1 business & economics

International Journal of Information Technology and Business Management
29th
September 2013. Vol.17 No.1
© 2012-2013 JITBM & ARF. All rights reserved
ISSN 2304-0777 www.jitbm.com
1
ASSESSING BUDGETING PROCESS IN SMALL AND MEDIUM
ENTERPRISES IN NAIROBI’S CENTRAL BUSINESS DISTRICT:
A CASE OF HOSPITALITY INDUSTRY
1
Beatrice Njeru Warue , 2
Thuo Vivian Wanjira
1,2
School of Business & Economics, Kenya Methodist University
E-mail:
1
njerubeatrice1@gmail.com ;
2
vivthuo@gmail.com
ABSTRACT
Budgets are the foundation and the manifestations of a business plan and action. If the management of an SME has
to maintain proper, updated and reviewed budgets then SMEs are bound to remain small, stagnant and possibly
close down. There is a high risk of SMEs in the hospitality industry collapsing soon after they are established and
one of the causes of this phenomenon is poor budgeting processes among the SMEs. To solve the problem of lack of
proper budgeting processes among SMEs in the hospitality industry, there was need to first establish factors behind
the poor budgeting process. This study assesses factors affecting the budgeting processes among Small and Medium
Enterprises (SMEs) in the hospitality industry in Nairobi’s Central Business district (CBD). Descriptive research
design was used. Target population comprised 98,608 of all the registered small enterprises located within the CBD
of Nairobi city. Stratified random sampling was employed in selecting the sample. The population strata were based
on the nature of the business conducted by the SME in the Hospitality industry. The sample of 104 was shared
proportionately among the 526 SMEs in Hospitality industry in the CBD. A self structured questionnaire of the
Likert scale of 1 (for strong disagreement) to 5 (for strong agreement) and administered to SMEs managers, was
used to measure the study variables. The data was analyzed using panel data analysis. The study finds evidence that
computerized accounting system (β =-0.444) contributes to budgeting process at a higher magnitude than Firm Size
(β =-0.2937), Participation of workers (β =-0.2674), Skills and Powers of Managers (β =0.2268) and ownership
structure (β =0.1908). These results concur with Poon (2001), Joshi et al., (2003) and Krasauskaite (2011) findings.
Overall, the factors under study contribute significantly to the budgeting process and in general performance of
SMEs. Based on the findings the study recommends involvement of workers at all levels of budgeting, separation of
ownership from management issues and continuous improvement of managers’ skills. In addition information
technology should be given priority as its functionality in SMEs contribute more significantly to budget process
compared with other factors under study.
Keywords: Budget, Small and Medium Enterprises (SMEs), workers participation, firm size, ownership, skills
and power, computerized accounting system
INTRODUCTION
Horngren (2002)[1] defines a budget as a set of
interlinked plans that quantitatively describe an
entity's projected future operations. An earlier
definition by Qi (2010) [2] views a budget as a
management tool concerned with the planning and
management of the firm’s financial needs, concerning
the alternative sources of and costs of finance. Both
writers agree that budgets provide the foundation and
the solid manifestations of a business plan and action.
Budgets formulate the expected performance
standards and reflect managerial objectives. An
effective budgetary system should emphasize and
enlarge the planning role at all levels of management.
Budgeting underlines predicting and quantifying the
future in financial terms and predicting the future
needs for finance. Relying on certain standards and

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General Accepted Accounting Principles ( GAAP),
the accountant of an organization develops and
reports data that measures performance of a firm and
that assess its financial position in compliance with
and filed reports needed by interested parties (Qi,
1980) [3].
According to Horngren (2002) budgeting is
traditionally classified in the management accounting
domain by the existing accounting literature. In this
sense, budgeting is a narrower concept with more
specific focus. Financial Budget of a firm reflects the
management’s expectations regarding income, cash
flow, and financial position in monetary terms.
Budget focuses more on a forecast purpose to
estimate what is likely to occur in the future and how
organizational resources are allocated to realize the
future operations. Further budgeting gives feedback,
in which both plans and actions are compared,
providing the opportunity to revise future budgets in
line with experience. By specifying day-to-day
financial actions, the operating budget provides profit
and cost information for the internal administration.
Nieuwenhuizen et al, (2003) [4] agreed that
planning, knowledge of competitors, quality of work,
financial insight; complete budgetary system and
general management are key success factors in many
SMEs. In addition Macleod & Terblanche (2004) [5]
stated that budgets are essential to the success of
every business entity though only a few of small
businesses make use of them.
From the foregoing failure of SME management to
maintain proper, updated and reviewed budgets imply
SMEs are bound to remain small, stagnant and
possibly close down. There is a high risk of SMEs in
the hospitality industry collapsing soon after they are
established and one of the causes of this phenomenon
is poor budgeting processes among the SMEs. A
definition of SMEs cannot be easily settled because
SMEs can range from fast growing firms to private
family firms that have not changed much for decades.
SMEs can also range from a part-time business with
no staff to a manufacturer employing hundreds of
people or from stand-alone businesses to those that
are part of technology and that have investment
partners based abroad. Many researchers define
SMEs in terms of the numbers of people employed.
Storey (1994) [6], for example, defines micro-
enterprises as those with 0 to 9 employees, those with
10 to 99 workforces as small business, and medium-
sized enterprises as having 100 to 499 employees.
Gunasekaran & Kobu (2000) [7], however, state that
SMEs have to be defined within the context of the
economies in which they operate. In Kenya a
microenterprise is defined as a business organization
having a maximum of 10 employees; a small
enterprise has a minimum of 11 employees and a
maximum of 50; while a medium enterprise has
between 50 and 150 employees (Stevenson & St-
Onge, 2005) [8].
In Kenya SMEs operate in all sectors of the
economy, that is, manufacturing, trade and service
subsectors. The SMEs range from those unregistered,
known as Jua Kali enterprises, to those formally
registered small-scale businesses, such as
supermarkets, wholesale shops and transport
companies. Almost two-thirds of all SMEs in Kenya
are located in the rural areas with only one-third
found in the urban areas. About 17 per cent are
located in Nairobi and Mombasa (Central Bureau of
Statistics, 1999) [9]. According to the City Council of
Nairobi the registered SMEs in the hospitality
industry make up 3.67 percent of the total number of
registered SMEs in Nairobi County. Despite tourism
being a major contributor to Kenya’s GDP, Hotels
and restaurants contributed no more than 1.7 % of
GDP in 2011 up from 1.1 % in 2008 (KNBS, 2012)
[10]. According to the Ministry of Tourism Report
(2012) [11] there has been high failure rates of
SMEs related to the ministry. For instance, of the
921 SMEs established in 2007/2008 and financially
supported, only 445 were still active by the end of
2009, after withdrawal of the financial support,
indicating a failure rate of about 52 %.
Despite the context in which budgeting is done, it has
been identified as one of the factors that contribute to
small business failure. However, according to Kenya
National Bureau of Statistics (2012), the hospitality
industry is contributing less to the economy (average
of 1.7%). Failure is evident as compared to the other
categories (2009, 1.7%; 2010, 1.7% and 2011, 1.7%)
and a trend can be seen for the past 3 years. While the
rest are more than that (for example transport &
communication, average 9.9%, retail & trade average
10.2%). Lack of budgeting and financial discipline
led to failure or poor performance of SME’s (
Waweru, 2007) [12]. Therefore the puporse of this

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paper is to establishment factors affecting budgeting
among SMEs in Nairobi’s CBD Hospitality industry.
This paper aim at assessing whether participation of
workers; firm size; ownership of SMEs; skills and
powers of the managers and computerized accounting
system affects the budgeting process among SMEs in
Nairobi’s CBD Hospitality industry
Theories Underpinning Budgeting
Six theories underpinnings provided insight into how
a number of factors influence budgeting. The first
theory is permanent income theory (Friedman, 1957)
[13]. The permanent income hypothesis is a theory of
consumption that was formulated by the Milton
Friedman in the USA in 1957. This hypothesis asserts
that the choices made by consumers regarding their
consumption patterns are largely determined by a
change in permanent income. As a consequence,
temporary changes in income have little effect on
consumer spending behavior. However, permanent
changes in income can have large effects on the
spending behavior of a consumer (Friedman, 1957)
[14]. Theory asserts that firms also spend their
revenues depending on the level of permanency of
the streams of income. The perceived permanent
level of revenue is what businesses will use in their
budgetary purposes with the objective of reducing
risk. The sharply fluctuating portions of the streams
of income do not count much in budgeting. This
theory is related to this study in that, just like
individual persons, organizations also spend their
income according to the level of expected
permanency in incomes. It was therefore expected
that the budget practices among SMEs depend on the
permanent income. If this is not taken into
consideration it may lead to failure or poor
performance of SMEs.
The second theory, Cash flow theory by Meyer
&Kuh (1957) [15] and Duesenberry (1958)
[16].This theory is also known as the liquidity theory
.There were also contribution by Kuh (1963) [17],
Koch (1943) [18] and Donaldson (1961) [19] on the
same theory. The theory focused residual funds or
cash flows and future profitability to determine
investment decisions. According to the theory a Cash
Flow Budget is a budget that provides an overview of
cash inflows and outflows during a specified period.
It is commonly accepted that firms prefer internal
sources to external sources of financing.
Consequently the bulk of business enterprises finance
their investment needs insofar as possible out of
retained earnings and use external financing (e.g.
credit) when it becomes impossible to raise enough
money from internal resources (Harbula, 2001) [20].
This theory is related to this study as it suggests that
the practices and amounts of budgets depend on the
cash flows of the SMEs.
The third theory, zero based budgeting theory was
pioneered by Pyrrh (1970) [21]. The theory presumes
that budgets can be recompiled from first principles,
that is, from a zero base. The approach also focuses
on programs and activities rather than departments or
units. The theory of Zero Based Budgeting related to
this study because the budgeting activity among
SMEs was controlled by the need to justify the use of
every coin right from the basic responsibility centre.
This theory is connected to this study because it
provides a possible explanation to the forces driving
the budgeting behaviour among organizations. The
explanation of the forces driving the budgeting
behavior was the focus of this study. This aspect may
affect performance of SMEs.
The fourth theory is Priority-based budgeting theory
by Kavanagh, Johnson & Fabian ( 2011) [22]. The
theory focuses on corporate priorities and allocates
growth and savings in budgets accordingly but does
not require zero-sum. The underlying philosophy of
priority-driven budgeting is about how an entity
should invest resources to meet its stated objectives.
Kavanagh et al. (2011) argues that SMEs, like all
other business have their budgeting process governed
by the need to have proper funding, transparency and
accountability at all levels. Priority based budgeting
model was linked to this study for it provided a
possible explanation as to how budgeting was
affected by prioritization.
The fifth theory is Target Based Budgeting Theory
by Wdarvsky (19750) [23]. Target Based Budgeting
is a derivative of Zero Based Budgeting. The theory
does not comprehensively re-examine base spending
but requires that each decision unit (program,
department, division, etc) is given a target spending
amount and is asked to submit a budget for that
amount. Besides, the unit may submit requests above
the target amount. Within this perspective SMEs in
Nairobi’s CBD needed to have their budgetary

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practices based upon the target set by the
stakeholders.
The sixth theory is Risk Based Budgeting approach
by Maillard, Roncalli & Teiletche (2010) [24]. The
theory focuses on the inclusion of risk in the
budgeting process. Risk Budgeting (or Risk
Allocation) is the process of decomposing the
combined risk of a portfolio (or even of the entire
investment process) into its constituents on a
quantitative basis. This new risk-based investment
style puts diversification at the heart of the
investment process. The risk based budgeting theory
was related to this study for it seemed to suggest that
all businesses should incorporate the element of risk
in their budgeting in order to reduce variation in
various aspects of their budgets. Accommodation of
risk factors would also reduce variation in return
since the sources and effects of risk are carefully
addressed by the budgeting process.
EMPIRICAL LITERATURE REVIEW
Participation of Workers in Budgeting
Process
SMEs usually provide less formal training than larger
firms to their workers, therefore, limiting
participation in budgeting. McLaney & Atrill (1999)
[25] argued that the value of the budget as a plan of
what is to happen and as a standard against which
actual performance will be measured, depended
largely on how skillfully budget negotiation is
conducted. When setting a budget, members of the
organization should participate in explicitly defining
budgetary goals. The members also have to be
involved in subsequent revisions to these goals with
the management (Chalos & Poon, 2000) [26]. When
budget variance occurs, participation and discussion
among different levels of management facilitate and
enable accurate location of the possible source of the
variance for corresponding corrective action.
Poon (2001) found that budgetary participation
provided a setting in which managers can exchange
information and ideas to make budgetary planning
and control more effective. Nouri & Parker (1998)
[27] found that budget participation could facilitate
information sharing between subordinates and
superiors. It was also found that the information
communication between superiors and subordinates
in budgetary participation was both the upward the
downward.
The upward communication is a principal agency
framework with two primary actors, the principal and
the agent; is always used in the accounting literature
to explain the rationale of upward communication.
The principal hires the agent to perform a task on
behalf of the principal. The principal is often the
executive who delegates responsibility over certain
tasks to a subordinate who functions as an agent.
Agency studies assume that the agent has “private”
information about the agent’s area of responsibility
which the principal (or superiors) cannot acquire and
they often know more about their operational areas
than do their superiors (Cooper & Waller, 1988) [28].
Therefore, the agency perspective finds that a
significant reason for the existence of participation is
the difference between agent and principal in
information level. Concerning downward
communication Magner et al (1996) [29] suggested
that, through budgeting process, subordinates gain
additional information from superiors and others
including their duties, responsibilities, and expected
performance, which increases a subordinate’s
effectiveness. As Chell & Brownell (1988) [30]
argue, discussions with superiors during budgeting
process help clarify the goals and methods of the
subordinate.
The findings of these researchers show that
participation of workers in the budgeting process
enhances accuracy in budgeting. This study sought to
find out whether this concept affects SMEs in
Nairobi CBD Hospitality industry.
Firm Size
With respect to firm size, budgeting literature always
compares the use of budgeting process in larger firms
with that in small firms. Merchant (1981) [31]
studied differences in corporate-level budgeting
systems and relations to corporate size, diversity and
degree of decentralization. The results showed that,
larger, more diverse firms tended to use more formal
sophisticated budgeting. Smaller firms, however,
tended to rely less on formal budgeting. Further he

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pointed out that budgeting, including the more formal
and the greater sophistication of the budgeting
process appeared to have a stronger relationship to
good performance in the larger firms, than in the
smaller firms.
Joshi et al (2003) [32] examined budgeting practices
by a survey of 54 medium and large sized companies
in Bahrain focusing on budgeting planning and
control, budget participation and rewards, and
performance evaluation. These researchers found that
an increase in firm size lead firm to implementing a
more comprehensive budgeting process to achieve a
better performance. Further the firm size and its
complexity of operations generally influenced the
nature of the budgeting adopted.
From the researchers’ findings, larger firms tend to
use more sophisticated and formalized budgeting
processes making them more successful. In this
connection this current study aim to find out whether
firm size affects budgeting, among SMEs in Nairobi
CBD Hospitality industry
Skills and Powers of Managers
Many managers of SMEs, due to the fear of job take-
over by subordinates, shy from recommending their
subordinates for training programs whenever an
opportunity arises. This is worsened if the manager
lacks requisite qualifications for the given function in
management. Many SMEs, therefore, do not have a
budget for training and development. SMEs have the
inability to employ a skilled labor force due to the
small budgets to manage specialized areas of their
business. Incessant environmental changes in
economic vagaries and technological shifts make
things gloomier. For instance, during favorable
economic conditions, many organizations embrace
training and development than during unfavorable
economic conditions (Obokoh, 2008) [33].
A study conducted by Chidi & Shadare (2011) [34]
in Nigeria focusing on challenges confronting human
capital development in SMEs in Nigeria found that
budgeting among SMEs faced challenges by the
businesses not taking ownership or not being
accountable, there being a lack of cooperation and/or
participation and a lack of understanding of the
budgeting process or what’s required. This was
compounded by the inability to meet, deadlines,
padding their budgets/providing unrealistic numbers
and sheer ignorance of the importance of budgeting
by the business owners. These researchers confirm
that the skill that managers have concerning
budgeting affect the budgeting process. The
influences of the managers inform whether the
budget would be implemented as prepared or not.
This current study sought to establish whether
managerial skill practiced in SMEs in Nairobi’s CBD
Hospitality industry had effects on the budgeting
process.
The Ownership of SMEs
Mahmood (2008) [35] argued that the most
important feature of family-owned SMEs is the lack
of separation of ownership from control implying that
directors and managers cannot be distinguished. This
leads to credibility problems as there is no system of
checks and balances between shareholders, directors
and managers. Mahmood (2008) studied SMEs in
Islamabad, Pakista. He found that, found duties and
responsibilities, and privileges of family members are
not clearly defined. In family-owned SMEs, the
family had the power to unilaterally dismiss boards
or management or to over-rule their decisions. Thus
the concept of independent directors did not prevail
in the SMEs. The study found other issues for family-
owned SMEs to include: absence of clear policies
and long term planning as demonstrated in budgets;
lack of outside opinions on strategic direction of the
businesses; benefits and compensation for family
members are not clearly defined; and hiring family
members who are not qualified or lack the skills and
abilities for the organization. In fact the study
recommended that incentives be put in place to
encourage good corporate governance.
Based on Mahmood (2008), study, if the owners of
SMEs have clearly defined relationship with the
business, the budgeting process becomes more
formal, sophisticated and accurate due to the limited
influence of the owners. This study aim at finding out
whether ownership of SMEs in Nairobi’s CBD
Hospitality industry affects the budgeting process

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Computerized Accounting System
Diamond & Khemani (2006) [36] studied accounting
systems among businesses in the developing
countries, focusing on Africa deduced that budget
execution and accounting processes were either
manual or supported by very old and inadequately
maintained software applications and hardware. He
found that this had damaging effects on their
functioning due to the consequent lack of reliable and
timely revenue and expenditure data for budget
planning, monitoring, expenditure control, and
reporting negatively impacting budget management.
Further, the study found that there was poorly
controlled commitment of resources. This meant that
the nature of the computerization of accounting
affected the budgeting process. In this study, it will
be established whether computerization of accounting
affected the budgeting procedure and how this
happened.
METHODOLOGY
Descriptive research design was used. Target
population comprised 98,608 of all the registered
small enterprises located within the Central Business
District (CBD) of Nairobi city. Stratified random
sampling was employed in selecting the sample. The
population strata were based on the nature of the
business conducted by the SME in the Hospitality
industry. The sample of 104 was shared
proportionately among the 526 SMEs in Hospitality
industry in the CBD. A self structured questionnaire
comprising matrix questions { Likert scale of 1 to 5
(1= strongly disagree, 2= disagree, 3=neutral,
4=agree, 5=strongly agree)} was used to measure the
respondents’ opinion on study variables. The
questionnaires were administered to SMEs Managers
for responses. The questionnaire reliability test
measured Cronbach’s alpha 78.4. The summary of
the study variable measurements is shown in Table
3.1
Table 3. 1: Summary of the variable Measurements
Variable Description Measurement Research support
Budgeting The process of preparing a
financial document that is
used to project future
income and expenses
Number of years
Category of business
Annual turnover
Average percentage profit
Type of business
Budget levels
Abu-Ghazaleh (1986)
Qi, Y. (2010)
Participation of
Workers
Employees who are
involved in the budgeting
process
Firm planning
Qualification of operation
Budget influence
Budget opinion
Budget setting
Participation level
Poon (2001)
Firm Size Size of the SME Size of firm
Nature of business
Cost of budgeting
Simplicity of business
Merchant (1981)
Ownership Structure Family structure in the
SME
Separation of ownership
Owner’s responsibility
Powers of the owner
Participation in strategic
direction
Benefits and compensation
Qualification of owners
Mahmood (2008)

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Variable Description Measurement Research support
Skills and Power of
Managers
Responsibilities of the
managers
Participation of manager
Budget influence
Strict budget process
Managers qualification
Budget setting
Subordinates
recommendation
Chidi &Shadare (2011)
Computerized
Accounting
Accounting systems Budget software
Performance measurement
Operational variances
Departmental targets
Quality consideration
Diamond & Khemani
(2006)
Source : Literature Review
Model Specification
The study employed panel data analysis method
using cross-section data for the six study variables.
E-views 6.0 software data analysis tool was used. To
determine the factors affecting budgeting in SME’s in
the hospitality industry, the following model was
formulated
Where;
Budgeting
Constant of regression
Participation of Workers
Firm Size
Ownership Structure
Skills and Powers of Managers
= Computerized Accounting system
Sensitivity of Budgeting to the independent variable i (i =1,2,3,4,5)
Error term
MAIN RESULTS
To establish factors affecting budgeting processes in
SME’s in Nairobi’s CBD a full regression model was
run and results shown in Table 4.1. The full model
results confirm that all the study variables including
Participation of Workers X1, Firm Size X2, and
Ownership structure X3, Skills and Powers of
Managers X4 and Computerized Accounting System
X5 are significantly and strongly related to SMEs
budgeting process in the hospitality industry in
Nairobi CBD.
From Table 4.1 results reveal that participation of
workers was negative and significantly (t-values -
2.584) related to budgeting process among other
factors under study. These results imply that any
negative development in participation of workers
negatively affects budgeting process in SME’S in the
hospitality industry in Nairobi CBD. Workers

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participation in budgeting processes should be
encouraged to improve on effective budgets process
Further Table4.1 results depicts that firm size was
negative and significantly (t-values -4.783) related to
budgeting process. The results suggest that a negative
development in firm size negatively affects budgeting
in SME’S in the hospitality industry in Nairobi CBD.
This suggests that managers of large SMEs possibly
face more challenges in effective management and
governance compared with smaller size firms
From Table4.1 ownership structure was found
positive and significantly (t-values 2.324) related to
budgeting process. The results suggest that a positive
development in ownership structure improves
budgeting process in SME’S in the hospitality
industry in Nairobi CBD. These points towards the
importance of good governance and separation of
ownership from management issues of SMEs.
Further, skills and power of managers was found
positive and significantly (t-values 2.882) related to
budgeting. The results suggest that a positive
development on skills and power of managers
improves budgeting process in SME’S in the
hospitality industry in Nairobi CBD. This signifies
the vital role the managerial skills plays in the
budgeting process.
Finally, Table4.1 shows computerized accounting
system was found negative and significantly (t-values
-5.618) related to budgeting process. The results
suggest that a negative development in computerized
accounting negatively affects budgeting process in
SME’S in the hospitality industry in Nairobi CBD.
This calls for effective computerised accounting
system operations in SMEs to improve on budgeting
procedures as tracking of information required
becomes faster and records accuracy is attained
Table 4.1: Final model variable results
Dependent Variable: Budgeting
Method: Pooled Least Squares
Sample: 1 52
Included observations: 52
Total panel (balanced) observations 312
Variable Coefficient Std. Error t-Statistic Prob.
C 5.761244 0.481854 11.95640 0.0000
X1_ -0.267429 0.103495 -2.583988 0.0102
X2_ -0.293736 0.061407 -4.783402 0.0000
X3_ 0.190885 0.082136 2.324011 0.0208
X4_ 0.226825 0.078697 2.882271 0.0042
X5_ -0.444278 0.079075 -5.618468 0.0000
R-squared 0.123632 Mean dependent var 3.557692
Adjusted R-squared 0.109312 S.D. dependent var 0.633881
S.E. of regression 0.598233 Sum squared resid 109.5123
F-statistic 8.633683 Durbin-Watson stat 2.106333
Prob(F-statistic) 0.000000
From Table4.1 the study final model was interpreted as under;
Budgeting = 5.7612 – 0.2674X1 – 0.2937X2 + 0.190885X3+ 0.2268X4 – 0.44X5 + 
According to the regression equation established;
taking all factors (Participation of Workers X1, Firm
Size X2, Ownership Structure X3, Skills and Powers
of Managers X4 and Computerized Accounting
system X5) constant at zero, the budget process of the
organization will be 5.76. The estimated regression

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coefficient (-0.267) for participation of workers
implies that a unit decrease in Participation of
Workers will lead to a -0.267 decrease in effective
budgeting process while a unit increase in Firm Size
(estimated coefficient, -0.2937) will lead to a -0.2937
decrease in budgeting process effectiveness.
Conversely a unit increase in Ownership Structure
(estimated coefficient, 0.1908) will lead to a 0.1908
increase in budgeting process progress while a unit
increase in Skills and Powers of Managers (estimated
coefficient, 0.2268) will lead to a 0.2268 increase in
budgeting process improvement. Finally, a unit
decrease in computerized accounting system
operations (estimated coefficient, -0.444) will lead to
a -0.444 decrease in budgeting process efficiency.
This strongly calls for embracing computer
information technology to enhance efficiency in
budgeting procedures. Overall the study found
evidence that computerized accounting system
operations contributes to budgeting process at a
higher magnitude (β =-0.444) followed by Firm Size
(β= -0.293736); Participation of Workers (β= -
0.267429); Powers of Managers (β= 0.226825) and
Ownership Structure (β =0.190885)
RESULTS DISCUSSION
The results indicate that participation of workers was
negative and significantly related to budgeting. This
is in agreement with the study done by Poon (2001)
[37], McLaney & Atrill (1999) [38] and Chalos &
Poon (2000) [39] who found that workers affected
the budgeting process. This implies that if workers
are involved in the budgeting process then the
performance is enhanced in the SME’s
The study found evidence that firm size was negative
and significantly related to budgeting. This concurs
with the findings of Merchant (1981), Joshi et al.,
(2003) and Krasauskaite (2011) who asserted that
firm size affected budgeting process. It suggests that
a positive development of the firm size leads to better
budgeting process and performance of the firm.
Further, positive and significant correlation between
ownership structure and budgeting was confirmed.
This agreed with the findings of Paola D et al.,
(1999) and Mahmood (2008) who also found out that
ownership of firms affect how budgeting procedure.
This suggests the need to have clear definition of the
role of owners in budgeting process.
The study found evidence that skills and power of
managers positive and significantly related to
budgeting.This concurs with the findings of Obokoh
(2008), [40] Bowen et al., (2009) [41] and Chidi &
Shadare (2011) [42] who found that the skill that
managers have concerning budgeting have an effect
on the budgeting process. The influence of the
managers tells whether the budget would be
implemented as prepared or not.
Finally, the computerized accounting system
operations variable was found negative and
significantly related to budgeting process. A
significant relationship between computerization of
the accounting systems operations and budgeting
indicates that effective budgeting process can be
attained by implementing effective information
technology in SMEs. This study agrees with the
findings of Paola D et al., (1999) [43], Diamond &
Khemani (2006) [44] and Breen et al., (2009) [45]
to the extent that computerization affects budgeting
but seems to disagree on whether this lead to a
positive change.
CONCLUSIONAND
RECOMMENDATIONS
The study finds evidence that Computerized
Accounting system (β =-0.444) contributes to
budgeting process at a higher magnitude than Skills
and Powers of Managers (β =0.2268) Ownership
Structure (β =0.1908), Participation of workers (β =-
0.2674) and Firm Size (β =-0.2937). Overall, the
factors under study contribute significantly to the
budgeting process and in general performance of
SMEs. Based on the findings the study recommends
involvement of workers at all levels of budgeting,
separation of ownership from management issues and
continuous improvement of managers’ skills. In
addition information technology should be given
priority as its functionality in SMEs contribute more
significantly to budget process compared with other
factors under study.

29th
10
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