ABSTRACT
The role of SMEs in the
development of any nation cannot be over-emphasised. Yet their growth into
bigger firms is often beset with many challenges. This study sought to examine
the perception of business owners about the effect of bookkeeping on the growth
of small and medium-scale enterprises (SMEs) in the Cape Coast Metropolis. The
study employed the quantitative research method and survey design. The simple
random sampling method was used to draw a sample of 100 enterprises from a
survey population of 135 registered SMEs from the Cape Coast Chamber of
Commerce. A structured survey questionnaire was used in gathering primary data
for the study. A total of 100 questionnaires were returned and used for
analysis. The study found that most SMEs surveyed did not keep complete written
records even though majority (74%) of them perceived bookkeeping as an
important tool for business growth. The challenges that confronted SMEs owners
in bookkeeping were lack of personal knowledge in bookkeeping, lack of record
keepers, time and resources constraints among others. The study also found that
majority SME owners perceived bookkeeping to have an effect on the growth of
SMEs and level of education of SME owners or managers also had a positive
relationship with their bookkeeping practices. The study recommended that the
National Board for Small Scale Industries (NBSSI) in Ghana should initiate
policies that will intensify education of SMEs operators on bookkeeping since
many of them lacked personal knowledge in bookkeeping. Business operators were
also recommended to go for seminars and training that will improve their record
keeping skills.
CHAPTER ONE
INTRODUCTION
This study examined the relationship between commitment to
bookkeeping and the growth of small and medium-scale enterprises (SMEs) in the
Cape Coast Metropolis. The study related to some previous studies on records
keeping and performance of SMEs but with a different focus on bookkeeping and
SME growth using the records continuum theory. There is some practical
relevance for this study as it provides useful information for improving
performance and enhancing SME growth and national development. This chapter
covers the background of the study, statement of the problem, purpose of the
study, research objectives & questions, significance of the study, as well
as delimitations and limitations of the study.
Background to the Study
There has been a growing concern for supporting the
operations of Small and Medium-Scale Enterprises (SMEs) among governments
(Amoako, 2012).Given their contributionto national growth and economic
development, it is believed that small and medium-scale enterprises (SMEs) are
the backbone of many economies across the globe (Alhassan&Muazu, 2014;
Okoli, 2011). According to Amoako, Marfo, Gyabaah, andGyamfi (2014), a major
indicator of a booming economy is a vibrant Small and Medium Scale Enterprises
and how efficiently they contribute to Gross Domestic Product (GDP).
Aside generating income for their owners, Alhassan andMuazu
(2014) argued that SMEs promote innovative ideas and creativity in the business
arena, as well as providing employment for many people.Even in the developed industrial economies, it is
the SME sector rather than the multinationals that takes the largest proportion
of employees(Adu, 2013; Quartey&Abor, 2010).For instance, it has been shown
that in 2008, SMEs employed 90 million people in Europe (Bowen, 2009).
In Ghana, the impact of SMEs on the economy cannot be
overemphasized. Aryeetey (2001) and Amoako (2012) argued that in addition to
contributing to Ghana’s Gross Domestic Product (GDP), SMEs form acharacteristic
feature of the production landscape and thus provide about 85% of manufacturing
employment.Thus, SMEs have been described as proficient and prolific job creators,
the seeds of big businesses and the supporting pillars of development in many
economies (Adu, 2013; Quartey&Abor, 2010).
While recognizing the potential rolesof SMEs in national
development, one key issue worth considering is their growth and sustainability.
In spite of the concerted efforts by successive governments coupled with the
financial support given to SMEsin Ghana, they still face the threat of failure,
with past statistics indicating that three out of five SMEs fail within the
first few months of operation (Bowen, 2009). It is estimated that 25% to 40% of
SMEs below 5 years in Ghana collapse every year (Acheampong, 2015;
Amidu&Abor, 2004).
SMEs’ development in Cape Coast is no exception. Some authors
argue that in Ghana, most businesses that were started in the early 2000s are
no longer in existence (Amidu&Abor, 2005). For enterprises to grow,
however, they must be able to survive and then inch up gradually. It is, thus,
imperative to investigate the factors that militate against survival and hence
constrain the growth of such ventures. Muchira (2012) opined that the problem
that might require emphases in research may be the management of these SMEs. She, however, noted that the
efficient management of these enterprises revolves around sound accounting
practices,which is highly dependent on proper bookkeeping of records on the
business transactions. A recent study by Mbroand Attom(2012) discovered that
basic book-keeping practices were not in operation in many of the enterprises
operating in Cape Coast with majority (52%) frequently seeking external
assistance in their business accounting.Mbroand Attom(2012), however, did not
related book-keeping to any performance measures of SMEs which is the focus of
this study.
Statement of the Problem
In the past, the common factors that constrained SMEs growth
included lack of government support, lack of access to finance, high operating
costs and stiff competition among others (Esaete, 2005). However, with the
current legal and regulatory framework in Ghana coupled with the increased
number of lending institutions, these problems have been substantially reduced
(Alhassan&Muazu, 2014). Alhassan and Muazu (2014) further indicated that
the banking sector has recently improved its financial services to the SMEs in
Ghana. Despite the several attempts to boost activities of SMEs the survival
and growth of SMEs in Ghana is still a problem (Alhassan&Muazu, 2014). It
is against this background that the need arise for current studies to explore
other equally important factors that can contribute to the problem.
Earlier studies have suggested that record keeping is at the
heart of any external interaction with the SMEs be it access to finance or
eligibility for assistance. That is, credit worthiness and growth potentials
are all embedded in bookkeeping records of enterprises. It is theoretical
plausible to expect some positive effects of proper record keeping and
enterprise performances such as profitability and growth.
According to Blank (1966), however, “Theory and introspection have their proper
place in economic analysis but at some point they must be tested by the actual
reactions of the market place”.
Recent empirical studies on bookkeeping in Ghana include
Amoako, Marfo, Gyabaah and Gyamfi (2014), Alhassan and Muazu (2014),
Suraj(2011) and Amissah (2011).
However,Amoako, Marfo, Gyabaahand Gyamfi (2014) investigated
the accounting records keeping practices of SMEs in Ghana using the Suyani
Municipality as a case study and found that majority of SMEs did not keep
complete accounting records. Alhassan and Muazu (2014) on the other hand also
investigated the relationship between record keeping and performance of SMEs in
the Tamale Metropolis and discovered that there was a positive relationship
between record keeping and business performance.
Again, Suraj(2011) conducted a study on bookkeeping practices
and its relevance to SMEs in the New Juaben District in the Eastern Region and
found out that many SMEs did not keep proper books and could not obtain
financial assistance from banks.Amissah(2011) also conducted a study on proper
bookkeeping and basic accounting procedures among SMEs in the Greater Accra
Region and discovered that lack of knowledge in bookkeeping and lack of finance
to engage the services of a bookkeeper contributed to most SMEs not keeping
books.
As partitioned by the World Bank group in 2007 and 2013
(World Bank, 2013),none of the studies was done in the Western Zone which
includes enterprises in Cape Coast and Takoradi. For a complete picture of the
situation and role of bookkeeping in Ghana, a study on SMEs in Cape Coast is a
step in the right direction. Notwithstanding
the fact that SMEs in the Cape Coast municipality are struggling with growth, a
major motivation for the study was the observation by Majumdar (1997) that it
will not be appropriate to approximate the findings of studies done on size
from one setting to another because how size and age relates to firms’
performance cannot be analysed outside the institutional framework that the
firms operate within.
One area that has received little attention in the literature
is the Central Region and it is this gap that has propelled the study. This
study sought to examine the relationship between bookkeeping and the growth
ofsmall and Medium-scale businesses inthe Cape Coast Metropolis.
Purpose of the Study
The purpose of the study is to examine the perception of
bookkeeping on the growth of SMEs in the Cape Coast Metropolitan Assembly.
Objectives of the Study
The main objective of this study is to examine the dependency
between bookkeeping and the growth of SMEs in the Cape Coast Metropolis. The
following specific objectives have been formulated to guide the study:
Examine the types of records kept by SMEs operators
Assess the relationship between levels of education of SMEs
owners’and willingness to keeping business records.
Examine the perception of SMEs owners on the effects of
bookkeeping on the growth of their enterprises.
Research Questions
The study seeks to answer the following questions:
What types of records are kept by SMEs operators?
What is the perception of SMEs owners on the effects of
bookkeeping on the growth of their enterprises?
Significance of the Study
The study sought to explore the state and relationship
between bookkeeping and SMEs performance which shall provide lead information toPolicy
makers on the challenges that need redress as Ghana adoptsthe International
Financial Reporting Standards (IFRS forSMEs). That is, the state and perception
of SMEs on bookkeeping is very key to readiness of SMEs to preparing financial
reports since the information needed must first come from records kept.
Furthermore, agood knowledge ofbookkeeping greatly facilitates
the work of the Internal Revenue Service and the Value Added Tax officials in
determining assessable and chargeable incomes of SMEs.
The study is equally helpful to the National Board for
Small-Scale Industries (NBSSI) in evaluating the success of its activities with
specific referenceto proper bookkeeping and basic accounting procedures. It can
also assist the Board in formulating its future plans.
Finally, the study has contributed tothe existing wealth of
knowledge in bookkeeping and SMEs growth and survival.
Delimitations
The study was delimited to small and medium-scale enterprises
in the Cape Coast Metropolis with a focus on commercial activities such as
trading, manufacturing and service enterprises. The areas covered included
Kakumdo,
Abura,Kotokoraba market, Kingsway,
Bakanu and Elmina and many more. The study focused on bookkeeping as the
independent variable while growth of SMEs was considered as an dependent
variable.
Besides bookkeeping, there are other factors that could
affect growth of SMEs such as capital invested, external environment, support
resources, changing seasons, tax laws and other regulatory policies
(Premaratne, 2002) but for the purpose of this study, these factors were held
constant.
Limitations
The study was primarily limited by the lack of willingness by
Respondents to disclose financial information on their businesses. This created
data collection problems.
Secondly, the study focused on only the main commercial
activities of trading, manufacturing and services providers and this limited
the generalisation of the findings to all other categories of SMEs in the study
area. The study did not include SMEs in Agriculture and construction
industries.
Finally, lack of financial records to support evidence
hindered the findings. Some of the respondents could not give evidential
information on their business performance, hence making the study to rely on
estimates.
Definition of Terms
Bookkeeping – Is the recording of business transactions in a
systematic manner so that the financial position of an organization can be
ascertained at any point in time.
Business growth – refers to the process of a business
expansion by increased output (products and services), customer base, new
product development or expansion of the target market.
SMEs - The National Board for Small
Scale Industries (NBSSI) defines Small enterprises as those employing between 6
and 29 employees or firms with fixed assets not exceeding $100,000, excluding
land and building (Amoako, Marfo, Gyabaah, &Gyamfi, 2014; NBSSI Report,
2009). The NBSSI further defined enterprises that employ between 30 and 100
employees as medium sized enterprises (Abor&Biekpe, 2006). This operational
definition by the National Board for Small Scale Industries (NBSSI) is thus
adopted by the study.
Organisation of the Study
The study was organized into five (5) chapters. Chapter One -
Introductioncovers the background of the study, statement of the problem, study
objectives, research questions, significance of the study,delimitations and
limitations of the study. Chapter Two: Literature Reviewis devoted to the
review of related literature in bookkeeping and SMEs growth – both theoretical
and empirical studies. The chapter covers the theories of business growth,
nature of SMEs and their role in national development, bookkeeping systems and
relationship between bookkeeping and SMEs performance & growth.Chapter
Three – Research Methods, captures the methods employed in conducting the
study. It specifically addressed the research approach, study design, study
area, sampling procedures, research instruments,data collection methods as well
as data processing and analysis.The Chapter Four captured the results and
discussion of findings from the study while the final Chapter – Summary,
Conclusions and Recommendations, is dedicated to discussing the summary of the
study,conclusions drawn from the study and recommendations.
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