The Use of Budgeting as An Effective Management Tool by South African SMMEs In the Formal Sector During Covid-19

• Pages: 71-87
• Date: 01 December 2021
• Published date: 01 December 2021
• Author: Lusanda Juta,Abongile Zweni,Edward A. N. ,Dakora, Grate Moyo, & Ricardo Peters
• Subject Matter: Derecho Público y Administrativo

Special Issue

December, 2021

European Journal of Economics, Law and Social Sciences

IIPCCL Publishing, Graz-Austria

ISSN 2519-1284

Acces online at www.iipccl.org

86

The Use of Budgeting as An Eective Management Tool by South African

SMMEs In the Formal Sector During Covid-19

Lusanda Juta

North West University

Abongile Zweni,

Edward A. N.

Dakora, Grate Moyo, & Ricardo Peters,

Sol Plaatjie University

Abstract

Budgets are a great management tool for both small and large organisations. Every organisation,

particularly SMMEs operating in the formal sector, must ensure that budgets are used as

a major tool to avoid failure at the beginning stage. Budgets are used by small business to

eectively manage limited f‌inancial resources. The Covid-19 aected most economies around

the world, making it dicult for small businesses to survive. This called for stricter use of

management tools such as budgeting. It was, therefore, important to assess whether SMMES in

South Africa used budgets as their eective management tool during the covid-19 pandemic. In

South Africa, SMMEs received a government bailout from the Presidential stimulus package,

and as such, the researchers found it crucial to investigate the use of these resources during

the pandemic. A quantitative research approach was adopted, using a survey (questionnaire).

Descriptive statistics were used to analyse the research question. It was found in this study that

most SMMES did not use budgets during the covid-19 pandemic. The study further revealed

that many SMMES had to close down during the lockdown, while others did not qualify for

government grants. Government via the Department of Small Business Development need to

train these small companies on how to manage budgets. In most cases, budgets help managers

and owners make eective decisions. The study concludes that SMMEs play a critical role in

the South African economy, they still faced a number of diculties, particularly in terms of

f‌inancial and budget management.

Keywords: eectiveness, budgets, SMMEs, and management tool, Covid-19.

Introduction and Background

Businesses of any kind operate in a world f‌illed with uncertainties. Health-related

threats aect all industries in which businesses operate, and municipalities are not

immune to this. According to the World Health Organization, there is a progressively

growing record, currently surpassing 500 000 COVID- 19 cases worldwide. COVID-19

is an unusual infection with clinical signs that can lead to death. The global COVID-19

outbreak has negatively aected many global economies. This human tragedy has

created uncertainty and overwhelmed companies, particularly Small Medium and

Micro Enterprises (SMMEs) (Emanuel, et al., 2020). The South African government

European Journal of Economics, Law and Social Sciences

IIPCCL Publishing, Graz-Austria

Special Issue

December, 2021

ISSN 2519-1284

Acces online at www.iipccl.org

87

proposed a stimulus package with the aim of helping businesses (relief funding). This

debt relief funding is to assist small businesses that had to shut down and suered

f‌inancial losses due to the national shutdown. This funding was coordinated by the

Department of Small Business Development in response to the impact of the pandemic

on small business owners. With the lack of or limited income, it is crucial that these

organisation manage their limited f‌inancial resources by eectively managing their

budgets. The way these SMMEs manage or use budgets during these dicult times

is crucial to their survival. It is important to investigate whether or not these SMMEs

use budgets to manage their business. Many scholars have noted that SMMEs play a

pivotal role in various facets of the economy.

SMMEs are the backbone of an economy both in developing and developed

countries. Since 1996, the South African government has been actively promoting

SMME’s through strategies such as the National Strategy for the Development and

Promotion of SMME’s (Brijlal, et al., 2014). Hence, these strategies are implemented

by the government to promote economic growth, alleviate poverty, redress income

distribution, and create jobs (Wolmarans & Meintjes, 2015).

For the government to realize its objectives and strategies, SMME’s must be sustainable

and perform eectively in order to create jobs, to alleviate poverty. According to

(Kilonzo & Dennis, 2015) SMME’s are classif‌ied dierently by dierent countries,

the European Union and the United States classify SMMES based on the number of

employees the organisation has. Table 1 below shows how SMME’s are classif‌ied in

South Africa.

Table 1: Classication of SMMEs in South Africa

Category Generic description

Micro-enterprise  1-5 employees

 Mainly informal

 Untaxed

 Unregistered business

Small enterprise  6-50 employees.

 At least one management layer

 Registered business

Medium-sized

enterprise

 51-200 employees

 Registered business

Source: Brijlal, et al., (2014)

Based on what has been illustrated in Table 1 above, some SMMEs are formal. The

formal SMMEs tend to be more informed and educated, owned by white minority,

situated in Gauteng and the Western Cape, with a higher income generation.

However, most of the informal SMMEs are black-owned and are situated in more

rural provinces. These SMMEs operate in dierent industries within the South

African economy. Figure 1 below elucidates the dierent industries:

Figures 1: SMMEs by industry