Irrespective of the industry in which the enterprise trades, a micro-enterprise is defined as an enterprise that employs up to five employees and a small-enterprise more than five, but no more than 50 employees (Ayyagari et al., 2007; Gonzales et al., 2014; South African Department of Small Business Development, 2016; The South African Income Tax Act, No. 58 of 1962 [amended]). A noteworthy finding has been that the publication of statistics on small- and micro-enterprises does not differentiate between small- and micro-enterprises and these two types of enterprises are clustered together. The latter is evidenced in that the enterprise survival statistics for small and micro-enterprises, that reveal very poor viability prospects for the enterprises within the first five years of start-up, are presented for the cluster of the two and not for each category of enterprise individually (Bushe, 2019; Enow & Kamala, 2016; Friedrich, 2016; National Credit Regulator, 2011). Small- and micro-enterprises are even sometimes grouped with medium enterprises. Another noteworthy discovery within the South African context is that the literature on financial literacy investigating small- and micro-enterprises is also clustered or grouped with SMEs and MSMEs (Bushe, 2019; Enow & Kamala, 2016; Friedrich, 2016; National Credit Regulator, 2011; USAID, 2009b). A financially literate enterprise owner has knowledge and understanding of financial and related concepts (Lusardi, 2019; OECD, 2018), possesses basic skills such as literacy (Lusardi, 2015), numeracy (Samkin et al., 2014), communication (Hellriegel et al., 2018), and decision-making (Siekei et al., 2013), and applies the knowledge while incorporating the aforementioned skills in order to make effective decisions regarding the management of finances (OECD, 2018).

Communication (verbal and written), including communication of financial information is a key component of financial literacy within the context of small- and micro-enterprise owners (Hellriegel et al., 2018). International Financial Reporting Standards (IFRS) for SMEs were developed as a financial statement preparation tool to assist enterprises that are not public interest entities as defined and who do not need to publish their financial statements to the public (National Credit Regulator, 2011; Van Wyk & Rossouw, 2009). The intention of IRFS for SMEs was to provide a more simplified approach (in terms of classification, recognition, measurement and disclosure of transactions) for the financial reporting of smaller-sized enterprises (Bohušová, 2011; Van Wyk & Rossouw, 2009). However, IFRS for SMEs has been criticised as still being too complex, too costly to implement and burdensome for smaller and micro-enterprises and might even be regarded as not at all useful to these enterprises (Sačer et al., 2015; Van Wyk & Rossouw, 2009). No additional guidelines for SMEs financial record-keeping and bookkeeping exist in South Africa (Ajibade & Khanundi, 2017). This may be part of the reason for a lack of financial literacy, particularly related to accounting or bookkeeping-related business practices. The OECD (2015) proclaimed that financial education is particularly useful to properly plan and manage MSMEs, improving the knowledge, skills and behaviour of MSME owners, in addition to increasing the prospect of enterprise viability. This suggests that business practices, such as planning and management of enterprises, also need to be explored when planning financial literacy education strategies. The Banking Association of South Africa (2018) advocates that small- and micro-enterprise owner financial literacy education initiatives in South Africa are not tailored to the characteristics or business practices of the enterprises.

The variety of business practices of small- and micro-enterprises that can be explored are vast. Mckenzie and Woodruff (2017) define business practices as daily courses of actions employed in the operations of a business or enterprise. Business practices as a whole include general management, project management, employee relations, marketing, inventory management (or control), accounting and financial management (Brijlal et al., 2014; McKenzie & Woodruff, 2017; Obazee, 2019; Turner et al., 2010). The notion is held that the nature of small- and micro-enterprises’ business practices differs from that of larger enterprises (McKenzie & Woodruff, 2017; Turner et al., 2010) and is worth exploring in detail.

McKenzie and Woodruff (2017) suggest that all small- and micro-enterprises should have good business practices in place in order to improve their survival prospects. The research of McKenzie and Woodruff (2017) examined whether small- and micro-enterprises who have a wider range of business practices in place, outperform those who do not in terms of sales, profits and labour productivity. Their findings indicated that better business practices are linked to higher sales growth and overall survival of the enterprises. They considered that good business practices are deemed to be in place when there is evidence that the enterprise is engaged in marketing-, buying and stock control-, record-keeping- and financial management practices.

Accounting practices are described by Brijlal et al. (2014) and Mwangi (2011) as the analysis of transactions or economic events in an enterprise and subsequently keeping physical records thereof and recording these transactions through a bookkeeping process (reporting on the transactions or economic events as a means of communication). On the other hand, according to Fatoki (2014, p. 154) financial management practices include ‘financial planning and control, financial analysis, accounting information, management accounting, investment appraisal and working capital management’. Brijlal et al. (2014, p. 2) explain that financial management, in their opinion, can also be categorised into ‘implementing and managing an accounting system and generating information for decision-making purposes’.

One of the earliest research studies conducted on small-enterprise financial management practices was by McMahon and Holmes (1991), who through a literature review established a list of financial management practices that they believe should be in place in small-enterprises, concluding that an accounting system should be present, financial reports should be generated, working capital should be managed and the enterprises should plan and monitor whether their plans have materialised. Fatoki (2012) investigated whether newly established small- and micro-enterprises in South Africa have financial management practices in place, in particular financial planning and control, accounting information, financial analysis, working capital management, investment appraisal and management accounting, and found that the majority of enterprises do not. Similar to Fatoki’s (2012) study, Obazee (2019) conducted a study in Nigeria and found that there too, most enterprises examined did not have financial management practices in place.

Brijal et al. (2014), Fotaki (2012), Mwangi (2011), and Obazee (2019) conducted studies to establish whether specific practices in small- and micro-enterprises are in place by arriving at predetermined practices that the researchers considered should be in place and determining whether or not they are.

Stack (2006), Atkinson et al. (2017) and BASA (2018) recommend that a description of small- and micro-enterprise characteristics will enable researchers to determine what their specific needs are. Establishing the enterprise owner’s reasons for start-up of the enterprise also provides context for determining the characteristics (Obazee, 2019). When developing support initiatives and guidelines for small- and micro-enterprises, such as IFRS for SMEs mentioned earlier, one should be cautious not to design such interventions blindly or based on pre-determined expectations as this may compromise the efficacy of initiatives such as designing financial literacy education programmes (BASA, 2018). The description gathered of the nature of business practices can be utilised in developing customised financial literacy education initiatives aimed at small- and micro-enterprise owners. Based on the literature review in this section, business practices can be summarised into seven categories, namely:

These became the basis for the overarching category questions probed in the interview list of questions formulated for this study. Even though this research article explores several categories of business practices within the context of a South African case study, the findings related to practices associated with finances, accounting and financial management practices are emphasised because a significant component of financial literacy constitutes proficiency in managing finances (Ye & Kulathunga, 2019). This research article further provides recommendations towards appropriate financial literacy education strategies based on the description of the business practices concluded. The subsequent section provides an overview of the methodology adopted for this study.

The inductive nature of this research aimed to determine the characteristics of small- and micro-enterprises through a qualitative approach in order to assist in the identification of relevant themes (Bryman & Bell, 2018; Hyde, 2000; Woiceshyn & Daellenbach, 2018). This was achieved through a hybrid deductive and inductive coding approach (Bryman & Bell, 2018). Qualitative case study research was conducted on small- and micro-enterprises in South Africa, making an in-depth study of their business practices (Creswell & Poth, 2018; Kumar, 2011) in an effort to arrive at proposed financial literacy education strategies based on the findings. The paradigm that this research adopted was that of social constructivism and postmodernism. It involved interaction with small- and micro-enterprise owners to gain insight into the nature of their enterprise’s business practices (using the seven categories identified) in order to arrive at recommended strategies for financial literacy education by including a combination of interview questions that required close-ended (limited) and open-ended responses (Lather, 2006; MacKenzie & Knipe, 2006; Maree, 2016).

The sample frame for purposes of this study constituted a case study of small- and micro-enterprises whose owners were located in a city in the North-West province of South Africa. Ten enterprises were purposefully and conveniently selected based on the fact that their owners are situated in the particular city (Creswell & Poth, 2018), five of which were categorised as micro-enterprises (employing a maximum of five employees), and five as small-enterprises (employing six and up to 50 employees). The researcher went door to door in the city, to find participants interested in taking part in the study. Qualitative researchers tend to focus on a smaller number of ‘real-life’ cases as opposed to larger numbers (Maree, 2016). Creswell and Poth (2018) suggest that one would then not normally include more than four or five cases in a specific study. Guha et al. (2017) also conducted a qualitative study on SMEs linking social media to customer relationship management and selected a sample of eight enterprise owners to take part in the study. Furthermore, Bhatti (2018) selected a sample of four SME owners in a study on relationship learning through inter-firm conduits and Bello-Bravo and Amoa-Mensa (2019) selected six in their qualitative study on barriers to SME expansion. This suggests that the total sample size of 10 for this study is appropriate.

The choice of empirical data collection technique for this study was in-depth semi-structured interviews where some of the questions that were asked by the researcher were determined in advance, while some were asked based on the responses received by the small- and micro-enterprise owners (Kumar, 2011; Maree, 2016). The newly developed list of questions included 61 questions (16 close-ended questions that probed the participants to elaborate and 45 open-ended questions). These were grouped into two sections, namely demographical characteristics (predominantly close-ended questions) and business practices. In terms of the business practices, the questions probed information related to seven categories of business practices, namely (1) general operation processes, (2) management of the enterprises, (3) employee relations, (4) marketing, (5) inventory management, (6) accounting practices, and (7) financial management practices. The review of the work executed by Obazee (2019), McKenzie and Woodruff (2017), Brijlal et al. (2014), Fatoki (2012) and Turner et al. (2010) gave rise to the list of questions probed in this study. Recording of the data took place digitally (Maree, 2016) by means of voice recordings of the interviews held with the enterprise owners selected for participation over the course of three months. On average, one interview continued for 45–60 min.

The data collected through the semi-structured in-depth interviews were documented, organised, analysed and summarised in order to derive themes through a form of coding (Bryman & Bell, 2018; Creswell & Poth, 2018; Maree, 2016). The process started off with the transcribing of the data after which the voice recordings were listened again to confirm the accuracy of the transcribing and corrections were made where necessary. This was then followed by the first step of analysis of this data, which was performed using Atlas.ti 22, a qualitative data analysis software program (Bryman & Bell, 2018; Creswell & Poth, 2018). Apart from demographical information, a total of 66 codes were identified through Atlas.ti, which could be grouped into the seven broad business practice categories (linked to the categories of the interview questions) and were exported into Microsoft Excel for further analysis (Bryman & Bell, 2018; Creswell & Poth, 2018). Each of the 66 codes was identified under both small- and micro-enterprises. The further analysis of the codes identified through Atlas.ti was performed by means of the process prescribed by Bryman and Bell (2018), where the codes are reviewed to identify common themes, connections are made between the identified themes, and a final summary is made of the most prominent concepts (related finances and management thereof). The final step of the data analysis was to interpret the information by determining the values that could be conveyed by the codes (Bryman & Bell, 2018; Creswell & Poth, 2018; Kumar, 2011). This yielded a description of the nature of small-enterprises versus micro-enterprises and recommendations followed.

Apart from obtaining ethical clearance from the Economic and Management Sciences Research Ethics Committee of the North-West University, South Africa, additional ethical considerations were taken into account for this study (No.NWU-01304-21-A4). The participants who took part in this study were duly informed that the study is voluntary and their consent to take part was obtained in writing. The interviewer afforded participants the opportunity to withdraw at any stage during the interview and the participant identities were kept anonymous during reporting of results in order to maintain participant confidentiality.

The micro-enterprises (represented by their owners) studied collectively trade within two of the nine South African provinces, whereas the small-enterprises collectively trade within four of the nine South African provinces. Collectively, the enterprises operate in five out of the nine provinces in South Africa. Table 1 shows the detailed demographics of each participant, also referred to as a case.

P1 to P5 in Table 1 can be categorised as micro-enterprises and P6 to P10 small-enterprises based on total number of employees. Eight industries are represented by the enterprises. The legal form of the majority of the small- (60%) and micro-enterprises (80%) is sole proprietorship (sole trader). None of the owners had borrowed funds to start up their enterprise. One of the key challenges small- and micro-enterprises face is access to finance (Fatoki, 2014; IFC, 2019), and this could be the reason why none of the enterprises studied were funded by borrowed funds. Equally, none of the interviewed enterprise owners had ever received any government funding or subsidies. The reasons cited for micro-enterprise start-up include the following:

For the small-enterprise owners, these start-up reasons were identified as follows:

The interviews revealed that the micro-enterprise owners enjoy and have a passion for working with people. They also tend to be more focused on the individual needs of the specific communities in which they trade. small-enterprises owners, on the other hand, reported being more focused on creating better working conditions and salary-earning opportunities for themselves and those they employ. The one start-up theme that was identified for both micro- and small-enterprise owners was that individuals were unemployed and wanted to make a living. This agrees with the findings of Bushe (2019) who stated that small-, micro-, and medium-enterprises are generally started out of necessity to earn an income and generally not to fulfil a specific passion or calling.

Box 1 shows the general characteristics of an enterprise identified through the analysis of the data.

As may be seen from the information presented in Box 1, micro-enterprises were generally unregistered, whereas small-enterprises were generally registered. The owners of the micro-enterprises indicated that reasons for not formally registering the enterprise include a lack of knowledge on how to do so, the cumbersome and costly administrative obligations pertaining to the formal registration of an enterprise, or the enterprise owner does not think it is necessary. These findings are consistent with that of Khoase et al. (2020), who also found the aforementioned to be issues facing both small- and micro-enterprises. Micro-enterprises are usually started out of what the enterprise owners know, and no planning is executed ahead of starting the enterprise, with no business plan. Only the small-enterprises who have business plans in place have borrowed funds from financial institutions. The other enterprises might have tried to obtain funding but had failed to do so because of having no business plan in place. This coincides with the view of United States Agency for International Development (USAID) (2009a) and Mutegi et al. (2015), which is that the lack of a formal business plan is one of the key reasons why financial institutions reject small- and micro-enterprise loan applications. Box 1 also indicates that the small-enterprises generally make use of technology to manage the movement of inventory, to keep track of income and expenses, and to keep a database of clients who owe the enterprise money, whereas micro-enterprises make use of technology to manage inventory movement. It was further found that all the enterprises whose owners indicated that they are formally registered are also registered for income tax purposes, or the enterprise owners were registered for income tax (in the case of a sole trader). Whereas unregistered small- or micro-enterprises or their owners were not registered for income tax purposes. An interesting finding was that small-enterprises are usually not registered for Value Added Tax (VAT) (as indicated by the majority of participants), whereas all micro-enterprises who are formally registered are also registered for VAT. All the aforementioned suggest that financial literacy education strategies need to include guidelines on formally registering an enterprise, registration for income tax and VAT. It should also provide guidelines on how to manage inventory manually and through the use of technology. A need for guidelines on the importance of and drafting a business plan is also evident for both small- and micro-enterprise owners. As well as funding options and the pre-requisites of each.

Box 2 differentiates between the operations and management characteristics found through analysis of the data.

Box 2 shows that micro-enterprises usually do business on a strictly cash basis, whereas small-enterprises grant and make use of credit. This signals that financial literacy education strategies for both category enterprises should include cash basis bookkeeping guidelines. Micro-enterprise owners explained that they do not grant credit to customers because the competitors in the area do not do so, or the nature of the products does not allow them to do so. However, the main reason for not granting credit is because customers do not pay back the money they owe. The reason for the latter might be that micro-enterprises generally do not have specified credit terms in place, as seen in Box 2, which seems to be a common practice among micro-enterprises in developing countries (Macatumbas-Corpuz & Bool, 2021). Both the small- and micro-enterprises studied did not have robust credit management strategies, which is an area financial literacy education strategies should focus on. The micro-enterprises usually do not have a basis for determining the prices of their products and services but aim to keep the prices as cheap as possible or to price products and services based on what the enterprise believes the customers can afford. Hence, financial education strategies need to include product pricing guidelines. The small-enterprises, on the other hand, add fixed or standard mark-up percentages to the cost price of their products and services, consider market prices and usually also consider other operational expenses when determining the prices of products and services.

Box 3 shows a comparison of the employee relations practices in small- and micro-enterprises based on the findings of this study.

Box 3 shows that employee remuneration, including providing them incentives are common practices in both the small- and micro-enterprises studied. Financial literacy education strategies therefore need to highlight the need for contingencies to be able to remunerate employees even during times when sales are down. It also appears that small-enterprises have less to no staff retention strategies in place compared with micro-enterprises, which could have a negative impact on the finances of the enterprises. P6 stated that they ‘do not do anything’ to regain staff and P8 stated that ‘each person is free to go where they want to go … If he gets a better opportunity or can get more money from another place, by all means then he can go’. Adamska-Chudzińska (2020) cautions that enterprises might have to bear considerable costs when they experience high staff turnover, which is a key point that financial literacy education strategies need to emphasise.

The findings revealed that all the participants were fully aware who their competitors in the market are. Micro-enterprise participants were interested in knowing a variety of factors related to their competitors, which include, ‘where do they get their funds’ (P4), ‘How they work to get that quality livestock’ (P5) and how competitors keep their prices low, evident in ‘he buys the same products that I am selling and sells them at measurably reduced prices’ (P3). Interestingly, small-enterprise owners are usually not interested in knowing any facts pertaining to their competitors. Participants stated: ‘I do my thing and they do their thing’ (P8), ‘it is just to know what your competition’s price is’ (P9), and ‘I am not worried about competitors. Honestly’ (P10). Soniewicki and Paliszkiewicz (2019) state that knowledge management in enterprises, including knowledge of competitors, is a powerful tool that can be used to make informed decisions and remain relevant in the market, which the small-enterprises of this study might be missing out on. This highlights another area financial literacy education should embrace.

Box 4 illustrates the inventory management practices identified for enterprises who sell or make use of inventory in their operations.

As seen in Box 4, there is no notable difference in the inventory management practices of the small- and micro-enterprises, apart from the fact that the small-enterprises have a more accurate idea of the quantity of products to restock than micro-enterprises and they also restock less often than micro-enterprises. The difficulty experienced by micro-enterprises in terms of determining the quantity of items to restock could be the reason why inventory purchases take place as often as more than once a week. Nonetheless, financial literacy education strategies need to provide guidelines on determining the appropriate frequency of stock or inventory replenishment. Further findings reveal the one thing that both small- and micro-enterprise owners keep track of, which is the movement of inventory which would be advantageous in the long run because previous research has shown a positive correlation between inventory management and small-enterprises performance (Orobia et al., 2020). Financial literacy education strategies could include proposed best practices related to inventory management strategies against which small- and micro-enterprises can benchmark their practices.

Box 5 shows the difference between the accounting practices of small- and micro-enterprises.

Box 5 reveals that the small-enterprises have more sophisticated bookkeeping processes in place than micro-enterprises, even though it is still very basic. Based on the interview findings, four of the five micro-enterprise participants do not prepare any of the following: a cashbook or similar, a budget, income statement, balance sheet, cash reconciliation or bank reconciliation; only one does. The findings were split in terms of small-enterprise participants where some prepare the aforementioned statements or records and others do not. Neither small- nor micro-enterprises make use of IFRS for SMEs prescribed accounting practices. Some of the participants who took part in the research were of the view that bookkeeping and accounting is the work of an accountant and that they do not have sufficient knowledge in the area. P4 stated ‘I just outsource that activity’ and P6 stated ‘I do not know what it is’ when they were probed about their bookkeeping practices. The latter could become problematic because performing basic bookkeeping has been identified as an important practice that small- and micro-enterprises need to adopt to ensure operations run smoothly and to improve the overall financial performance of the enterprise (Seman et al., 2019). This should be a key focus area where financial literacy education strategies provide guidelines. The micro-enterprises generally do not keep track of income and expenses and do not calculate profit. Similarly, cash management is a concern in micro-enterprises because owners generally experience stress associated with managing cash. Micro-enterprises generally do not prepare cash reconciliations, whereas small-enterprises do. This is problematic because cash is considered to be the lifeline of MSMEs and the effective management thereof has been identified as a critical success factor by Enow and Kamala (2016). Micro-enterprises usually do not keep records, whereas small-enterprises keep records apart from the reason of keeping track thereof for tax purposes. There is limited segregation between the finances of the enterprise and that of the owner(s) in micro-enterprises, whereas the contrary is true for the small-enterprises. Even though basic bookkeeping practices are in place in small-enterprises, the only two financial records or statements that are prepared are the cashbook (or similar register) and the income statement. Generally, no financial records or statements are prepared in micro-enterprises (Box 6). Even though the micro-enterprises generally do not make use of the service of an accountant or bookkeeper, they do make use of the service of a tax practitioner, whereas small-enterprises make use of the services of both accountants or bookkeepers and tax practitioners.

Box 6 shows the difference in the financial management practices of small- and micro-enterprises.

Both small- and micro-enterprises have goals and objectives in place (Box 6). However, it was found that no budgets are prepared in the micro-enterprises. A contributing factor to the latter could be a lack of knowledge of how to prepare budgets and plan ahead. This agrees with the findings of Coda et al. (2018) who found that both small- and micro-enterprise owners are generally reluctant to plan ahead. Furthermore, it was found that there is a lack of knowledge and understanding of how to assess micro-enterprises’ financial performance. This is another potential key focus area for financial literacy education strategies. The preparation of budgets is a weakness that has been identified in both small- and micro-enterprises, consistent with the findings of Seman et al. (2019). This study however shows that the small-enterprises had better financial planning strategies in place than micro-enterprises, which include assessing financial performance and having contingency plans in place (Box 6). There is an overoptimistic overview in terms of risk never becoming a reality for micro-enterprise owners (Box 6) and they generally do not have risk management strategies in place, whereas small-enterprises do have some strategies in place.