An investigation into the of use of accounting information in the growth of small businesses in Kenya
Gerishon, David Muchungu
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The use of accounting information on the growth of small businesses in Kenya remains largely unknown. This is despite significant knowledge available in many other jurisdictions linking the growth of small businesses to the use of accounting information in the management of small businesses. Available literature indicates that accounting information is an important tool in tracking the indicators that measure business growth. These indicators are used by business managers to take timely corrective actions to achieve planned growth targets. For purposes of this study three indicators selected as measures of small business growth are profitability, turnover and number of employees. Empirical fmdings indicate that through accounting information, industry averages for various indicators of business growth have been established, and many businesses that plan for growth benchmark their performance to these industry averages. Theoretical literature indicates that many businesses start at micro-levels and progress through an organic growth to small, medium and large enterprises. Managers depend heavily on accounting information in monitoring and guiding this organic growth. Effective use of accounting information especially in the small business sector is hindered by such constraints as, low literacy levels, inadequate resources to generate accounting information and owner-management styles, among others. The overall objective of this study was to provide additional knowledge on the impact of accounting information on the growth of small businesses in Kenya This additional knowledge has been obtained through a comparative study of the business growth attributes between small businesses that apply and those that do not apply accounting information in their management processes. The study targeted small businesses within Nairobi and its environments. Since the study involved linking attributes of business growth to application of accounting information, a descriptive research approach was used. The study introduced accounting information in Kenya, as a key factor of business growth. The expectation is that the findings of this study will influence regulatory policies on small businesses to promote their growth and effectively enable them contribute to the national development. The findings of this research strongly suggest that maintaining business accounting records and preparing financial statements and reports there from among small businesses, largely depends on the type and age of the organization among other factors. However the extent of use of this accounting information for purposes of business decision making process appears significantly, limited to decisions concerning the cash asset. A lot of accounting information is on the other hand prepared for use in meeting the statutory business obligations such as VAT, PAYE among others. Since majority of the respondents blamed business failures on poor decision making, my recommendation is that there is need to find out through further studies, why small businesses only use accounting information in making business decisions to a limited extent.