MITIGATING FINANCIAL CHALLENGES IN SMES THROUGH EFFECTIVE
BUDGETING AND FORECASTING STRATEGIES
BACKGROUND OF THE STUDY
Small and Medium-sized Enterprises (SMEs) play a critical role in the global
economy, driving innovation, employment, and economic growth. The
definition of SMEs varies from country to country; however, they are generally
characterized by their relatively small scale and limited resources compared
to larger firms. SMEs often face unique challenges in managing their financial
affairs, making financial management a vital aspect of their sustainability and
success.
The importance of financial management in SMEs cannot be overstated.
Effective financial management is essential for optimizing resource allocation,
ensuring liquidity, and enhancing the overall financial performance of these
enterprises. Sound financial practices enable SMEs to make informed
decisions, manage risks, and capitalize on growth opportunities. Moreover,
effective financial management contributes to building investor confidence,
attracting external funding, and maintaining a competitive edge in the market.
This study aims to explore the challenges and best practices related to
financial management in SMEs. By identifying and understanding these key
elements, researchers, policymakers, and business practitioners can gain
valuable insights into the dynamics of financial management in SMEs and
formulate strategies to improve their financial health and sustainability
(Nkwinika E., Akinola S., 2023).
SMEs are enterprises with fewer than 100 employees and lower annual
income than larger organizations. They are critical to the economy as they
generate a significant portion of a country's economic activity and provide
numerous employment opportunities. However, despite their importance,
SMEs frequently encounter a range of challenges that jeopardize their growth
and profitability. One of the most pressing issues is the difficulty in obtaining
finance.
SMEs often face financial challenges due to various factors. Firstly, they
typically have limited collateral and no established financial history, making it
difficult to secure loans from traditional financial institutions. Furthermore,
many SMEs may lack the resources to develop a comprehensive business
plan or present the necessary financial projections to attract investor support.
Additionally, a number of SMEs operate in high-risk industries or markets,
making them less appealing to investors or lenders (Amoa-Gyarteng, Karikari,
2023).
STATEMENT OF THE PROBLEM
General Objectives:
This study aims to evaluate the relationship between mitigating financial
challenges in Small and Medium-sized Enterprises (SMEs) through effective
budgeting and forecasting strategies in Isulan, Sultan Kudarat.
Specific Objectives:
This study specifically aims to address the following questions:
1. What is the level of budgeting practices among small and medium
enterprises in terms of:
1.1. Budget Planning and Preparation
1.2. Budget Execution
1.3. Budget Review?
2. What is the level of forecasting strategies among small and medium
enterprises in terms of:
2.1. Revenue Forecasting
2.2. Expense Forecasting
2.3. Cash Flow Forecasting?
3. Is there a significant relationship between budgeting and forecasting
strategies among small and medium enterprises in Isulan/Tacurong
City, Sultan Kudarat?
SIGNIFICANCE OF THE STUDY
The findings of this study are significant for several reasons:
For SME Owners and Managers: This research will provide valuable insights
into how SMEs can overcome common financial obstacles through effective
forecasting and budgeting techniques. By implementing these strategies,
SMEs can optimize cash flow, reduce unnecessary expenses, and make
informed financial decisions that promote stability and growth.
For Financial Advisors and Accountants: This study will serve as a guide
for accountants and financial advisors working directly with SMEs, enabling
them to provide more accurate and beneficial advice on establishing reliable
forecasting and budgeting systems tailored to the unique needs of small
enterprises.
For Policymakers and Financial Institutions: The conclusions of this
research will be of great value to policymakers and financial institutions as
they develop support initiatives and regulations aimed at helping SMEs
manage financial risks, ensure their long-term viability, and foster economic
growth.
For SME Sector Growth: Ultimately, this study will contribute to the overall
growth and prosperity of the SME sector by addressing financial challenges
through improved forecasting and budgeting practices, making these
enterprises more resilient to economic uncertainties and market fluctuations.
BUDGETING PRACTICES AND FINANCIAL PERFORMANCE OF THE
LGU IN TACURONG CITY
BACKGROUND OF THE STUDY
A budget is essentially a spending plan that forecasts the estimated revenue
and expenses for a local government over a specific future period. However, it
is much more than that. Effective financial management is crucial for realizing
a community's vision, and the budget serves as one of the primary tools
guiding that pursuit. Not only does it help maintain financial accountability
among local leaders, but it also represents plans for the future of the
community as a whole. Given this significant responsibility, it is not surprising
that the local government budget process is often lengthy and complex
(Messinio, 2024).
In today’s economic and market conditions, budgets are among the most
controversial managerial tools. Budgets are universally recognized
management tools that support planning and effective management of
resources and activities in economic entities. Nevertheless, the preparation
and utilization of budgets are not without challenges. International literature
discusses both the benefits and the drawbacks associated with budgeting.
While there are disadvantages and difficulties in budgeting, these challenges
are often outweighed by the numerous and valuable benefits they provide
(Lidia, 2014). Ultimately, budgeting can have either a positive or negative
impact on the financial performance of organizations (Fortuna, 2021).
1.1 Budgeting Practices
Budgeting plays a significant role in the performance of businesses.
Recognizing the need for improvement, many firms implement various
systems and structures to ensure profitability. Budgets, therefore, provide
valuable information for managers to evaluate firm performance and inform
financial allocation strategies across different components of the organization
(Pimpong, 2016). Organizations in both developed and developing countries
face intense competition, making it essential for businesses that wish to
remain competitive to understand the role of budgeting and its effect on
financial performance (Agbenyo et al., 2018).
A budget is an essential tool for business organizations to achieve effective
financial planning and control. It represents a systematic allocation of
resources to fulfill the organization's goals. Budgeting encompasses
establishing predetermined objectives, reporting actual performance results,
and evaluating performance against those objectives. The effectiveness of
this process relies on how well companies manage their operations to achieve
their targets. Therefore, organizations should adopt budgeting practices that
help accomplish the principles and elements of the budgeting process. Good
integration of the budgeting process with other activities, such as planning
and management functions, leads to better financial and program decisions,
ultimately improving operations. Prior studies have shown a positive
relationship between budgeting practices and financial performance,
particularly regarding return on assets, sales growth, and profitability (Fortuna,
2021).
1.2 Financial Performance
Financial performance is a measure of how effectively an organization uses
its assets to generate income (Stobierski, 2020). It assesses an organization's
efficiency by monitoring costs, operational capital, and cash flow to ensure
alignment with revenues (Chaudhary, 2018). Financial performance is crucial
as it reflects an organization's ability to generate profit, optimize resources,
and sustain long-term operations. It facilitates informed decision-making,
fosters efficiency and profitability, and is essential for growth and
competitiveness. Strong financial performance also builds investor
confidence, supports compliance with regulatory standards, and enhances
organizational transparency. Moreover, it contributes to employee retention by
ensuring job security and competitive compensation. Ultimately, effective
financial performance is vital for organizational stability and strategic growth
(Brigham & Ehrhardt, 2014; Weygandt et al., 2015).
Sulaymonov (2018) reviewed the literature on "Practice Developments in
Budgeting" and found a considerable level of concern regarding budgeting
practices, indicating its potential for further scholarly research. Numerous
studies have been conducted to determine how budgeting practices affect
financial performance. Researchers such as Mazikana (2019), Mutai (2017),
Koitaba (2016), and Pimpong and Laryea (2016) have consistently supported
the argument that budgeting significantly and positively influences a firm’s
performance.
Budgeting is critical for financial performance as it ensures proper resource
allocation, financial planning, and accountability. However, the effectiveness
of these practices in enhancing financial performance remains underexplored.
By investigating the budgeting strategies utilized by Tacurong City's LGU, this
research aims to provide insights into how transparent and effective budgeting
can impact financial performance.
STATEMENT OF THE PROBLEM
General Objectives:
This study aims to evaluate the effectiveness of internal control systems in
ensuring efficient financial management within the Local Government Unit of
Tacurong City.
Specific Objectives:
The study specifically seeks to answer the following questions:
1. What is the level of budgetary practices in terms of:
1.1. Budgetary Planning
1.2. Budgetary Control
1.3. Budgetary Participation?
2. What is the level of financial performance in terms of:
2.1. Profitability
2.2. Growth?
3. Is there a significant relationship between budgeting practices and
the financial performance of the Local Government Unit in Tacurong
City?
SIGNIFICANCE OF THE STUDY
The results of this study are deemed important for several reasons:
For Local Government Officials: This study will provide crucial insights into
how internal control systems can be optimized for more efficient financial
management in Tacurong City’s Local Government Unit (LGU). It will help
officials identify potential areas for improvement and ensure that public funds
are managed responsibly.
For Financial Managers and Auditors: This research will serve as a
reference for financial managers and auditors, enhancing their understanding
of how effective internal controls contribute to the accuracy and reliability of
financial reporting, thereby ensuring transparency and accountability in public
financial management.
For Tacurong City Residents: The results of this study will benefit residents
of Tacurong City by promoting the efficient and responsible use of public
funds, leading to better governance and improved public services.
For Policymakers: The findings of this study will guide policymakers in
designing and implementing internal control policies that promote better
financial management within local government units, fostering trust and
confidence in public administration.
THE IMPACT OF ETHICAL AWARENESS OF ACCOUNTING STAFF ON
GOVERNMENT AGENCY TRANSPARENCY
BACKGROUND
Accounting is often referred to as the language of business as it records and
presents financial information to relevant parties, aiding them in making
informed decisions. Economic systems depend heavily on accounting; without
it, these systems would likely collapse. However, the complexities of
economic systems and fierce competition have sometimes led accountants to
engage in unethical behaviors as they seek to maximize their own or their
companies' interests (Munasebe, 2015).
The nature of the accounting profession demands a high level of ethics and
transparency since financial statements must be accurate, truthful, and
relevant to facilitate effective decision-making. Accountants may face conflicts
between their professional responsibilities and personal interests, leading
them to manipulate financial data. This manipulation could be aimed at
portraying a more favorable financial position to attract potential investors or
to present misleading figures prior to a management acquisition.
Ethical awareness promotes transparency by encouraging individuals and
organizations to recognize ethical issues and act with openness (Valentine &
Godkin, 2016). When people are ethically aware, they are more likely to
disclose relevant information and justify their decisions transparently (Pillai et
al., 2021). Ethical leadership enhances this process by modeling transparent
behaviors and fostering a culture of honesty (Mayer et al., 2014). In today's
digital age, where transparency faces increased scrutiny, ethical awareness
helps organizations maintain their credibility (De Cremer et al., 2016). Studies
indicate that fostering ethical awareness strengthens both transparency and
organizational integrity (Valentine & Godkin, 2016; De Cremer et al., 2016).
The aim of this research is to illuminate the relationships between ethical
awareness and transparency from the perspective of Certified Public
Accountants (CPAs). This study contributes to the existing literature in two
significant ways. First, unlike most current research that focuses primarily on
ethical awareness, this study also includes transparency, thereby expanding
the limited research on the interplay between these two concepts.
STATEMENT OF THE PROBLEM
General Objectives:
This study aims to assess the impact of ethical awareness among accounting
staff on the transparency of government agencies.
Specific Objectives:
Specifically, the study seeks to answer the following questions:
1. What is the level of ethical awareness among accounting staff in
government agencies in terms of:
1.1. Ethical behavior awareness
1.2. Ethical decision-making
1.3. Compliance with professional codes of conduct?
2. What is the level of transparency in government agencies in terms
of: 2.1. Financial reporting practices
2.2. Budget allocation and utilization
2.3. Public access to financial information?
3. Is there a significant relationship between the ethical awareness of
accounting staff and the transparency of government agencies?
SIGNIFICANCE OF THE STUDY
The findings of this study hold significance for the following reasons:
For Government Accounting Staff: This study will provide essential insights
into how ethical awareness among accounting staff can directly influence
transparency within government agencies. It will emphasize the importance of
ethical decision-making in financial reporting, encouraging staff to adhere to
ethical standards that promote integrity and honesty in their work.
For Government Agencies and Leaders: The findings will be valuable for
government leaders and administrators, demonstrating how a strong ethical
framework within accounting departments can enhance overall agency
transparency. It will provide practical recommendations for fostering an ethical
culture, leading to improved accountability and trust in public institutions.
For Policymakers and Regulatory Bodies: This research will serve as a
resource for policymakers and regulatory bodies in developing and
implementing policies that enhance ethical practices among accounting
professionals. It will help shape regulations aimed at improving financial
transparency and reducing corruption within government agencies.
For the Public and Stakeholders: The study will benefit the public by
ensuring that government agencies are more transparent and accountable in
their financial practices. Increased ethical awareness among accounting staff
will help reduce financial mismanagement, leading to better governance and
enhanced public trust in government operations.
For Academic and Ethical Research: This study will contribute to the
growing body of literature on the impact of ethics in accounting, particularly in
the public sector. It will provide future researchers with a foundation for
exploring the broader effects of ethical practices on government efficiency,
transparency, and accountability.
