How internal growth changes the budgeting process in SMEs - A case study of a Swedish growing SME from a management accounting perspective

Abstract

Small and medium-sized enterprises (SMEs) often face significant challenges in resource management due to their limited ability to leverage economies of scale and maintain stable long-term performance. This study aims to address the gap in the literature concerning how internal growth impacts the budgeting process within SMEs, and thus complement, confirm or disregard previous key articles within the field. Utilizing contingency theory, an in-depth case study of a rapidly growing Swedish SME was conducted, employing semi-structured interviews to gather qualitative data. The findings reveal that internal growth leads to a budgeting process lacking clear purpose, causing managerial frustration and reducing the budget's effectiveness as a steering tool. Specifically, the empirical evidence indicates that increased complexity and changing organizational structures due to growth result in budget misalignment with strategic objectives. Hence, not all SMEs have the benefit to adapt efficiently to changes. This research contributes to the understanding of management accounting systems in SMEs, particularly under conditions of growth, providing valuable insights for both academia and practitioners. It underscores the need for adaptive budgeting processes that can accommodate the dynamic nature of growing SMEs, thereby enhancing their financial stability and operational efficiency.