Far East Journal of Psychology and Business

Vol. 2 No 1, December 2010

MANAGING COMPANYS FINANCIAL AMONG SMALL AND MEDIUM NON-MANUFACTURING COMPANIES

Noor Fadzlina Mohd Fadhil (Corresponding Author) Lecturer, Faculty of Business Management and Accountancy, Universiti Sultan Zainal Abidin, Malaysia E-mail: noorfadzlina@udm.edu.my

Noor Fikri Mohd Fadhil Senior Executive, Central Bank of Malaysia,Malaysia E-mail: fikri@bnm.gov.my

ABSTRACT

Small and Medium Enterprises (SMEs) have been very important in many countries including Malaysia because of its role for the countrys economic growth. This paper explores the level of awareness towards the importance of financial management from the preparation of accounting reports and its information usage in the business. The research focuses on small nonmanufacturing companies because very few studies have been conducted in this area. Besides, the findings will help to reveal some of the key points that can contribute to the decision-making and growth especially in the context of small companies. The research is conducted on a case study manner, which is to concentrate more and consider a situation that is similar to the previous research done. The situation considered is among small non-manufacturing companies, which can provide useful tool to study the financial management and the usage of accounting information in the companies. In addition, the level of awareness on the importance of using information technology (IT) in managing companies financial also has been identified. Keywords: Financial management, information technology, accounting information Paper Type: Research Paper

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BACKGROUND OF THE STUDY Financial management is crucial for the continuity of small and medium enterprises (SMEs). The growing importance of this issue raises interesting questions whether companies are improving their abilities to have effective financial management and implementing changes that will enable them to analyze results, to interpret, to forecast future performance and improve their business decisions (Barker 2003). The competition in SMEs seems to call for an investigation towards the effectiveness of financial management. Furthermore, business planning and strategies are depending on effective financial management. Therefore, this study on financial management covers the issue of accounting information usage and the use of other information for business decision. Shahwan and Al-Ain (2008) argued that users of financial report should be able to make decision about resource allocation and are capable to manage the resources. Business decision is relying on relevant information produced. Information should be of high quality. Besides, the information can be viewed in different dimensions, which are to monitor performance, to investigate relationship and to take advantage of trends. According to Xu, Nord, Nord and Lin (2003), information quality is information that is fit to be used and has four attributes which are accuracy, timeliness, completeness and consistency. Shahwan and Al-Ain (2008) noted that relevancy and reliability have been the qualitative characteristics to make accounting information useful. Nonetheless, findings from these studies indicate that SMEs are not relying on accounting information for decision-making. Recently, with the companys development and growth, it is important for the managers of SMEs to understand and get involved in the accounting figures produced. Moreover, relevant accounting information could help users to make wise decisions (Shahwan and Al-Ain 2008). Accounting information is also viewed as relevant and very important to assist managers to reduce uncertainty in decision-making. This information can be obtained from proper financial statements which come from effective financial management. Damand (2003) argued that financial statements should be counted in, to enable managers to make decisions. From simple understanding on financial statements that show the value of the investments in balance sheets and the income received shown in the income statements will help the managers to make simple decision. Well managed resources will make the investors or bankers to consider committing some funds to the same management. Thus, it is very important for the management to keep the financial statement available. The must have qualities that should be given preferences by the managers are reliability and relevancy. Sometimes, the financial reports of the companies do not fulfilled this requirements thus making decision difficult. Again, Damand (2003) argued that if accounting information is more reflective on the economic reality and more transparent, the benefits are not only for the companies but for the society as a whole. However, most of the managers could not rely on financial statements because the aim of financial statements is not clearly stated. As a result, effective financial management is critically needed. Problem Statement and Motivation Nowadays, competition is everywhere in the business environment. Because of that, companies are trying hard to create better interaction with customers and suppliers. Therefore, wise decision making is very crucial to the success of the companies. Shahwan and Al-Ain (2008) and Sian and Roberts (2009) suggested that managers need to have effective financial management as well 18

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as information technology (IT) as a tool to help them make effective decisions. Moreover, during the economic downturn, small companies have to change their attitudes to be more competitive in the environment. Those companies have to meet the customers requirements and need to provide good products and services. As a result, the management has to make faster decision to improve the efficiency and effectiveness of the business activities. Mitchell et al. (2000) argued that accounting information is important because it can help companies solve short term problems and assist in decision making. Further, recent empirical evidence suggests that effective financial management may contribute to the success of companies in future (Barker 2003). Generally, the success of companies in managing its business financial should be evaluated by the owner of the companies in terms of their usefulness in decision making (Shahwan and Al-Ain 2008). This is agreed by Sian and Roberts (2009) that found the main users of the financial statements were the owners themselves. However, they indicate that the use of financial reporting and other information by owner-managers as not useful. Shahwan and AlAin (2008) also mentioned that most small companies have improper financial management. In addition, the researchers pointed out that only a very small percentage of the companies prepare accounting information internally using accounting software. Ismail (2005) also found that small companies have little management accounting information and poor control and decision making is mostly on informal basis. Findings from the study show that about 20 percent of the companies do not prepare income statement and cash flow statement, 40 percent of respondents do not prepare bank reconciliation and balance sheet and over 40 percent do not prepare aging schedule and financial ratios. Sian and Roberts (2009) argued that most of the managers of small companies understood that financial information does not play a major role in achieving the business decisions. Hence, the managers do not foresee and realize the importance of having systematic and complete financial management. Moreover, as discussed by Ismail (2005) one of the bases of having financial information is to have accounting information systems (AIS). Ismail (2005) noted that several issues that need to be addressed regarding the revolution of IT include the adoption and sophistication of IT by small firms. He also argued that while users can get and use the accounting information easily, there is still doubt whether the managers of the companies really have a good understanding on accounting information and how the information is utilized in decision making. El Luodi (1998) on the other hand, explained that the unstable market conditions require small companies to have readily available information to face the oncoming problems. Because of that, these companies have to plan carefully and find appropriate way to have good financial management hence to be able to use the information accurately. A research done by Beal and Abdullah (2002) revealed that out of 414 SMEs, only 7.2 percent have high level of IT usage, 34.8 percent used some of IT and another 58.0 percent have not used IT at all. This indicates that the level of IT adoption is still very low among SMEs. This is agreed by Smallbone, Supri and Baldock (2000) that found the adoption of IT in SMEs are slower than larger firms. However, SMEs are still trying hard to take the opportunities of having IT because communication becomes so important these days. The research done by Temtime, Chinyoka and Shunda (2003) also found that there is still very poor numbers of companies in SMEs that adopt IT. Therefore, a relatively poor understanding of financial management and IT usage require for a thorough study in small companies because most of the previous studies focus on manufacturing firms (Jayawarna, Macpherson & Wilson, 2006; Ahmed, Hassan & Taha, 2004; 19

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Roberts & Wood, 2002). In addition, it is hoped that the findings from this research will help the firms to plan, manage, improve and maintain an effective financial management and provide the firm with rich and appropriate accounting information to survive in the challenging environment. LITERATURE REVIEW Profile of Malaysias SMEs The following discussion will focus on overall SMEs. In 2006, the National SME Development Council has issued the standard definitions for SMEs in the manufacturing, agriculture and services sectors. However, the definition of small sized companies are still based on the same criteria in defining SMEs, that is the number of employees (see Table 1) and the annual sales of turnover (see Table 2). Businesses that meet one of these criteria are qualified as small companies. Table 1: SME Definition Based on Number of Full-time Employees Sector / Sizes Primary Agriculture Manufacturing (including Agro-based industries & Manufacturing-related Services) Less than 5 employees Services Sectors (including IT)

Micro Small

Less than 5 employees

Less than 5 employees Between 5 and 19 employees Between 20 and 50 employees Not exceeding 50 employees

Between 5 and 19 Between 5 and 50 employees employees Medium Between 20 and 50 Between 51 and 150 employees employees SME Not exceeding 50 Not exceeding 150 employees employees Sources: SMIDEC and SME Annual Report (2005) Small Companies

Small companies are often established from family business. Mostly, in family business, the management is among the family members. However, the workforce can be from non-family members. Therefore, the business environment is different according to the style of management as well as the culture that the family inherited from generations to generations (Peter and Buhalis 2004).

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Table 2: SME Definitions Based on Annual Sales Turnover Sector / Sizes Primary Agriculture Manufacturing (including Agro-based industries & Manufacturing-related Services) Less than RM 250,000 Services Sectors (including IT)

Micro

Less than RM 200,000 Small Between RM 200,000 and Between RM 250,000 and Between RM less than RM 1 million less than RM 10 million 200,000 and less than RM 1 million Medium Between RM 1 million Between RM 10 million Between RM1 and RM 5 million and RM 25 million million and RM 5 million SME Not exceeding RM 5 Not exceeding RM 25 Not exceeding RM million million 5 million Sources: SMIDEC and SME Annual Report (2005) Accounting Information The changes that occurred in business environment have led to an increasing number of information to be processed, generated and delivered. Thus, the critical part is the quality of information produced by the business itself which will be used in making business decisions (Mukherji 2002). The impact of having accurate and high quality information may enable the management to make right decision whether on investment, business strategies or others while inaccurate and non-reliable information produced by companies may jeopardize the business life in future. Moreover, firms that aimed to be successful in its business activities and expected to be in long term competitiveness are firms that are having the ability to produce relevant information of its internal and external sources (Ross, 2002; Temtime, Chinyoka & Shunda, 2003). Generally, the significant information needed for making business decision is the financial or accounting information. This information can help the management to manage problems in supervising and controlling the areas in costing, expenditure and cash flow (Ismail & Zin, 2008). Therefore, one of the most important tools to assist companies in processing and producing good financial information is by having suitable accounting system. Abdullah, Ismail and Tayib (2001) believe that accounting system itself must be good enough to ensure that the financial information is readily available, reliable and is in a timely manner. This is supported by Ismail and King (2004) whom found that accounting information system (AIS) has been one of the sources of information. According to a study done by Grant, Miller and Alali (2008), IT can give critical impact on financial reporting. Ross (2002) also found that IT has strong influence on coordination, control and business performance. In todays dynamic business environment, there is a need for organizations to become global by adopting IT (Beal and Abdullah 2002). Organizations have to know their strengths and weaknesses to be competitive and able to survive in the challenging environment with other strong competitors (Chan, Keung and Chung, 2000) Therefore, companies nowadays have to strengthen their strategies to equip themselves with IT that can assist them to be closer to the customer (Dembla, Palvia & Krishnan, 2007) and able to 21

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deliver value added products and services in the shortest possible time (Muscatello, Small and Chen 2003). Because of the pressures, there has been a demand for the business to adopt IT that enable companies to meet the needs of their customers (Pratali 2003) and to increase their performance of services given (Beheshti 2004). The usage of IT is not new in Malaysia. This country has moving forward and encouraged companies to adopt IT and expecting them to utilize it in every single business activities and information processing. This is supported by Abdullah, Ismail and Tayib (2001) when they mentioned about the strong commitment from Malaysian Government towards the information based technology especially with the existence of Multimedia Super Corridor (MSC). Moreover, the Ministry of International Trade and Industry (MITI) has issued the Malaysia Policies, Incentives and Facilities for SMEs that stated the government will assist in term of financial scheme which is Grant for IT Application for SMEs. It is believed that SMEs are not free from the demand of being competitive in the business environment (Humpreys, McCurry and McAleer 2001). Therefore, it is the advantages for SMEs that adopt IT because they able to give more valuable services to their customers and can stay competitive in the challenging business environment. Besides, it is also stated by Herbert and Bradley (Temtime, Chinyoka & Shunda, 2003, p. 230) that with the innovation of computer technology nowadays, the tasks that managers in SMEs deal with, will become easy and straightforward to be accomplished. Accordingly, IT may lead to effective financial management. Chan and Kevin (1990) reported that computers are used to improve efficiency and to produce quality products or services at the lowest costs. Williams (1991) noted that accounting reports can be prepared according to appropriate time with the transformation from manual to computerized accounting processes. However, Abdullah, Ismail and Tayib, (2001) found that companies are not maximizing the used of accounting system software thus most companies prefer to use accounting modules like general ledger, accounts payable and receivables and payroll just to support operational tasks rather than to be used for decision making purposes. Additionally, it is believe that accounting information is easily produced by the adoption of IT because nowadays, there are many types of accounting software provided in the markets to help management makes decisions faster. This is agreed by Cragg and Zinatelli (1995) and Thong (1999) that show IT adoption in small firms are growing. However, King et al. (1999) found that although IT is growing tremendously, the usage of IT in supporting decision making is still limited. As examined by Peter (1999) small companies are avoiding the technology, still in doubtful and unwilling to take the opportunity to have IT to assist their business operations. Soon (1990) mentioned that small companies are not interested in the issues regarding IT because they are not familiar and are not aware of the importance of adopting IT. This is agreed by Chan and Kelvin (1990) that small companies are reluctant to accept IT because they found that it is difficult to use the computers. Collins (1999) concluded that one of the factors that influence the companies not to implement IT in their business is the additional cost factor incurred for acquiring hardware and to set aside to pay for the consultant fees which are much higher than just to purchase the software.

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SMEs and IT The following discussion will focus on SMEs perspective as a whole. IT in Malaysia has been an important issue and it emerges to be as a key component in business practices. Therefore, the government of Malaysia is trying to enhance the countrys position as a destination for IT investment. The National IT Council (NITC) will prepare the National IT Strategic Roadmap, setting up a framework for new capabilities and technologies to improve access and promote IT investment and as knowledge based industries. Besides, Malaysia is looking forward to achieve its aspiration of becoming a fully developed nation by year 2020. For that reason, SMEs have made a significance contribution to the Malaysian economy which is shown by the existence of SMEs has making up to 99 percent of total business establishments in the country in the three main economic sectors of manufacturing, services and agriculture. SMEs have become the major source of employment which provides over 5.6 million workers that is 56 percent of total employment as stated in SME Annual Report 2005, Bank Negara Malaysia (Central Bank of Malaysia). SMEs in Malaysia and in many countries have faced great challenges especially in trying to survive in the competitive market. Therefore, SMEs have been the focus of the study and received greater attention especially from the government. This is proven by the financial assistance given with the increase in allocation of funds and resources in the 9th Malaysian Plan 2006-2010. In addition, there is an important issue raise here which is SMEs have greater opportunities as the Ninth Malaysian Plan will help the government boost the adoption of IT in the country. As presented in the Third Industrial Master Plan (IMP 3), SMEs generally used low level of technology and have limited use of IT to enhance productivity. The most widely used of IT application is computer aided design (24.7 percent), E-commerce (22.5 percent), and computer aided manufacturing (12.9 percent). Most of these IT applications are used in manufacturing firms. Therefore, the five strategic thrusts for SMEs in IMP 3 require the adoption and greater use of IT in the business. It is also stated in Unit Pemodenan Tadbiran dan Perancangan Pengurusan Malaysia that to install Microsoft Office Software alone throughout Malaysia would cost RM 4.4 billion in licensing fees. Based on the percentage presented in the IMP 3, it can be concluded that IT usage level in SMEs manufacturing company is low. However, there is no data presented for the level of IT adoption in small non-manufacturing companies. METHODOLOGY The research is conducted on a case study manner. As noted by Hair, Money, Samouel and Page (2003), case study is a form of collecting information for a specific event in a firm or industry to obtain an overall view of the situation. The study is on small non- manufacturing companies which provide a useful vehicle to the financial management and the usage of information of the companies. Sources of data are gathered from primary and also from secondary data. The primary data is collected and gathered through an interview technique. The findings from the primary data are then used with secondary data. Basic source of information is

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from individual because the research is conducted based on an interview technique. The individual is targeted among employees and employer of the chosen firms. It focuses on non-manufacturing because there are very few studies that have been done in this area (Ismail and Zin 2008). The non-manufacturing sectors are services, agriculture and IT. The information about the numbers of non-manufacturing sector can be searched in the SME Business Directory. For this research, four companies are chosen in the area of Kedah Darul Aman. The companies addresses and contact numbers are taken from SMIDEC website. The location is Kedah Darul Aman state because Kedah is supposed to achieve a developed state status by year 2010. This statement is included in The Kedah Maju 2010 Action Plan that involves strategies, programs and projects to overcome current and future challenges especially challenges in digital economic development, globalization and knowledge based economy. Besides, with the digital economic development, it may help to contribute to the economic growth of Kedah State which right now is still lower than the national average level. To achieve new economy, Kedah Darul Aman needs to have knowledge, information and new technology. Therefore, Kedah Maju 2010 Action Plan provides a base for the state government to face the challenges of new economy thus help Kedah to achieve higher economic growth. As a result, Kedah state is an appropriate location for this research to be conducted. This information is taken from the Kedah State Public Library Corporation website. Data Collection, Method and Procedures This research uses two main methods which are first; secondary data and documents and second; primary data. The first method is used in terms of writing the literature and to support the findings of the importance of financial management among small-non manufacturing companies. The second method is interview. Interviews were held with the owner-managers of small nonmanufacturing companies. Furthermore, this research expands from prior studies (Ismail, 2005; Ismail & Zin, 2008). The method used is the interview technique which helps to gather further and in-depth information to support the findings of the research and also to add new information to the study. The interview method acts as a new contribution to the previous research because more information and feedback that cannot be collected by the survey method can be gathered directly from the respondents by using this technique. Personal interview is conducted with the managers and owners of the companies. The interviews took place in the owner or managers companies. Information about the accounting records, its preparation and the management of the financial are gathered from the answers given from the managers and owners of the companies. The responses from the interview are collected in the form of notes. Hair, Money, Samouel and Page (2003) stated that interview is a two way conversation whereby the questions are directly asked to the respondent and the information can be gathered at that time. This is agreed by Zikmund (2003) that describes interview as a technique of a direct communication which is flexible to be conducted. It is also believed by Zikmund (2003) that interview can give precise and detail information. Besides, during the interview session, the interviewer is able to clarify any questions and the respondent can give answers and additional information directly regarding the topic discussed. Before the main interview, a pilot study by interviewing the selected companies is done. This is an initial process 24

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that is done for collecting useful data and feedback from the respondents. As defined by Zikmund (2003), a pilot study is a way to get primary data especially for qualitative analysis. It is gathered from the managers and workers of the companies. RESULTS AND DISCUSSION The study focuses on firms from non-manufacturing small enterprises located in Kedah Darul Aman. These firms include different nature of business and activities which are sundry shop, electrical shop, optometry and pharmacy (refer to Table 3). Table 3: Participating Organizations Case Case 1 Case 2 Company A: Sundry Shop Interviewees Employee Nature of business Selling daily necessary item, dealing with foodstuffs and household goods. Selling electronic appliances and repairing electrical goods such as air-conditioner, washing machines, stand fans and others. Providing services like computerized eye screening, optician and contact lens, selling sunglasses, ordinary spectacles for students, RX lenses and frames. Selling scheduled poisons, medicine contain drugs, vitamins, minerals, herbs products, and skincare products. Also provides health counseling and checking blood pressure.

B: Electrical Shop Owner

Case 3

C: Optometry

Manager

Case 4

D: Pharmacy

Owner

Analysis and Results from the Firms Analyzed Each case is explained further with the findings that had been gathered. The findings are divided based on different section focusing on important questions asked to the respondents. The findings then are followed by a discussion and are organized by subtopics. Basic Record Keeping Record keeping is important to every business whether it is prepared formally or informally. Most big companies have complete record keeping that helps them to keep track of their transactions. Small firms too have their own record keeping. This is proven from the existence of record keeping prepared by all the respondents firms. Table 4 shows the results for these companies.

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Table 4: Results on Quality, Frequency and Level of Awareness to the Accounting Records Preparation Level of awareness on importance of preparation Low High

Company

Quality of preparation

Frequency of preparation Once a year Monthly (End of each month)

Related documents None Properly kept

A (Sundry Shop) Not properly prepared B (Electrical Properly Shop) and D prepared (Pharmacy)

Person in Charge for Record Keeping Preparation When asked about the person in charge to prepare the record keeping, it is found that out of the four companies, three companies which are Company A (Sundry Shop), Company C (Optometry) and Company D (Pharmacy) prepared the record keeping themselves. However, Company B (Electrical Shop) outsources the task of preparing the accounting records to the third party. The company hires an accounting firm to prepare the accounting records. As said by the owner of this company: The records and accounts are prepared by the accounting firm. We prefer to have someone that can concentrate and know better about accounting, to prepare the accounts for us. We find that it is more systematic and we are satisfied. We have been in this business for a very long time. At first, we did our own records but we found that with outsourcing, the preparation is more complete, systematic and neat. It makes us easy to understand and therefore we should not be worried about it. We just concentrate in doing our business and let the accounting firm to settle the accounting matters. From the finding, it had shown that the owner prepares their accounting records themselves because of the cost incurred to outsource and the dependency on their limited knowledge. They do not realize that the inaccuracy information based on their limited knowledge will affect the decision making process and will jeopardize their companies performance. It is clear that, the reluctant to outsource has very much to do with the level of knowledge and the know how in accounting documentation which will be highlighted in next sub-topic. These are the reasons why they do not get the advice from the professionals (accounting firm) to improve their businesses performance and tend to prepare accounting records internally. More information on outsourcing is discussed further in later topic.

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The Accounting Knowledge and its Information Usage The next important issue is about the accounting knowledge and its information usage. The following discussions reveal the knowledge level and its information usage among Company A (Sundry Shop), Company B (Electrical Shop), C (Optometry Shop) and D (Pharmacy). The findings from this study reveal that most companies do not have adequate knowledge on how to prepare a complete or full set of accounts. Worse, they do not really understand how to interpret the information and are not willing to get advice from the experts. This shows that they are not aware on the importance of accounting information which needs to be used in their business decisions. The problems in accounting records preparation may reflect on the usage of the accounting information. This will result in incompleteness of the information for decisionmaking. Although decision can still be made, the solution may not be accurate. It is found that the quality of accounting information produced is quite low because owner-managers may have reasonable but maybe insufficient accounting knowledge. Thus, the managers are not able to depend solely on that information and use it for making decisions. This is supported by Xu, Nord, Nord and Lin (2003) when they found many small companies did not rely on accounting information that they produced. Moreover, insufficient accounting knowledge might cause managers unable to read the accounting information correctly. The feedbacks from the respondents are summarized in Table 5. Table 5: Results of the Accounting Knowledge and its Usage Company C Company Accounting knowledge Accounting information usage Expert advice (Accounting firm) Company A (Sundry Shop) Too Little Company B (Electrical Shop) Very little (Optometry Shop) Very little Company D (Pharmacy) Good

Irregularly used

Extensively used

Seldom used

Regularly used

Non

Getting expert advise

Non

Non

Based on Table 5, the manager of Company D (Pharmacy) has quite a good knowledge in preparing the accounting records and somehow he is able to rely on the accounting information produced for decision making. Next, Company Cs (Optometry Shop) supervisor is proven as having little knowledge on accounting records preparation and is unable to fully utilize the accounting information gathered. The manager of Company B (Electrical Shop) also has a very little knowledge in accounting but with the help of the experts, he could use the advice wisely for the benefits of his company. Further explanations on expert advices are discussed later. Lastly, the manager of Company A (Sundry Shop) is having too little knowledge in accounting records preparation and unable to use the information to make decision. 27

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Expert Advice Expert advices are needed to ensure that the business decisions made is reliable and can help the company to improve its performances (Ismail 2005). The advices are usually offered by the government agencies, accounting firms, vendors and consultants. The companies may seek advices in areas such as accounting, finance, information technology, training and etc. Hence, the finding reveals some key points that have been experienced by the companies on how they seek advices from the experts. Accounting Firm Expert advice from accounting firm is important for the companies to get professional views to manage their finance. They may explain and recommend important suggestions that can help to clarify any uncertain information. However, there are other factors that influence the company to seek the advice from the accounting firm. These factors will be discussed later. It is found that only Company B (Electrical Shop) has sought advice from the accounting firm while the other three companies; Company A (Sundry Shop), C (Optometry Shop) and D (Pharmacy) do not. It can be concluded here that the reason that influence the company to get expert advice from accounting firm is because the company has lack of accounting knowledge especially to interpret the accounting information for future planning and for the companys growth and strategy. Consequently, the factors that make the other companies such as A (Sundry Shop), C (Optometry) and D (Pharmacy) for not seeking advices from accounting firm are: they do not really alert on the importance of having them; they are not confident with previous experiences and finally the perception of the existing knowledge is enough. Other Agencies Besides getting advices from the accounting firm, there are other agencies such as government sectors, banks, vendors and consultants that offer help and services for the business. Company A (Sundry Shop) does not get any help from any agencies. Thus, there is very limited information gathered from the employee on this issue. Therefore there is no further discussion related to this company. Next, the findings reveal that Company B (Electrical Shop) only gets advices from accounting firm but not from other agencies because they prefer to settle their business matters with their own family members which is explained further in the discussion. Meanwhile, Company C (Optometry Shop) gets the advice from the Ministry of Health while Company D (Pharmacy) has heard about other agencies that offer help such as Majlis Amanah Rakyat (MARA) and SMIDEC. However, the owner rather likes to manage the business matters on his own. However, he has sought advices from systems vendor regarding IT matters. The findings from these companies are discussed as follows: Company B (Electrical Shop). This shop is established from family generation which is based on family owned business. If there is any problem, help will be sought from family members first. Therefore, this company does not seek help from other agencies.

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Moreover, family business employs employees among family members because they trust them more than non-family members. As added by the owner of Company B (Electrical Shop): I have worked with this company for many years as an assistant to my father. Ive struggled and learnt from scratch the way business is conducted mostly to obtain experiences and develop my skills. After that, my father believed that I can handle the company and he gave me the responsibility to look after the business. Now, I am in charge of the business here with the help from my brothers and my family. Thus, help from any family members are always welcomed for the business. It can be concluded here that the determination for Company B (Electrical Shop), C (Optometry Shop) and D (Pharmacy) to seek advice from accounting firm and other agencies has proved that they understand the importance of having them to improve their business. Besides, the findings had shown that the companies have experienced the sense of openness for co-operation with third party for the business future. This issue has been supported by Peter and Buhalis (2004) that found some businesses still do not understand the importance to cooperate with other firms or agencies. However, it is evident that the willingness to collaborate and to have support from other firms and agencies have helped the company to outsource their business function such as accounting, IT, training, marketing and shared knowledge and other sources. Moreover, the research conducted by Peters and Buhalis (2004) has proven that enterprises that cooperate with other enterprises and agencies have higher growth rates of profits compared to those who do not cooperate. Therefore, the willingness and determination of the companies to seek advice and help from accounting firm and other agencies are seen as a wise decision for the business growth. Use of Computerized System Nowadays, companies have greater access to computer technology. The finding below reveals some points on the companies financial management as a whole. Besides, in the interview session, the managers were also asked on questions regarding the use of the accounting system. The staff at Company A (Sundry Shop) was asked a question about the financial management prepared by her manager. Her answer was based on her observation. She said that the owner managed the accounts more on a manual system. She also knew that the owner had a computer but the computer is seldom used. I saw he managed the accounts more on a manually system. Sometimes, if he has enough time, then he will use the computer to prepare some accounts. However, I do not know anything about computer. When asked about the programs that the owner used for the financial management, the employee replies: I do not have any idea what he used to prepare the accounts. However, it looks like there are full of lines and boxes which is suitable for calculations. It can be assumed here that the manager might use Excel spreadsheets to manage the accounts.

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Company C (Optometry Shop) was also asked on how he manages the companys financial manually. As explained by the supervisor: The financial management is done manually. We have the book keeping and ensured that the accounts are prepared every 6 months. Nevertheless when asked whether he had used any simple program for preparing the financial records, he replies: Sometimes, we use Excel for accounts and on top of that, we are more familiar with Microsoft Word for preparing the business report. The accounts and reports are checked by the manager every six months. This shows that the supervisor is familiar with the computer usage and simple computer programs. On the other hand, Company D (Pharmacy) was also asked on his experience on the use of the computerized system. He gladly explains: I used the POS system to record the customers sales. I purchased it from a vendor and have used it for quite some times and I found it easy to use. The POS system includes computers and combined with the cash register which is easy to be used and accurately record the transaction occurred. As a conclusion, it is determined that Company A (Sundry Shop) and C (Optometry Shop) managed their financial more on a manually basis. Additionally, these two companies use simple spreadsheets and word processing. It is clear that Excel and Word programs are well-known to the managers. Besides, they managed to have the programs and basically able to use them in their companies. This has been supported by Temtime, Chinyoka and Shunda (2003) when they indicated that small companies are familiar with the used of basic transaction and word processing, which are inexpensive to automate and easy to maintain. While for Company B (Electrical Shop), although the everyday transactions are managed manually, the owner had outsourced its financial matters and the accounting firm is using the accounting system to produce the complete accounting reports. It is understand that the use of computer system and software packages depend on the understanding of company about the link between profitability and business planning and the role of IT in producing accurate and systematic information for decision making. Company D (Pharmacy) is recognized as having half computerized by using the POS system and still maintains a manual system for financial management. It can be summarized, although the owner of Company D (Pharmacy) uses the POS system, the system has not been fully utilized because the owner still manage its financial transaction manually and he is not able to understand the system very well. Moreover, the support and training from the vendors is really important.

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Decision for Computerized Accounting System When asked about their preferences to have computerized accounting system, the findings are as follows: Company A (Sundry Shop) Im not very sure whether the owner would like to have the accounting system. Company B (Electrical Shop) I hope to know better on how to use the accounting system. I believe that by having accounting system, it helps a lot in producing good information. However, I need to consider hiring a new staff that has some computer experience to manage the system because of my busy schedule. I am so busy giving services to customers. If there is nobody looking after the computer then there is no point of having it. It will be useless. To summarize, only three companies of B (Electrical Shop), C (Optometry Shop) and D (Pharmacy) decide to have computerized accounting system after considering several factors such as the need to have training and guidance, the ability to hire experienced workers, the ability to get suitable accounting package, the cost and the customers satisfaction factor. Company A (Sundry Shop) did not provide absolute answer regarding this matter. Therefore, it can be concluded, the main factors that influence the three companies the most are lack of resources and expertise. Based on the answers and comments given by the respondents, it proves that the level of information technology usage in decision making and financial planning is still very poor. It can be concluded that it is not easy to achieve a good financial management whether manually or using accounting system. Besides, it is believed that there is a need to make the companies aware and understand the main use of computers that help them to change from record keeping function to managerial decision making. However, the changes are related to the managers perception and thinking whether to improve their financial management or otherwise. This is related to the managers mentality. Therefore, the next topic discusses the future planning for effective financial management. Future Planning for Effective Financial Management Future planning is concerned with the objectives, vision and mission of companies to achieve for short or long term success. Financial management is one of the main criteria that determine the achievements of the companies. The findings below reveal the answers from the managers regarding the companies plan. The managers were asked about their plans for better financial management. Company B (Electrical Shop) and D (Pharmacy) have written their future business plans. It is agreed by both managers that written plan should include short and long term strategies. The plan written consist of strategies to increase profits, hiring new employees, to expand business, to implement new 31

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accounting system, to increase services given to customers and other plans related to the business. As explained by the owner of Company B (Electrical Shop): I plan everything for the business. I have to make sure my company needs to achieve the business target. From selling products to the delivery services need to be done effectively. If the product is good but the service given is poor then I will lose my customers. If I have good relationship with customers then it helps me to maintain my business. Therefore, I write the main things to do better for my business. I just knew that with a good plan, I am able to maintain my business for a long period of time. It is clear that the owner had organized his strategies to improve his profits, customer service and to maintain the business success. This shows that he has a good long-term period written plan. This is supported by Peter and Buhalis (2004) when they found that enterprises with written plans are more successful compared to those who do not have written any plan. As a conclusion, written plan helps the companies strategies to be clearly organized and thus always ensure the business performance is on track. Besides, the ability of the managers to expand his thinking broadly may bring positive impact to the business according to the business situations. CONCLUSION This study found that the level of awareness on the importance of financial management is still very low in small firms. Most of the managers do not aware the importance of keeping a good accounting records. This record must be in an orderly manner and complete with all the important data regarding their business transactions. Armed with complete data, the managers will produce a good quality and reliable financial records that will assist and equip them with accurate accounting information. Thus, this will guide them to make a quick and precise decision. However from this study, it is found that, most of the managers do not have these conditions or qualities, thus resulting in their companies to be slow in their growth. The companies were found to use the information for decision making but the usage is still very limited. Only few of the companies really concerned on the information usage as can be seen from their decisions made to increase their business performance, to plan for long term growth, to hire new staff and expand business and to improve customer satisfaction. Companies are also found not to have adequate accounting knowledge but do not have the effort to find alternatives to increase the level of their knowledge. For example, only one company was found to have outsourced their financial matters and get expert advices from the accounting firm while the others are comfortable with their existing knowledge and previous experiences. Besides, this study have also identified several factors why companies still internally manage their financial such as cost incurred which is expensive to outsource, the perception that the financial management is complicated and they tend to depend on their limited knowledge to prepare their accounting records. This however will give great impact towards the decision that the manager is going to undertake. This study also found that some companies had sought advices from external experts. It proof that the managers of these companies have different understanding from other managers to co-operate with the third party for their business success. 32

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For example, Company D (Pharmacy) required the help from systems vendor regarding the accounting system that is POS system. Further, other companies have the experienced of using computers and basic programs. In addition, they all agreed that the company should have a complete computerized accounting system in the future for financial management. These show that the companies understand the benefits and impact that they can gather from the use of IT. However, three companies (B, C and D) will only used the computerized accounting system after considering factors such as the need to have training and guidance, the ability to hire experienced workers, the ability to get suitable accounting package, the cost and the customers satisfaction factor. In conclusion, effective financial management may hopefully contribute to the success of the companies in the future. Therefore, this study suggests that to have effective financial management, companies should evaluate it in terms of their usefulness in decision making. Business decision is rely on the relevant information generated whether manually or computerized. Hence, it is important for the managers to understand the importance of accounting information and accounting information system. In addition, they need to have positive perception to improve their knowledge and seek advices from the third party with the aim of achieving long term business success. Finally, it is also found that written strategic planning and managers mentality have also contribute to the effectiveness of financial management and long term business performances. Limitations and Future Research Opportunities There are several limitations which should be taken into consideration. First, this study only focuses on a very small (only four small non-manufacturing companies). The findings therefore may not represent the overall financial management practices for the sector. Besides, the companies are located in Kedah Darul Aman and therefore, it may represent different findings for other states. It is suggested that future research should incorporate more companies and from other states to make conclusive comparison with regard to the issue. Second limitation is on the definition of small non-manufacturing companies. The definition for small companies used in this study relates to the number of employees because there is no information given regarding the annual sales turnover by the respondents. There may be different finding if the criteria of annual sales turnover are considered in defining the companies. Third, this study focuses on ownermanagers in financial management practices. The study has analyzed the managers perception and attitude towards the understanding of accounting knowledge. Therefore, it is recommended that future research should be extended to all members of the companies including the employees because they are all the users of the accounting knowledge. The final limitation relates to the lack of documented reports to support the information given by the respondents. It is very difficult to get the permissions from the owner-managers to provide some secondary data because most of the financial data are confidential. Therefore, with little co-operation and limited information gathered, this may affect the findings of the study in terms of its validity. It is suggested that future research should be conducted in timelier manner so that more information especially the financial data can be gathered.

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