Management Accounting in Small Enterprises: Identifying and Overcoming the Challenges of Using Management Accounting Information Among Entrepreneurs

Small enterprises play a significant role in global economies and has a remarkable potential in both creating jobs and restructuring economic life. Supporting small enterprises’ growth and success is, therefore, essential for increasing economic growth. Previous research indicates that financial planning and controlling are important factors, forecasting success for small businesses. Despite significant economic contribution of small enterprises, academic literature indicates that quite little is known about the extent to which they make use of management accounting (MA) and management accounting information (MAI). In small enterprises, the entrepreneur is usually solely responsible for managerial work; therefore, the use of MAI is dependent on one’s personal understanding of and attitude to this information.

This dissertation focuses on MAI needs from small-business entrepreneurs’ point of view, aiming to understand the current and potential use of MAI in managerial work of small businesses. Furthermore, the study identifies challenges emerging from the gap between the ideal and current MAI utilisation, thus seeking to uncover areas of improvement in the provision of MA services to small companies.

The theoretical framework of this dissertation examines the subject from three perspectives. First, the usage, benefits, drivers, and challenges of MA in the context of small business are discussed. Second, as the literature often explains the use of MA systems in enterprises by elaborating on the overall stage of company development, enterprise life cycle theories will also be considered in this research. Thirdly, considering that accounting is a service function, and small-business entrepreneurs typically outsource accounting to external service providers (accountants), the literature overview also includes a discussion on the service quality and the service quality gap models, as well as their implementation in accounting services.

To meet its research objectives, this dissertation employs mixed methods. Research questions are approached through both quantitative and qualitative research methods. Two pieces of survey data collected in collaboration projects have been utilised to provide a comprehensive overall picture of MAI usage in small enterprises from a wider perspective. Apart from these two study projects involving wide survey data, the dissertation presents a qualitative research section that aims to provide a deeper interpretation and understanding regarding entrepreneurs‘ insights on the role and importance of MAI in managerial work. This in-depth qualitative study phase includes narrative answers of entrepreneurs, group conversation with entrepreneurs and, to validate these opinions of entrepreneurs, a few interviews of accountants providing services to small businesses.

The findings of this dissertation correspond with the previous studies on the scarce use of MAI in small businesses. However, based on this study, entrepreneurs value MAI and recognise its importance for successful managerial work. The analysis of entrepreneur narratives revealed four different types of entrepreneurs using MAI: forward-looking beginners, demanding developers, profound analysts and discontent underachievers. In each of these categories, entrepreneurs have partially different opinion about the role of MAI in their managerial work. Depending on the entrepreneur category, the emphasis on the role of MAI varies from supporting development of the business to assisting in profitability analyses and the management in general. Studying the challenges related to MAI services uncovered a service quality gap with technical and functional quality issues. Moreover, entrepreneurs‘ and accountants‘ perception of one another has an impact on the delivered and perceived MAI service.

The dissertation contributes to MA literature in three ways. Firstly, the emphasis on entrepreneurs’ perspective differs from that in the previous studies, and the categorisation of entrepreneurs reveals a new viewpoint to MAI utilisation in small enterprises. Secondly, connecting the service quality gap theory with the accountant providing and the entrepreneur using MA services expands the understanding of the peculiarities of this service relationship. Thirdly, combining entrepreneurs’ perspectives and the service quality gap reveals both high importance and scarce use of MAI in small business management. This paradoxical finding indicates that part of the potential for growth and success is lost in small businesses, the entrepreneurs being unable to make optimal use of MAI. The study provides new insight about the possible ways to support small enterprise growth and development through the implementation of appropriate MAI. These findings can also have practical utility in the development of management accounting services and software systems, especially for the needs of the entrepreneurs or other decision-makers of small companies.