1 business & economics

International Journal of Information Technology and Business Management 29

th September 2013. Vol.17 No.1

© 2012-2013 JITBM & ARF. All rights reserved

ISSN 2304-0777 www.jitbm.com

1

ASSESSING BUDGETING PROCESS IN SMALL AND MEDIUM

ENTERPRISES IN NAIROBI’S CENTRAL BUSINESS DISTRICT:

A CASE OF HOSPITALITY INDUSTRY

1Beatrice Njeru Warue ,

2 Thuo Vivian Wanjira

1,2 School of Business & Economics, Kenya Methodist University

E-mail: 1 [email protected] ;

[email protected]

ABSTRACT

Budgets are the foundation and the manifestations of a business plan and action. If the management of an SME has

to maintain proper, updated and reviewed budgets then SMEs are bound to remain small, stagnant and possibly

close down. There is a high risk of SMEs in the hospitality industry collapsing soon after they are established and

one of the causes of this phenomenon is poor budgeting processes among the SMEs. To solve the problem of lack of

proper budgeting processes among SMEs in the hospitality industry, there was need to first establish factors behind

the poor budgeting process. This study assesses factors affecting the budgeting processes among Small and Medium

Enterprises (SMEs) in the hospitality industry in Nairobi’s Central Business district (CBD). Descriptive research

design was used. Target population comprised 98,608 of all the registered small enterprises located within the CBD

of Nairobi city. Stratified random sampling was employed in selecting the sample. The population strata were based

on the nature of the business conducted by the SME in the Hospitality industry. The sample of 104 was shared

proportionately among the 526 SMEs in Hospitality industry in the CBD. A self structured questionnaire of the

Likert scale of 1 (for strong disagreement) to 5 (for strong agreement) and administered to SMEs managers, was

used to measure the study variables. The data was analyzed using panel data analysis. The study finds evidence that

computerized accounting system (β =-0.444) contributes to budgeting process at a higher magnitude than Firm Size

(β =-0.2937), Participation of workers (β =-0.2674), Skills and Powers of Managers (β =0.2268) and ownership

structure (β =0.1908). These results concur with Poon (2001), Joshi et al., (2003) and Krasauskaite (2011) findings.

Overall, the factors under study contribute significantly to the budgeting process and in general performance of

SMEs. Based on the findings the study recommends involvement of workers at all levels of budgeting, separation of

ownership from management issues and continuous improvement of managers’ skills. In addition information

technology should be given priority as its functionality in SMEs contribute more significantly to budget process

compared with other factors under study.

Keywords: Budget, Small and Medium Enterprises (SMEs), workers participation, firm size, ownership, skills

and power, computerized accounting system

INTRODUCTION

Horngren (2002)[1] defines a budget as a set of

interlinked plans that quantitatively describe an

entity's projected future operations. An earlier

definition by Qi (2010) [2] views a budget as a

management tool concerned with the planning and

management of the firm’s financial needs, concerning

the alternative sources of and costs of finance. Both

writers agree that budgets provide the foundation and

the solid manifestations of a business plan and action.

Budgets formulate the expected performance

standards and reflect managerial objectives. An

effective budgetary system should emphasize and

enlarge the planning role at all levels of management.

Budgeting underlines predicting and quantifying the

future in financial terms and predicting the future

needs for finance. Relying on certain standards and

mailto:[email protected]





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General Accepted Accounting Principles ( GAAP),

the accountant of an organization develops and

reports data that measures performance of a firm and

that assess its financial position in compliance with

and filed reports needed by interested parties (Qi,

1980) [3].

According to Horngren (2002) budgeting is

traditionally classified in the management accounting

domain by the existing accounting literature. In this

sense, budgeting is a narrower concept with more

specific focus. Financial Budget of a firm reflects the

management’s expectations regarding income, cash

flow, and financial position in monetary terms.

Budget focuses more on a forecast purpose to

estimate what is likely to occur in the future and how

organizational resources are allocated to realize the

future operations. Further budgeting gives feedback,

in which both plans and actions are compared,

providing the opportunity to revise future budgets in

line with experience. By specifying day-to-day

financial actions, the operating budget provides profit

and cost information for the internal administration.

Nieuwenhuizen et al, (2003) [4] agreed that

planning, knowledge of competitors, quality of work,

financial insight; complete budgetary system and

general management are key success factors in many

SMEs. In addition Macleod & Terblanche (2004) [5]

stated that budgets are essential to the success of

every business entity though only a few of small

businesses make use of them.

From the foregoing failure of SME management to

maintain proper, updated and reviewed budgets imply

SMEs are bound to remain small, stagnant and

possibly close down. There is a high risk of SMEs in

the hospitality industry collapsing soon after they are

established and one of the causes of this phenomenon

is poor budgeting processes among the SMEs. A

definition of SMEs cannot be easily settled because

SMEs can range from fast growing firms to private

family firms that have not changed much for decades.

SMEs can also range from a part-time business with

no staff to a manufacturer employing hundreds of

people or from stand-alone businesses to those that

are part of technology and that have investment

partners based abroad. Many researchers define

SMEs in terms of the numbers of people employed.

Storey (1994) [6], for example, defines micro-

enterprises as those with 0 to 9 employees, those with

10 to 99 workforces as small business, and medium-

sized enterprises as having 100 to 499 employees.

Gunasekaran & Kobu (2000) [7], however, state that

SMEs have to be defined within the context of the

economies in which they operate. In Kenya a

microenterprise is defined as a business organization

having a maximum of 10 employees; a small

enterprise has a minimum of 11 employees and a

maximum of 50; while a medium enterprise has

between 50 and 150 employees (Stevenson & St-

Onge, 2005) [8].

In Kenya SMEs operate in all sectors of the

economy, that is, manufacturing, trade and service

subsectors. The SMEs range from those unregistered,

known as Jua Kali enterprises, to those formally

registered small-scale businesses, such as

supermarkets, wholesale shops and transport

companies. Almost two-thirds of all SMEs in Kenya

are located in the rural areas with only one-third

found in the urban areas. About 17 per cent are

located in Nairobi and Mombasa (Central Bureau of

Statistics, 1999) [9]. According to the City Council of

Nairobi the registered SMEs in the hospitality

industry make up 3.67 percent of the total number of

registered SMEs in Nairobi County. Despite tourism

being a major contributor to Kenya’s GDP, Hotels

and restaurants contributed no more than 1.7 % of

GDP in 2011 up from 1.1 % in 2008 (KNBS, 2012)

[10]. According to the Ministry of Tourism Report

(2012) [11] there has been high failure rates of

SMEs related to the ministry. For instance, of the

921 SMEs established in 2007/2008 and financially

supported, only 445 were still active by the end of

2009, after withdrawal of the financial support,

indicating a failure rate of about 52 %.

Despite the context in which budgeting is done, it has

been identified as one of the factors that contribute to

small business failure. However, according to Kenya

National Bureau of Statistics (2012), the hospitality

industry is contributing less to the economy (average

of 1.7%). Failure is evident as compared to the other

categories (2009, 1.7%; 2010, 1.7% and 2011, 1.7%)

and a trend can be seen for the past 3 years. While the

rest are more than that (for example transport &

communication, average 9.9%, retail & trade average

10.2%). Lack of budgeting and financial discipline

led to failure or poor performance of SME’s (

Waweru, 2007) [12]. Therefore the puporse of this





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paper is to establishment factors affecting budgeting

among SMEs in Nairobi’s CBD Hospitality industry.

This paper aim at assessing whether participation of

workers; firm size; ownership of SMEs; skills and

powers of the managers and computerized accounting

system affects the budgeting process among SMEs in

Nairobi’s CBD Hospitality industry

Theories Underpinning Budgeting

Six theories underpinnings provided insight into how

a number of factors influence budgeting. The first

theory is permanent income theory (Friedman, 1957)

[13]. The permanent income hypothesis is a theory of

consumption that was formulated by the Milton

Friedman in the USA in 1957. This hypothesis asserts

that the choices made by consumers regarding their

consumption patterns are largely determined by a

change in permanent income. As a consequence,

temporary changes in income have little effect on

consumer spending behavior. However, permanent

changes in income can have large effects on the

spending behavior of a consumer (Friedman, 1957)

[14]. Theory asserts that firms also spend their

revenues depending on the level of permanency of

the streams of income. The perceived permanent

level of revenue is what businesses will use in their

budgetary purposes with the objective of reducing

risk. The sharply fluctuating portions of the streams

of income do not count much in budgeting. This

theory is related to this study in that, just like

individual persons, organizations also spend their

income according to the level of expected

permanency in incomes. It was therefore expected

that the budget practices among SMEs depend on the

permanent income. If this is not taken into

consideration it may lead to failure or poor

performance of SMEs.

The second theory, Cash flow theory by Meyer

&Kuh (1957) [15] and Duesenberry (1958)

[16].This theory is also known as the liquidity theory

.There were also contribution by Kuh (1963) [17],

Koch (1943) [18] and Donaldson (1961) [19] on the

same theory. The theory focused residual funds or

cash flows and future profitability to determine

investment decisions. According to the theory a Cash

Flow Budget is a budget that provides an overview of

cash inflows and outflows during a specified period.

It is commonly accepted that firms prefer internal

sources to external sources of financing.

Consequently the bulk of business enterprises finance

their investment needs insofar as possible out of

retained earnings and use external financing (e.g.

credit) when it becomes impossible to raise enough

money from internal resources (Harbula, 2001) [20].

This theory is related to this study as it suggests that

the practices and amounts of budgets depend on the

cash flows of the SMEs.

The third theory, zero based budgeting theory was

pioneered by Pyrrh (1970) [21]. The theory presumes

that budgets can be recompiled from first principles,

that is, from a zero base. The approach also focuses

on programs and activities rather than departments or

units. The theory of Zero Based Budgeting related to

this study because the budgeting activity among

SMEs was controlled by the need to justify the use of

every coin right from the basic responsibility centre.

This theory is connected to this study because it

provides a possible explanation to the forces driving

the budgeting behaviour among organizations. The

explanation of the forces driving the budgeting

behavior was the focus of this study. This aspect may

affect performance of SMEs.

The fourth theory is Priority-based budgeting theory

by Kavanagh, Johnson & Fabian ( 2011) [22]. The

theory focuses on corporate priorities and allocates

growth and savings in budgets accordingly but does

not require zero-sum. The underlying philosophy of

priority-driven budgeting is about how an entity

should invest resources to meet its stated objectives.

Kavanagh et al. (2011) argues that SMEs, like all

other business have their budgeting process governed

by the need to have proper funding, transparency and

accountability at all levels. Priority based budgeting

model was linked to this study for it provided a

possible explanation as to how budgeting was

affected by prioritization.

The fifth theory is Target Based Budgeting Theory

by Wdarvsky (19750) [23]. Target Based Budgeting

is a derivative of Zero Based Budgeting. The theory

does not comprehensively re-examine base spending

but requires that each decision unit (program,

department, division, etc) is given a target spending

amount and is asked to submit a budget for that

amount. Besides, the unit may submit requests above

the target amount. Within this perspective SMEs in

Nairobi’s CBD needed to have their budgetary





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practices based upon the target set by the

stakeholders.

The sixth theory is Risk Based Budgeting approach

by Maillard, Roncalli & Teiletche (2010) [24]. The

theory focuses on the inclusion of risk in the

budgeting process. Risk Budgeting (or Risk

Allocation) is the process of decomposing the

combined risk of a portfolio (or even of the entire

investment process) into its constituents on a

quantitative basis. This new risk-based investment

style puts diversification at the heart of the

investment process. The risk based budgeting theory

was related to this study for it seemed to suggest that

all businesses should incorporate the element of risk

in their budgeting in order to reduce variation in

various aspects of their budgets. Accommodation of

risk factors would also reduce variation in return

since the sources and effects of risk are carefully

addressed by the budgeting process.

EMPIRICAL LITERATURE REVIEW

Participation of Workers in Budgeting

Process

SMEs usually provide less formal training than larger

firms to their workers, therefore, limiting

participation in budgeting. McLaney & Atrill (1999)

[25] argued that the value of the budget as a plan of

what is to happen and as a standard against which

actual performance will be measured, depended

largely on how skillfully budget negotiation is

conducted. When setting a budget, members of the

organization should participate in explicitly defining

budgetary goals. The members also have to be

involved in subsequent revisions to these goals with

the management (Chalos & Poon, 2000) [26]. When

budget variance occurs, participation and discussion

among different levels of management facilitate and

enable accurate location of the possible source of the

variance for corresponding corrective action.

Poon (2001) found that budgetary participation

provided a setting in which managers can exchange

information and ideas to make budgetary planning

and control more effective. Nouri & Parker (1998)

[27] found that budget participation could facilitate

information sharing between subordinates and

superiors. It was also found that the information

communication between superiors and subordinates

in budgetary participation was both the upward the

downward.

The upward communication is a principal agency

framework with two primary actors, the principal and

the agent; is always used in the accounting literature

to explain the rationale of upward communication.

The principal hires the agent to perform a task on

behalf of the principal. The principal is often the

executive who delegates responsibility over certain

tasks to a subordinate who functions as an agent.

Agency studies assume that the agent has “private”

information about the agent’s area of responsibility

which the principal (or superiors) cannot acquire and

they often know more about their operational areas

than do their superiors (Cooper & Waller, 1988) [28].

Therefore, the agency perspective finds that a

significant reason for the existence of participation is

the difference between agent and principal in

information level. Concerning downward

communication Magner et al (1996) [29] suggested

that, through budgeting process, subordinates gain

additional information from superiors and others

including their duties, responsibilities, and expected

performance, which increases a subordinate’s

effectiveness. As Chell & Brownell (1988) [30]

argue, discussions with superiors during budgeting

process help clarify the goals and methods of the

subordinate.

The findings of these researchers show that

participation of workers in the budgeting process

enhances accuracy in budgeting. This study sought to

find out whether this concept affects SMEs in

Nairobi CBD Hospitality industry.

Firm Size

With respect to firm size, budgeting literature always

compares the use of budgeting process in larger firms

with that in small firms. Merchant (1981) [31]

studied differences in corporate-level budgeting

systems and relations to corporate size, diversity and

degree of decentralization. The results showed that,

larger, more diverse firms tended to use more formal

sophisticated budgeting. Smaller firms, however,

tended to rely less on formal budgeting. Further he





5

pointed out that budgeting, including the more formal

and the greater sophistication of the budgeting

process appeared to have a stronger relationship to

good performance in the larger firms, than in the

smaller firms.

Joshi et al (2003) [32] examined budgeting practices

by a survey of 54 medium and large sized companies

in Bahrain focusing on budgeting planning and

control, budget participation and rewards, and

performance evaluation. These researchers found that

an increase in firm size lead firm to implementing a

more comprehensive budgeting process to achieve a

better performance. Further the firm size and its

complexity of operations generally influenced the

nature of the budgeting adopted.

From the researchers’ findings, larger firms tend to

use more sophisticated and formalized budgeting

processes making them more successful. In this

connection this current study aim to find out whether

firm size affects budgeting, among SMEs in Nairobi

CBD Hospitality industry

Skills and Powers of Managers

Many managers of SMEs, due to the fear of job take-

over by subordinates, shy from recommending their

subordinates for training programs whenever an

opportunity arises. This is worsened if the manager

lacks requisite qualifications for the given function in

management. Many SMEs, therefore, do not have a

budget for training and development. SMEs have the

inability to employ a skilled labor force due to the

small budgets to manage specialized areas of their

business. Incessant environmental changes in

economic vagaries and technological shifts make

things gloomier. For instance, during favorable

economic conditions, many organizations embrace

training and development than during unfavorable

economic conditions (Obokoh, 2008) [33].

A study conducted by Chidi & Shadare (2011) [34]

in Nigeria focusing on challenges confronting human

capital development in SMEs in Nigeria found that

budgeting among SMEs faced challenges by the

businesses not taking ownership or not being

accountable, there being a lack of cooperation and/or

participation and a lack of understanding of the

budgeting process or what’s required. This was

compounded by the inability to meet, deadlines,

padding their budgets/providing unrealistic numbers

and sheer ignorance of the importance of budgeting

by the business owners. These researchers confirm

that the skill that managers have concerning

budgeting affect the budgeting process. The

influences of the managers inform whether the

budget would be implemented as prepared or not.

This current study sought to establish whether

managerial skill practiced in SMEs in Nairobi’s CBD

Hospitality industry had effects on the budgeting

process.

The Ownership of SMEs

Mahmood (2008) [35] argued that the most

important feature of family-owned SMEs is the lack

of separation of ownership from control implying that

directors and managers cannot be distinguished. This

leads to credibility problems as there is no system of

checks and balances between shareholders, directors

and managers. Mahmood (2008) studied SMEs in

Islamabad, Pakista. He found that, found duties and

responsibilities, and privileges of family members are

not clearly defined. In family-owned SMEs, the

family had the power to unilaterally dismiss boards

or management or to over-rule their decisions. Thus

the concept of independent directors did not prevail

in the SMEs. The study found other issues for family-

owned SMEs to include: absence of clear policies

and long term planning as demonstrated in budgets;

lack of outside opinions on strategic direction of the

businesses; benefits and compensation for family

members are not clearly defined; and hiring family

members who are not qualified or lack the skills and

abilities for the organization. In fact the study

recommended that incentives be put in place to

encourage good corporate governance.

Based on Mahmood (2008), study, if the owners of

SMEs have clearly defined relationship with the

business, the budgeting process becomes more

formal, sophisticated and accurate due to the limited

influence of the owners. This study aim at finding out

whether ownership of SMEs in Nairobi’s CBD

Hospitality industry affects the budgeting process





6

Computerized Accounting System

Diamond & Khemani (2006) [36] studied accounting

systems among businesses in the developing

countries, focusing on Africa deduced that budget

execution and accounting processes were either

manual or supported by very old and inadequately

maintained software applications and hardware. He

found that this had damaging effects on their

functioning due to the consequent lack of reliable and

timely revenue and expenditure data for budget

planning, monitoring, expenditure control, and

reporting negatively impacting budget management.

Further, the study found that there was poorly

controlled commitment of resources. This meant that

the nature of the computerization of accounting

affected the budgeting process. In this study, it will

be established whether computerization of accounting

affected the budgeting procedure and how this

happened.

METHODOLOGY

Descriptive research design was used. Target

population comprised 98,608 of all the registered

small enterprises located within the Central Business

District (CBD) of Nairobi city. Stratified random

sampling was employed in selecting the sample. The

population strata were based on the nature of the

business conducted by the SME in the Hospitality

industry. The sample of 104 was shared

proportionately among the 526 SMEs in Hospitality

industry in the CBD. A self structured questionnaire

comprising matrix questions { Likert scale of 1 to 5

(1= strongly disagree, 2= disagree, 3=neutral,

4=agree, 5=strongly agree)} was used to measure the

respondents’ opinion on study variables. The

questionnaires were administered to SMEs Managers

for responses. The questionnaire reliability test

measured Cronbach’s alpha 78.4. The summary of

the study variable measurements is shown in Table

3.1

Table 3. 1: Summary of the variable Measurements Variable Description Measurement Research support

Budgeting The process of preparing a

financial document that is

used to project future

income and expenses

Number of years

Category of business

Annual turnover

Average percentage profit

Type of business

Budget levels

Abu-Ghazaleh (1986)

Qi, Y. (2010)

Participation of

Workers

Employees who are

involved in the budgeting

process

Firm planning

Qualification of operation

Budget influence

Budget opinion

Budget setting

Participation level

Poon (2001)

Firm Size Size of the SME Size of firm

Nature of business

Cost of budgeting

Simplicity of business

Merchant (1981)

Ownership Structure Family structure in the

SME

Separation of ownership

Owner’s responsibility

Powers of the owner

Participation in strategic

direction

Benefits and compensation

Qualification of owners

Mahmood (2008)





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Variable Description Measurement Research support

Skills and Power of

Managers

Responsibilities of the

managers

Participation of manager

Budget influence

Strict budget process

Managers qualification

Budget setting

Subordinates

recommendation

Chidi &Shadare (2011)

Computerized

Accounting

Accounting systems Budget software

Performance measurement

Operational variances

Departmental targets

Quality consideration

Diamond & Khemani

(2006)

Source : Literature Review

Model Specification

The study employed panel data analysis method

using cross-section data for the six study variables.

E-views 6.0 software data analysis tool was used. To

determine the factors affecting budgeting in SME’s in

the hospitality industry, the following model was

formulated

Where;

Budgeting

Constant of regression

Participation of Workers

Firm Size

Ownership Structure

Skills and Powers of Managers

= Computerized Accounting system

Sensitivity of Budgeting to the independent variable i (i =1,2,3,4,5)

Error term

MAIN RESULTS

To establish factors affecting budgeting processes in

SME’s in Nairobi’s CBD a full regression model was

run and results shown in Table 4.1. The full model

results confirm that all the study variables including

Participation of Workers X1, Firm Size X2, and

Ownership structure X3, Skills and Powers of

Managers X4 and Computerized Accounting System

X5 are significantly and strongly related to SMEs

budgeting process in the hospitality industry in

Nairobi CBD.

From Table 4.1 results reveal that participation of

workers was negative and significantly (t-values -

2.584) related to budgeting process among other

factors under study. These results imply that any

negative development in participation of workers

negatively affects budgeting process in SME’S in the

hospitality industry in Nairobi CBD. Workers





8

participation in budgeting processes should be

encouraged to improve on effective budgets process

Further Table4.1 results depicts that firm size was

negative and significantly (t-values -4.783) related to

budgeting process. The results suggest that a negative

development in firm size negatively affects budgeting

in SME’S in the hospitality industry in Nairobi CBD.

This suggests that managers of large SMEs possibly

face more challenges in effective management and

governance compared with smaller size firms

From Table4.1 ownership structure was found

positive and significantly (t-values 2.324) related to

budgeting process. The results suggest that a positive

development in ownership structure improves

budgeting process in SME’S in the hospitality

industry in Nairobi CBD. These points towards the

importance of good governance and separation of

ownership from management issues of SMEs.

Further, skills and power of managers was found

positive and significantly (t-values 2.882) related to

budgeting. The results suggest that a positive

development on skills and power of managers

improves budgeting process in SME’S in the

hospitality industry in Nairobi CBD. This signifies

the vital role the managerial skills plays in the

budgeting process.

Finally, Table4.1 shows computerized accounting

system was found negative and significantly (t-values

-5.618) related to budgeting process. The results

suggest that a negative development in computerized

accounting negatively affects budgeting process in

SME’S in the hospitality industry in Nairobi CBD.

This calls for effective computerised accounting

system operations in SMEs to improve on budgeting

procedures as tracking of information required

becomes faster and records accuracy is attained

Table 4.1: Final model variable results

Dependent Variable: Budgeting

Method: Pooled Least Squares

Sample: 1 52

Included observations: 52

Total panel (balanced) observations 312

Variable Coefficient Std. Error t-Statistic Prob.

C 5.761244 0.481854 11.95640 0.0000

X1_ -0.267429 0.103495 -2.583988 0.0102

X2_ -0.293736 0.061407 -4.783402 0.0000

X3_ 0.190885 0.082136 2.324011 0.0208

X4_ 0.226825 0.078697 2.882271 0.0042

X5_ -0.444278 0.079075 -5.618468 0.0000

R-squared 0.123632 Mean dependent var 3.557692

Adjusted R-squared 0.109312 S.D. dependent var 0.633881

S.E. of regression 0.598233 Sum squared resid 109.5123

F-statistic 8.633683 Durbin-Watson stat 2.106333

Prob(F-statistic) 0.000000

From Table4.1 the study final model was interpreted as under;

Budgeting = 5.7612 – 0.2674X1 – 0.2937X2 + 0.190885X3+ 0.2268X4 – 0.44X5 +

According to the regression equation established;

taking all factors (Participation of Workers X1, Firm

Size X2, Ownership Structure X3, Skills and Powers

of Managers X4 and Computerized Accounting

system X5) constant at zero, the budget process of the

organization will be 5.76. The estimated regression





9

coefficient (-0.267) for participation of workers

implies that a unit decrease in Participation of

Workers will lead to a -0.267 decrease in effective

budgeting process while a unit increase in Firm Size

(estimated coefficient, -0.2937) will lead to a -0.2937

decrease in budgeting process effectiveness.

Conversely a unit increase in Ownership Structure

(estimated coefficient, 0.1908) will lead to a 0.1908

increase in budgeting process progress while a unit

increase in Skills and Powers of Managers (estimated

coefficient, 0.2268) will lead to a 0.2268 increase in

budgeting process improvement. Finally, a unit

decrease in computerized accounting system

operations (estimated coefficient, -0.444) will lead to

a -0.444 decrease in budgeting process efficiency.

This strongly calls for embracing computer

information technology to enhance efficiency in

budgeting procedures. Overall the study found

evidence that computerized accounting system

operations contributes to budgeting process at a

higher magnitude (β =-0.444) followed by Firm Size

(β= -0.293736); Participation of Workers (β= -

0.267429); Powers of Managers (β= 0.226825) and

Ownership Structure (β =0.190885)

RESULTS DISCUSSION

The results indicate that participation of workers was

negative and significantly related to budgeting. This

is in agreement with the study done by Poon (2001)

[37], McLaney & Atrill (1999) [38] and Chalos &

Poon (2000) [39] who found that workers affected

the budgeting process. This implies that if workers

are involved in the budgeting process then the

performance is enhanced in the SME’s

The study found evidence that firm size was negative

and significantly related to budgeting. This concurs

with the findings of Merchant (1981), Joshi et al.,

(2003) and Krasauskaite (2011) who asserted that

firm size affected budgeting process. It suggests that

a positive development of the firm size leads to better

budgeting process and performance of the firm.

Further, positive and significant correlation between

ownership structure and budgeting was confirmed.

This agreed with the findings of Paola D et al.,

(1999) and Mahmood (2008) who also found out that

ownership of firms affect how budgeting procedure.

This suggests the need to have clear definition of the

role of owners in budgeting process.

The study found evidence that skills and power of

managers positive and significantly related to

budgeting.This concurs with the findings of Obokoh

(2008), [40] Bowen et al., (2009) [41] and Chidi &

Shadare (2011) [42] who found that the skill that

managers have concerning budgeting have an effect

on the budgeting process. The influence of the

managers tells whether the budget would be

implemented as prepared or not.

Finally, the computerized accounting system

operations variable was found negative and

significantly related to budgeting process. A

significant relationship between computerization of

the accounting systems operations and budgeting

indicates that effective budgeting process can be

attained by implementing effective information

technology in SMEs. This study agrees with the

findings of Paola D et al., (1999) [43], Diamond &

Khemani (2006) [44] and Breen et al., (2009) [45]

to the extent that computerization affects budgeting

but seems to disagree on whether this lead to a

positive change.

CONCLUSIONAND

RECOMMENDATIONS

The study finds evidence that Computerized

Accounting system (β =-0.444) contributes to

budgeting process at a higher magnitude than Skills

and Powers of Managers (β =0.2268) Ownership

Structure (β =0.1908), Participation of workers (β =-

0.2674) and Firm Size (β =-0.2937). Overall, the

factors under study contribute significantly to the

budgeting process and in general performance of

SMEs. Based on the findings the study recommends

involvement of workers at all levels of budgeting,

separation of ownership from management issues and

continuous improvement of managers’ skills. In

addition information technology should be given

priority as its functionality in SMEs contribute more

significantly to budget process compared with other

factors under study.





10

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