Accounting and Small Business Profitability

54 Pages Posted: 9 Jan 2018 Last revised: 5 Jun 2020

See all articles by Eric Holzman

Eric Holzman

The Ohio State University - Department of Accounting & Management Information Systems

Brian P. Miller

Indiana University - Kelley School of Business - Department of Accounting

Brian Williams

Indiana University - Kelley School of Business - Department of Accounting

Teri Lombardi Yohn

Emory University Goizueta Business School

Date Written: June 1, 2020

Abstract

We exploit survey data from the Panel Study of Entrepreneurial Dynamics to investigate the role
of accounting in the likelihood that a small business more quickly achieves and maintains positive
operating cash flow (profitability). We examine several potential aspects of accounting including
the entrepreneur’s: 1) accounting background, 2) intent to use various financial statements and
projections, and 3) intent to use professional accountants. We find that entrepreneurs with an
accounting background are more likely to achieve profitability. Perhaps more importantly, we
document that the intended use of certain statements (e.g., income statements) and projections
(e.g., break-even analyses) are associated with small business profitability. However, these
statements and projections are only associated with future profitability for entrepreneurs with an
accounting background, suggesting that the benefits of these statements primarily accrue to
entrepreneurs who have an understanding of accounting. Consistent with this notion, we fail to
find evidence that the use of professional accountants is associated with small business
profitability. Combined, our evidence suggests various aspects of accounting are associated with
profitability in the largely unregulated environment where small businesses operate.

Keywords: small business; accounting background; financial statement preparation; profitability

Suggested Citation

Holzman, Eric and Miller, Brian P. and Williams, Brian and Yohn, Teri Lombardi, Accounting and Small Business Profitability (June 1, 2020). Kelley School of Business Research Paper No. 18-7, Available at SSRN: https://ssrn.com/abstract=3099220 or http://dx.doi.org/10.2139/ssrn.3099220

Eric Holzman

The Ohio State University - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

Brian P. Miller

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2606 (Phone)

Brian Williams (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

Teri Lombardi Yohn

Emory University Goizueta Business School ( email )

201 Dowman Drive
Atlanta, GA 30322
United States

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