While deficiencies in financial management have been repeatedly cited as a root cause of
business failure (Najak and Greenfield 1994) two arguments are advanced for such
deficiencies in SMEs; that new accounting is not relevant and that SME managers are
unable to make use of accounting. Here it is argued that accounting ideas are relevant to
SMEs but that a process of innovation combining both knowledge to overcome a barrier of
belief and an external shock are necessary in order for innovation to take place.
These ideas were explored through a survey of SMEs from both service and manufacturing
business in the Greater Manchester region. It was observed that the use of accounting
techniques is negatively related to growth in turnover. However the use of accounting
techniques that were related to product market was found to be positively related to growth
in turnover and that owner/managers belief in the importance of accounting in business
decisions was strongly related to growth in turnover. These results were the more
interesting when it was observed that growth was negatively related to size.
A second theme of the research was the significance of the role of external advisors. Prima
facie it was suggested that external advisors may be key agents of change, but the study
found that their (accountants, academics and consultants) perceived value was relatively
low.
The findings of this survey suggest that when accounting is perceived to be relevant then
its use does support business growth but innovation in accounting in SME requires further
research