The use of cash budgets by small, medium and micro enterprises operating in the fast-moving consumer goods sector of the Cape Metropole

Abstract

Small Medium and Micro Enterprises (SMMEs) in South Africa are perceived to be failing partly due to their reluctance to prepare and use cash budgets for managing their cash. The main objective of this research was to determine the extent to which SMMEs in the Cape Metropole prepare and use cash budgets. Specifically, the study aimed to determine whether SMMEs prepare or use cash budgets, the purpose for which these entities use cash budgets, the perceived effectiveness of cash budgets where used, as well as the factors, if any, that inhibit SMMEs from using cash budgets. The research was motivated by lack of empirical studies on the usage of cash budgets by SMMEs operating in South Africa. To collect data, a questionnaire survey method, which is quantitative by nature, was used. The results of the research show that most of the sampled SMMEs used cash budgets. The results also indicate that cash budgets were used mostly for planning of efficient use of cash, evaluating the financial performance of a business, determining the future ability of a business to pay trade payables/other debts as they fall due and for planning an early settlement of payables to take advantage of cash discounts offered. The results further revealed that cash budgets were perceived to be effective by the SMMEs that used them. With regard to the factors, if any, that inhibit SMMEs in the Cape Metropole from using or preparing cash budgets, the results indicated various prohibiting factors. Key among these were, lack of adequate skills for using and preparing cash budgets, erroneous assumptions of cash budgets that can result in wrong decisions, lack of time to prepare and use cash budgets due to shortage of staff, lack of need for cash budgets or the perception that these budgets are inappropriate for certain types of business. This study fills in the gap in research on the use of cash budgets by SMMEs operating in the FMCG sector of the Cape Metropole and in South Africa at large. Although numerous studies have been conducted on the use of cash budgets by similar entities in other countries, only a few studies have been conducted in South Africa on the use of cash budgets by SMMEs. Those that have been conducted in the country have not focused on the use of cash budgets, but have covered the use of budgets in general, without regard for the size of the entities or the sector in which they operate in. Thus, this study fills the gap in knowledge by focusing on the use of cash budgets by SMMEs operating in the Fast Moving Consumers Goods (FMCG) sector. The study identified skills gaps among SMMEs which should be addressed by the Government and policy makers when rolling out training programmes meant to address the development needs of the decision-makers of the SMMEs, an aspect that can contribute to ensuring that these entities survive and even thrive.