Factors that impact the capital budgeting planning and practices of small business enterprises within the eThekwini Springfield Industrial Park

Abstract

This study focused on the factors impacting the capital budgeting planning and practices of small business enterprises (SMEs) within the eThekwini-Springfield Industrial Park in Durban, KwaZulu-Natal, South Africa. SMEs contribute an integral part to the gross domestic product (GDP) of South Africa, as well as beyond its borders. Studies have recognised the huge contribution of SMEs to reducing unemployment and boosting the economy whilst the formal sector shrinks. However, studies have also emphasised the failure rate of SMEs. The complexity of South Africa's economy poses challenges to SMEs in terms of the adoption of Capital Budgeting Processes. Therefore, this study contributes to their capital budgeting planning and practices by focusing on firstly, staff participation and secondly, the influence of owners/managers. Based on a 108 SME sample, the study argued that the planning and practices of capital budgeting represent the most significant aid to the survival of these SMEs. However, minimal studies have investigated the capital budgeting area in SMEs. The study used a quantitative research design, whilst a survey questionnaire was the primary data collection instrument applied. A purposive sampling method was adopted. The Partial Least Squares (PLS) and Structural Equation Modelling 5.0 (SEM) software were utilised to determine the statistical results. The findings revealed that both staff participation and management skills, as well as financial skills, played a critical role in the factors that impact the capital budgeting planning and practices of small business enterprises (SMEs). Factors in relation to staff participation included the following: budget participation, communication, clarification of duties, stake and motivation in the process, as well as technical and computer literacy skills. The study also recognised the managers’/owners’ lack of business knowledge, financial skills, financial considerations, government incentives and networking abilities. The study ended by making recommendations for assisting the survival and growth of SMEs.