentioned that their businesses had existed for many years,

although they had limited knowledge of maintaining accounting records and therefore

were doing something right.

112

5.3.4.3 Interpretation: Perception regarding respondents’ knowledge

The responses corroborate the findings of Rajaram and O’Neill (2009) and Schwarze

(2008) that micro-business owners lack the accounting skills needed to run their businesses

in an effective manner. This trend shows that some form of intervention, such as training

and workshops, may be necessary. Based on this, the respondents were further asked

question on their perceptions of accounting training.

5.3.5 Perception regarding the respondents’ knowledge

The responses to the question on respondents’ knowledge produced the following findings.

5.3.5.1 Question

As mentioned in the previous section, the question that lead to this one, the respondents’

lacked knowledge of maintaining accounting records and managing risks. To understand

the level of training needs of respondents, the following question has been asked:

What are your needs to be able to control and manage your business effectively?

As an intervention to the fourth question, the last one investigates what the respondents

perceived as being their needs, so that they could manage and control their business

effectively. This particular question informed some of the recommendations included in

Chapter 6.


An analysis of the verbal responses indicates a commonality of two different needs:

113

Table 5.4 Training needs

No. of Respondents

% of * Respondents

Need Training

32

73%

Need Money

24

54%

*Total does not add up to 100% due to multiple responses.

Figure 5.4 Training needs

Even though there was consensus that training was needed, many respondents also

expressed their needs for financial assistance when answering this question. They

explained that the need for training on accounting-related matters as well as risk

management was only justifiable when there are sufficient funds to run their businesses.

Some specified that they needed funds more than training, because they could use the

funds to hire skilled people to manage their business appropriately. Others were looking

for funds from other sources, such as partners with money and management expertise.

A limited number of respondents were of the opinion that they did not need training as

their businesses were doing well and therefore they were able to control and manage them

effectively. Some, however, felt that, with proper training, they would be able to handle

accounting and risk management matters without soliciting the service of a bookkeeper,

and thereby save costs.

114

Younger respondents who earlier indicated that they only had basic education would like

to further their studies, thereby gaining business management expertise as they continued

with their businesses. Some were of the opinion that information technology (IT) could

also assist. If they had computers they could install accounting software (e.g., Pastel) that

can handle the basic accounting data capture and provide the needed reports.

5.3.5.3 Interpretation: Perception regarding respondents needs

Despite the question being about accounting, management and risks, the majority of the

respondents indicated that they also needed financial help as much as accounting skills.

Access to finance is vital to these businesses as they utilized this question to voice their

concern. Micro-businesses may have potential for growth if they have access to funds, for

instance, to expand their businesses.

More emphasis was, however, placed on the need for accounting training, as it falls under

the ambit of this dissertation. Training specifically should inform them and teach them

about the manner in which they need to maintain their accounting records and manage

related financial risks. Previous studies by Maas and Herrington (2006), Schwarze (2008),

Orford et al., (2004) have advocated addressing the training of accounting skills for

business owners as a matter of urgency. Radipere and Van Scheers (2005) and Maas and

Herrington (2006, in Schwarze, 2008), however, cautioned that such training should be

more practical and less formal and classroom based and that there should be follow-up

monitoring to ensure maximum impact of such training.

5.4 CONCLUSION

This chapter has sought to achieve, through the use of structured interviews, the third

research objective and shed light on those needs the respondents perceived to be important

in maintaining accounting records more effectively. Specifically, the third research

question: How important do small Black-owned businesses in QwaQwa perceive the

maintaining of financial accounting records to be? was answered. Most respondents

115

perceived that maintaining accounting records was important, even for very small

businesses. Likewise, the management of financial risks was also perceived as being

important, although mostly limited to controls of cash.

The small business owners who responded had limited understanding of accounting and

risk management, or how to apply these to their businesses. A need for intervention to

improve their knowledge of accounting recordkeeping and risk management was

identified. Concurrently, a need for funds to finance and improve their businesses was also

identified. Therefore, financial assistance together with training and development are

needed to better their businesses.

The next chapter is the conclusion to this report, in which the research issues are re-visited

and related to the findings of the dissertation. Recommendations based on the findings are

made, with suggestions for possible future research identified and a conclusion drawn.

116

CHAPTER 6

RECOMMENDATIONS AND CONCLUSION

6.1 INTRODUCTION

This chapter serves as an overall summary and provides closing remarks to all aspects

of the dissertation. The outcome of the dissertation is linked to diagrammatical focus

of the dissertation identified in Chapter 1. Recommendations and possible areas for

further researches are indicated.

This empirical study was carried out to investigate the accounting records that are

maintained by small Black-owned businesses in QwaQwa. These businesses were

mainly survivalist and micro businesses. To achieve the objective three research

questions were posed:

1. What financial accounting records should be maintained by small businesses?

2. What financial accounting records do small Black-owned businesses in

QwaQwa maintain?

3. How important do small Black-owned businesses in QwaQwa perceive the

maintaining of financial accounting records to be?

Resulting from the research questions, as a means to answering the questions, three

research objectives were formulated. The research objectives were:

1. To explain, through the use of relevant literature, the nature of the financial


2. To investigate what financial accounting records are being maintained by

small Black-owned businesses in QwaQwa.

3. To understand how small Black-owned businesses in QwaQwa perceive the


117

The first research objective was achieved in this dissertation through the review of

related literature in Chapter 2. The second and third research objectives were

separately assessed by two research instruments, namely the questionnaire and

structured interview schedule. The presentations and discussion of the findings of the

questionnaires and interviews were presented respectively in Chapter 4 and Chapter 5

of this dissertation. The research design and methodology followed in conducting

both the questionnaire and interviews were explained in Chapter 3.

6.2 THE LITERATURE REVIEW

The literature review (Chapter 2) started with a broad perspective and finally assessed

the question of what accounting records should be maintained by small businesses.

As South Africa is a developing democracy, recovering from past legislation that

caused the marginalisation of the majority (Blacks) from participating in economic

activities, it became important to foster economic participation by the previously

disadvantaged. Their involvement in business activities can help reduce poverty and

unemployment rates. The literature review showed that many interventions were put

in place by the government to encourage Black participation in business. Despite the

attention given to small businesses, it is evident that the more informal businesses

were overlooked as they are not registered with any regulatory body or initiative

structure and are therefore not include in any initiative.

The literature study then narrowed down to financial accounting, financial reporting

and accounting records of small businesses. No particular standard regulates the

financial reporting of informal businesses. The IFRS for SME may not be applicable

to them due to the small nature of these businesses and the cost of compliance.

Notwithstanding the aforementioned, the importance of maintaining accounting

records was highlighted by previous authors and research and examples of accounting

records that should be maintained by small businesses were listed and discussed,

based their recommendations.

The major accounting records that were recommended by authors were cash records

(bank account), sales and revenue records, record of debtors, record of creditors,

118

purchase records and wages and salaries. These records depend on whether the small

businesses use the cash or accrual basis of accounting. The lack of accounting

knowledge, skills and training was identified as a possible constraint for small

business owners to maintain appropriate accounting records.

6.3 QUESTIONNAIRES

The questionnaire focuses on the accounting records maintained by small black-

owned businesses in the QwaQwa. Chapter 4 analysed and presented the results of the

questionnaires.

Analyses of the responses to the questionnaires indicated that the majority of the

small Black-owned businesses used the cash basis of accounting and maintain some

form of accounting records for sales (or revenue) and expenses. A limited number

maintained records of debtors and creditors. Most of the respondents identified that

they prepared some form of income statement. However, due to the nature of the

accounting records maintained, the income statements prepared were more a

statement of receipts and payments.

Contrary to common belief that small businesses fail within few years of existence,

many of these small businesses had existed for between 2 and 5 years. It is important

to state, however, that the nature of the accounting records that were maintained by

these small businesses may not have been sufficient to make complex economic

decisions vital for a business to ensure sustainability and growth.

Some of the items in the questionnaires tried to address the third research question but

responses to these sections were inconclusive. Therefore, gathering of information

through interviews became necessary.

6.4 INTERVIEWS

The objective of the interviews was to understand the perception of small Black-

owned businesses in QwaQwa regarding the importance of maintaining financial

accounting records. The interviews was presented and interpreted in Chapter 5.

119

There is a major consensus among the interviewed respondents that maintaining

accounting records is important to a business. The main reason for maintaining

accounting records was identified as being to determine the profitability of their

businesses. They also indicated that accounting records can help to measure the

performance of the business, to make decision about what products to focus on, to

control cost and expenses and manage the risks of their businesses. They however

indicated that they had limited skills and knowledge to maintain such records in an

appropriate manner and would therefore require some form of training. There is also a

common perception that they required funds for their businesses to expand, to invest

in training themselves or to employ experienced persons to handle their financial

matters.

6.5 CONCLUSION

In Chapter 1 the notion was identified that small Black-owned businesses in QwaQwa

were not sustainable and profitable because of lack of the proper financial

information, which is only possible if proper financial accounting records are

maintained. This motivated the researcher to investigate the accounting records that

these small Black-owned businesses maintain.

In this dissertation, the researcher endeavoured to fill the knowledge gap of what

types of accounting records are maintained by small Black-owned businesses in

QwaQwa. Literature showed that the importance of accounting records cannot be

overemphasized as the economic decisions of the business depends on financial

information generated from accounting records.

The small Black-owned businesses that were investigated were micro and survivalist

in nature and they maintained limited accounting records as far as their level of

education and exposure to business management skill allow. These accounting

records were haphazardly maintained as there was no regulation on how they should

be maintained. They simply keep records of cash received and paid (i.e. cash basis of

accounting), which could only generate limited financial information on which

economic decisions could be based.

120

Empirically, through responses to the questionnaires and interviews, it was found that

the small Black-owned businesses that were investigated did appreciate the

importance of maintaining accounting records as suggested by many authors.

However, they acknowledged their lack of sufficient skills and knowledge to maintain

appropriate accounting records and manage their risks.

Figure 6.1 below gives an overall view of the findings (from both questionnaires and

interviews) of this dissertation. This is achieved by revisiting the “focus of the

dissertation” as depicted in Figure 1.1 in Chapter 1. The major difference between

Figure 1.1 and Figure 6.1 is that, while Figure 1.1 illustrated the focus of this

dissertation by conceptualising the importance of accounting records towards

generating financial information to small businesses, Figure 6.1 includes the findings

of this dissertation to illustrate the effect of limited accounting records on the

profitability and sustainability of their businesses.

Figure 6.1 Empirical situation of the focus of dissertation.

SMALL BLACK-OWNED

BUSINESSES IN QWAQWA. Informal, Micro and Survivalist

in Nature

LIMITED ACCOUNTING

RECORDS

MAINLY RECEIPTS & PAYMENTS.

PREPARED MAINLY ON CASH BASIS.

NOT REGULATED BY ANY GUIDELINE.

FINDINGS & RECOMMENDATION

NEED FOR ACCOUNTING TRAINING.

SIMPLIFIED GUIDANCE NEEDED

NEED USABLE BOOKKEEPING.

MAINTAIN:

THAT ARE:

GENERATES:

RECEIPT &

PAYMENT

STATEMENT.

LIMITED BASES

FOR ECONOMIC

DECISION.

INCOMPARABLE

FINANCIAL

INFORMATION.

ABOUT THE

121

It is important that these business owners are skilled and trained sufficiently to be able

to maintain accounting records that ensure useful financial information. Hence, the

status quo, based on the findings of this dissertation requires further attention in terms

of interventions and further researches. The next section highlights some of the

recommendations that emanated from the findings of this research.

6.6 RECOMMENDATIONS

Recommendations are based on the findings that were briefly explained above. The

recommendations were mainly drawn from the responses to the interview questions

that focus on perceptions and needs.

6.6.1 Accounting training

Flowing from the importance of maintaining appropriate accounting records as

identified by the respondents and corroborated by literature, it is important that the

small businesses are equipped through training and education to be able to maintain

appropriate accounting records.

6.6.2 University engagement with informal micro and survivalist businesses

Accounting departments in universities can through their community engagement

initiatives assign senior accounting students to selected micro and survivalist

businesses so that they can show them how to maintain accounting records and

generate reports more appropriately.

6.6.3 A simple, relevant and comparable guideline for micro businesses

Sophisticated accounting guidelines that require high level of understanding may not

be suitable for small business owners. Also, these business owners may not be

sufficiently affluent to employ the service of a professional in the field of accounting.

They, however, maintain some form of accounting records that they deem sufficient

122

for generating some form of financial information. Hence, small businesses should

not be burdened with maintaining of accounting records that are difficult and not cost-

effective.

IFRS for SME was developed to suit the needs of small companies (entities) for

which complying with the full IFRS may be too complex or too expensive. Literature

shows that some small companies still find it cumbersome to comply with IFRS for

SME. Similarly, micro and survivalist businesses may require more simplified and

cost effective guidance regarding accounting records and financial statements that suit

the needs of these businesses and foster proper economic decision-making that leads

to their growth and sustainability. As a starting point these guidelines could be based

on the cash basis of accounting then expanded to include basic accrual accounting.

The financial information needs of these micro and survivalist businesses should

inform such simplified accounting guidelines.

6.6.4 Database for informal businesses

Literature showed that, as opposed to other formal SMMEs, informal micro and

survivalist business are not registered with any regulatory body (such as Companies

and Intellectual Property Commission (CIPC) and hence may be marginalised from

developmental interventions that advance small businesses. Based on these, it is

recommended that informal businesses should be given the opportunity to register

their businesses so that a database of their existence is maintained with CIPC.

6.7 FURTHER RESEARCH

This section indicates further studies that may be carried out and also mentions the

constraints that were encountered during this study and how such issues may be

avoided in future studies. Possible future research may help to draw up better

guidelines on how small business owners can achieve profitability and sustainability

of their businesses through maintaining simplified or limited accounting records.

123

Studies may be carried out to assess the best means of accounting education and

training of small business owners that foster cooperation and participation, without

significant financial strains.

It is important to be persuasive in the manner of approach as the respondents believe

that their time is valuable and they are no compensation for the time spent on their

participation in the research. The benefit for them in participating in such research

must be clearly communicated to create positive participationi.

i It may also be important to extensively explain basic accounting terms so that they do have a common

understanding in participating in such research.

124

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APPENDIX 1 – RESEARCH QUESTIONNAIRE

Questionnaire

I would be very grateful if you spend a few minutes completing the following

questionnaire. Your answer will be treated as confidential and the personal

information and business detail, which is required, will be used for statistical

purposes only. Please:

attempt to answer all the questions as honestly as possible

indicate your answer by placing an "X" in the relevant box or by completing

the relevant open spaces.

Section A – General Information

This section of the questionnaire refers to background or biographical information about you. Although the questions in this section may seem personal, the information will ONLY be used to compare groups of respondents. Once again, you are assured that your response will remain anonymous. Your co-operation is appreciated.

Gender:

Male: 1

Female: 2

Age (in complete years)?

Ethnicity

Black 1

Coloured 2

Indian/Asian 3

Your highest educational qualification?

Grade 11 or lower (std 9 or lower) 1

Grade 12 ( std 10) 2

Post-school Diploma or certificate 3

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Section B – Nature of the business

This section of the questionnaire seeks information regarding the nature of your business. 1. How long, (in complete years) have you owned this business?

2. What type of ownership is this?

Sole owner 1

Family owned 2

Owned with partners 3

Other (specify) 4

3. What type of industry is this?

Service 1

Manufacturing 2

Retail 3

Other (specify) 4

4. Indicate the nature of your product or service?

Clothes manufacturing or retailing 1

Food 2

Retailing goods other than food and clothing (specify)

3

Service (specify) 4

Other (specify) 5

Further explanation ……………………………………………………………………………… 5. Did you buy an existing business or you have started it from scratch?

Buy 1

Start 2

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Section C – Accounting Records

This section of the questionnaire seeks information regarding the accounting methods applied in the business. 6. How do customers pay you? Mark all applicable options

In cash 1

Buy on credit 2

By cheque 3

Lay-by 4

Other (specify) 5

7. Which form of bank account or facilities do you use in your business? Mark all applicable options.

Cheque account 1

Savings account 2

Credit card account/master or visa 3

Cheque book 4

Bank (debit) card facility 5

Internet banking 6

Telephone banking 7

No bank facilities are used 8

Other (specify) 9

Further explanation ……………………………………………………………………………… 8. How is your revenue (income) recorded? Mark all applicable options

Cash register 1

Invoice 2

Receipts book 3

Income is not recorded 4

9. How do you recognize or record your business expenses?

When incurred(accrual basis) 1

When paid(cash basis) 2

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10. Which of the following accounting records do you keep? Mark all applicable options.

Debtors ledger 1

Creditors ledger 2

Cash book 3

Petty cash 4

General ledger 5

Other(specify) 6

Further explanation……………………………………………………………………………… 11. How often do you prepare financial statement?

Monthly 1

Every six months 2

Annually 3

Never 4

12. If you prepare financial statement, what type of financial statements do you prepare in your business? Mark all applicable options

Business sheet 1

Income statement 2

Cash flow statement 3

Other(specify) 4

Further explanation ……………………………………………………………………………

Section D – Finance

This section of the questionnaire establishes the mean by which the business is finance. 13. For what purposes are you preparing financial statement?

For Financial planning purposes 1

For Management purposes 2

For tax purposes 3

Financial statements are not prepared 4

Other(specify) 5

Further explanation ………………………………………………………………………………

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14. How is the business currently funded? Mark all applicable options.

Own contribution 1

Contribution of business partner 2

Family contribution(s) 3

External finance (loan, banks) 4

Other (specify) 5

Further explanation ……………………………………………………………………………… 15. How did you fund your business when you started?

Bank loan 1

FDC 2

Personal loan 3

Other (specify) 4

Further explanation……………………………………………………………………………….

Section E – Financial risks

This section of the questionnaire identifies the methods applied to manage financial risks of the business. 16. How do you manage your financial risks?

Budget/Forecast 1

Hand-to-mouth 2

Other (specify) 3

Further explanation ………………………………………………………………………………

Section F – Financial Perception

This section of the questionnaire explores your view on the need to maintain effective accounting records. 17. Explain the importance of maintaining efficient account records for your business:

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…………………………………………………………………………………………………………………

…………………………………………………………………………………………………………………

…………………………………………………………………………………………………………………

Section G – Qualitative Responses and Comments

In this section, you may make comments on other business financial issues not covered in the questionnaire. 18..……………………………………………………………………………………………………………

…………………………………………………………………………………………………………………

………………………………………………………………………………………………………………..

…………………………………………………………………………………………………………………

Thank you for your co-operation in completing this questionnaire

REFILOE GLADYS BENEDICT - UJ IR

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