Hinhalagoda lekamalage pulsi kavindya sandeepani ariyarathna

2. Research part 
Small and medium-sized enterprises (SMEs) have long been regarded as a crucial area, 
particularly in developing countries. In Sri Lanka, the SME sector accounts for 80 to 90 percent 
of all businesses and 75 percent of all jobs in the private sector (ADB, 2007).According to a 
banking survey performed by the International Finance Corporation in 2006/2007, SMEs 
account for 80 percent to 90 percent of total establishments and generate 70 percent of job 
prospects in the country.Furthermore, the contribution of SMEs to Sri Lanka's GDP increased 
from 40% in 2010 to 52 percent in 2011. (Ministry of Finance and Planning of Sri Lanka, 
2011).The Sri Lankan government, in response to the rising importance of the SME sector, 
created a SME strategy in 2002 to offer institutional support for the growth of SMEs (Gamage, 
2003).
However, SMEs are challenged by globalisation of trade and the growth of the Internet 
and information technology. (Prasad, 2004) Further, inadequate access to capital and finance, 
inadequate industrial infrastructure, lack of market-based information, obsolete technology, 
lack of modern management skills and lack of labour training restrict the growth of the sector
. (Antonio & Gregorio, 2005) Further, it has been discussed that more than 85% of SMEs face 
significant survival challenges and that more than 75% fail within five years from their start-up 
(Asian SME Summit, 2009). 
SMEs often encounter accounting and financial management challenges due to poor 
record keeping, inefficient use of accounting information in financial decision making and the 
low quality and reliability of financial data (Sarapaivanich 2003). Also proper accounting is 
useful in making sound economic decisions which are vital for the success of small businesses. 
The misuse and untimely, poorly recorded and inaccurate accounting information leads SMEs 
to assess their financial situation inaccurately and make poor financial decisions. In the worst 
case, SMEs might fail and perhaps bankrupt at the end (Stice et al. 1999). These short comings 
might be the cause difficulties in succeeding and raising funds or borrowing money. The 
shortage of capital due to number of reasons such as lack of access to bank facilities, lack of 
knowledge of bank procedures, long delays in obtaining credit and inability to provide 
guarantees are major problems faced by the SMEs (Gamage ,2000). 
In this part of the Thesis, the Author intends to further discuss about the primary and 
secondary data gathered on the external factors that affect the Small and Medium Enterprises 
and later to discuss the conclusions and proposals arose on the author’s point of view. 

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