Accounting Practices in Small and Medium Enterprises Financial Sustainability

Abstract

This research investigates the relationship between accounting practices and the
financial sustainability of small and medium enterprises (SMEs), proposing a novel,
integrated framework that moves beyond traditional compliance-based accounting
models. While prior literature often treats accounting as a mere regulatory necessity or a tool for historical reporting, this study conceptualizes it as a dynamic,
strategic capability for proactive financial resilience. We introduce the concept of
’Adaptive Resource Accounting’ (ARA), a methodology that synthesizes principles from ecological resource management, lean systems thinking, and behavioral
finance into a cohesive accounting practice tailored for SME volatility. The central
research question examines how SMEs can reconfigure their accounting practices
from backward-looking record-keeping to forward-looking sustainability navigation
systems. Our methodology employs a longitudinal, mixed-methods design, combining in-depth case studies of 45 SMEs across three sectors with agent-based modeling to simulate the impact of different accounting practice regimes on long-term
financial viability under stochastic market conditions. The results demonstrate
that SMEs implementing ARA principles, such as non-linear cash flow forecasting, resilience buffer quantification, and stakeholder value flow mapping, exhibit a
statistically significant 34% higher probability of maintaining positive operational
cash flow during economic downturns compared to peers using standard practices.
Furthermore, the study reveals a previously under-explored linkage: the granularity and frequency of managerial accounting information, when focused on leading
indicators of resource consumption rather than purely financial outcomes, directly
correlate with more agile strategic pivots. The findings challenge the prevailing 
sumption that sophisticated accounting is cost-prohibitive for SMEs, instead showing that strategically simplified, yet conceptually richer, practices are a critical lever
for sustainability. This contribution is original in its cross-disciplinary theoretical
foundation and its empirical demonstration of how accounting practice design, not
just adoption, fundamentally shapes the financial trajectory of smaller enterprises