An investigation of selected financial management fundamentals influencing financial stability of small and medium enterprises in Durban

Abstract

This study investigates the influence of the selected financial management fundamentals towards the financial stability of Small and Medium Enterprises (SMEs) in Durban. The SMEs play an important role in the South African economy, by developing new skills. The study was descriptive and quantitative in nature. The tool used in collecting data was a questionnaire, which was self-administered and distributed at the business location of the respondents, with a minimal number of respondents receiving the questionnaire after it was scanned and emailed to them. The respondents consist of following different sectors of SMEs in Durban; trading, manufacturing, industry and Accounting firms. The results obtained were based on the supporting objectives of the study. The findings achieved show that financial reporting contributes indirectly towards the financial stability of the business. The study found that the lack of understanding of financial reporting and insufficient financial experience would have an influence on the financial stability of SMEs. Factors that were found to affect the credibility of financial reporting include poor administrative control of resources, as well as a lack of accurate information and financial data, which results in incorrect financial reports. Other factors found, in establishing the contribution and relationship between financial reporting and financial stability, include: lack of knowledge, lack of financial control processes, and weak cooperation among staff, with training, education, and financial reports management, as well as upgrading and modification of the accounting system The majority of the respondents have experience in the finance sector, and while most have access to training, there are little or no follow-up programmes by internal or external users of financial reports, such as shareholders, banks or the government. As a result, recommendations are made to develop short accounting programmes that will allow owners and accounting staff to gain practical experience in the financial reporting background, which will enable an increase in the level of understanding of financial reporting processes and usability of allocating financial information correctly.