Characteristics of Business Activities and Business Management Organization at Small and Medium Enterprises in Vietnam

Classification of small and medium enterprises in Vietnam by capital size and enterprise type

<0.5 billion 0.5-1.0 billion 1-5 billion

VND VND VND

5-10 billion

VND

Foreign invested enterprises Non-state enterprises

State-owned enterprise

Chart 2.3: Structure of the number of small and medium enterprises in Vietnam by capital size and type of enterprise

If classifying enterprises according to the criterion of average number of employees/year, the General Statistics Office has officially announced the following detailed data:

Table 2.2: Number of Vietnamese SMEs as of December 31, 2005 classified by labor size and enterprise type

Business type

Count	Classification by labor size
Count	Under 5 people	5-9 People	10-49 People	50- 199 People	200- 299 People
State-owned enterprise	2675	10	32	679	1507	447
Foreign enterprises	103794	23036	34394	37228	8254	882
Collective	6266	679	2613	2459	462	53
Private	34357	12469	10857	9708	1249	74
Partnership	37	11	3	21	2
LLC	51815	8385	17748	20500	4671	511
State-owned joint stock company	839	4	21	227	484	103
Joint stock company without state capital	10300	1308	3152	4313	1386	141
Foreign invested enterprise	2869	144	206	1050	1172	297
Total	109338	23190	34632	38957	10933	1626

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Source: Statistical Yearbook 2006, page 77

Thus, if classified according to the criterion of “average number of employees/year”, the total number of enterprises considered to be small and medium-sized as of December 31, 2005 was 109,338 enterprises, accounting for 96.8%. Large-scale enterprises in terms of number of employees (over 300 employees) only accounted for 3.2% of the total number of enterprises in Vietnam. Among these, the most common are enterprises with a workforce of less than 50 people, accounting for 86% of the total number of small and medium-sized enterprises.

<5 people

50-199 people

5-9 people 10-49 people

200-299 people >300 people

Classification of small and medium enterprises in Vietnam according to

labor scale

10%

21%

34%

31%

Chart 2.4: Proportion of enterprise types classified by labor size

Although the absolute numbers of small and medium-sized enterprises classified according to the two criteria of capital and number of employees may be different, analyzing the charts on classifying enterprises according to labor size, we also get similar conclusions as above.

Thus, it can be seen that the quantity structure of small and medium enterprises in Vietnam today has 3 main characteristics:

- mainly focus on the non-state economic sector

- mainly have small to very small capital scale (under 1 billion VND)

- mainly using few workers (less than 50 people)

The growth rate of small and medium enterprises is also quite high, on average

The overall business growth rate in the period 2001-2005 was 27.9%, the number of

The number of actual operating businesses increases each year by about 14,000.

Small and medium enterprises mainly operate in the fields of trade and services, which require low investment capital, short business cycles, and can bring high profits. Each year, on average, small and medium enterprises also create jobs for nearly 500,000 workers, accounting for 90% of new workers.

According to statistics on enterprises by region, small and medium enterprises are established and operate in all regions of the country, but are concentrated in large numbers in the Red River Delta, the Southeast region and the Mekong River Delta.

Not only growing strongly in quantity, the contribution of small and medium enterprises to the national economy always accounts for a significant proportion and is constantly increasing. On average, the annual contribution of small and medium enterprises is estimated at 45% of the country's GDP. Small and medium enterprises also create good relationships with large enterprises, creating a production system and distributing products throughout the country.

In addition, policies to support small and medium enterprises have also been promoted, capital support programs, funds to support small and medium enterprises have been established in localities across the country, and programs to support business administration skills, financial management, business accounting, information technology, etc. have been continuously organized. Thanks to that, in addition to the growth in the number of enterprises, small and medium enterprises have also participated more actively in economic activities, contributing to creating a more dynamic business environment and economy in Vietnam.

2.2. Characteristics of small and medium enterprises in Vietnam that affect the inspection and analysis of financial statements

2.2.1. Characteristics of business activities and business management organization in small and medium enterprises in Vietnam

Characteristics of production and business activities and business management organization of an enterprise can be considered through the following issues: capital scale, characteristics of management organization and management personnel.

Regarding the scale of business capital and business characteristics : most enterprises have a fairly low capital scale. According to the survey results (Appendix 1), among the surveyed enterprises, the number of enterprises with charter capital of less than 1 billion VND

accounting for 69.2%, from 1-5 billion VND accounting for 18.5%, the number of enterprises with charter capital from 5-10 billion VND accounting for only 12.3%. However, the charter capital recorded on the business registration and company charter of small and medium enterprises is mainly just a formality. Research on the ratio of actual contributed capital/charter capital of the surveyed enterprises shows that only about 18.5% of enterprises have a ratio of actual contributed capital to business/charter capital reaching over 70%; the number of enterprises with a ratio of contributed capital/charter capital below 50% accounts for 26.1%. This shows that the actual operating capital level in small and medium enterprises is quite low compared to the registered capital level, demonstrating the limitations in the business scale of these enterprises.

Also according to statistics, most small and medium enterprises operate in the trade and service sectors. Small and medium enterprises operate

Activities in the industrial manufacturing sector usually produce only one or a few types of products.

Limitations in capital and financial capacity make it difficult for small and medium enterprises to diversify their investment portfolios to increase capital efficiency and limit financial and business risks. At the same time, it affects the application of financial statement analysis models to enterprises.

Regarding the organization of the management apparatus : as analyzed in the previous part of the thesis, information on the current status of the number of employees in small and medium enterprises in Vietnam can be seen, most of the small and medium enterprises in Vietnam have very few employees, mainly less than 10 people/year. Among the surveyed enterprises, the average number of employees (including employees in management functions) is mainly at 10-49 people/year (accounting for 67.7%), of which most have from 20-30 people. The limitation in the number of employees has a direct impact on the organization of the management apparatus for the production and business activities of the enterprise. In most small and medium enterprises, the organizational apparatus

is arranged relatively simply, mainly according to the online model, according to which, the manager or business owner directly directs most of the activities and functional departments of his business. The number of functional departments and personnel in each department is also very small. Concurrent holding of positions is very common in small and medium enterprises. In addition, the management apparatus is reduced to a minimum to cut business costs.

Furthermore, small and medium enterprises often exist as independent entities, rarely have subsidiaries or dependent accounting units, so the management structure is often simple.

The general management model of small and medium enterprises in Vietnam can be summarized in diagram 2.1:

room

accounting - finance

Room

business

room

human resources

room

administrative

The

other departments

workshops, production and business teams

Director (General Director)

Diagram 2.1: Organizational model of the management apparatus of production and business activities of small and medium enterprises in Vietnam.

Regarding management personnel : in principle, the business management personnel of the enterprise can be separated from the capital owners of the enterprise to be able to build an effective business management and control mechanism. The capital owner (business owner) can hire personnel to manage and use capital. In this way, the enterprise can have a professional business management team, operating the business apparatus well. In other cases, the business owner can concurrently hold the management function. This model meets the requirements of streamlining the apparatus, centralizing power and saving costs. However, the disadvantage is that it cannot take advantage of professional management qualifications. Moreover, many business owners do not have a full understanding of the business field as well as business administration skills, financial management skills, leading to

to the management apparatus of the enterprise not operating well. In addition, conflicts may arise between owners who are also managers and owners who are not directly involved in managing the enterprise.

Most small and medium-sized enterprises in Vietnam organize their human resources in the form of business owners concurrently holding management functions. According to the survey, only 8 out of 65 small and medium-sized enterprises outsource the positions of Director and General Director (accounting for 12.3%), the rest are business owners concurrently holding these positions.

Regarding the quality of human resources management in small and medium enterprises, according to the results of the thesis investigation, most business owners have a university degree (accounting for 67.7%) and are mainly between the ages of 20-49. This data shows that the level of

The level of access to knowledge and dynamism of small and medium-sized business owners is quite positive.

The characteristics in the organization of the business management apparatus, both in terms of organizational model and personnel, mentioned above will greatly affect the analysis of financial statements in the enterprise. The process of analyzing financial statements will encounter difficulties right from the organization and implementation stages, or the difficulties will come from the perception of the leaders.

business leaders due to poor management skills.

2.2.2. Characteristics of financial management and accounting organization of small and medium enterprises in Vietnam

Large enterprises are often organized as limited liability companies or joint stock companies, whereby the owners and investors are only liable to the extent of their capital contribution to the enterprise. For small and medium enterprises, the owners' liability can be limited or unlimited. In cases where the owners are liable for unlimited liability (private enterprises, partnerships), regulations on transferring ownership of assets when contributing capital, regulations on converting corporate debt into personal debt, etc. will require adjustments to financial reporting analysis models.

to adapt to this type of business.

In terms of financial capacity and capital mobilization of small and medium enterprises: small and medium enterprises often have little access to financial markets and capital markets. Forms of capital mobilization of small and medium enterprises are often very limited. Therefore, financial statement analysis related to capital mobilization and use cannot always be applied to small and medium enterprises.

Regarding the organization of the accounting apparatus: most small and medium enterprises in Vietnam organize accounting according to a centralized model. In the case of enterprises with dependent establishments, to simplify the accounting organization and enhance control, usually the

Enterprises will stipulate that affiliated units perform reporting, while accounting work is carried out centrally at the head office. The accounting apparatus of small and medium enterprises usually consists of very few people, each person must perform many different tasks at the same time. The number of accounting employees of a small and medium enterprise is usually less than 5 people (accounting for 75.9%). In many cases, the accounting apparatus of an enterprise has only 1 person, doing the work of an accountant and a cashier (accounting for 13% of the surveyed enterprises). In some other cases, enterprises do not organize accounting personnel but completely outsource the work of bookkeeping and financial reporting (accounting for 17%).

Regarding the qualifications of accounting staff in small and medium enterprises, to reduce salary costs, many small and medium enterprises choose to recruit workers.

accounting staff with college or intermediate degrees (accounting for 43.4% of the total number of accounting staff of surveyed enterprises).

The accounting apparatus of small and medium enterprises in Vietnam, according to the thesis investigation, is often organized according to diagram 2.2:

thd

Fund

kÕ

math part 1

kÕ

math part 2

kÕ

math part 3

kÕ

math part 4

statisticians or reporting units

Chief Accountant

Diagram 2.2: General model of accounting system of Vietnamese SMEs

The organization of accounting apparatus according to different models and the quality of accounting staff are among the main factors that directly and clearly affect the quality of financial reports as well as financial report analysis in small and medium enterprises.

2.3. Current status of checking and analyzing financial reports of small and medium enterprises in Vietnam

2.3.1. Financial reporting system applied to small and medium enterprises in Vietnam

2.3.1.1. Overview of the process of building a financial reporting system forSmall and medium enterprises in Vietnam

In order to serve the purpose of researching and analyzing financial statements in small and medium enterprises in Vietnam, it is necessary to review the process of forming and building a system of regulations on financial statements for small and medium enterprises. Reviewing the development of the accounting system and reporting system of small and medium enterprises gives us a historical view, seeing the development of this reporting system, from which, proposing necessary measures to further improve the process of preparing, reading, checking and analyzing financial statements in small and medium enterprises in Vietnam.

Based on the issued legal documents, it can be said that the accounting regime for small and medium enterprises (including the financial reporting regime) began to be interested and built since 1981, as shown in Decision No. 278/QD-CDKT dated March 10, 1981 promulgating the Accounting Regime for Private Industry and Commerce. Then, in 1988, the Minister of Finance issued Decision No. 229/QD/CDKT dated December 29, 1988, promulgating the Accounting Regime for Individual Economic Units and Private Enterprises. Before the time

At this point, due to the characteristics of economic history, we are mainly interested in building an accounting system and an accounting reporting system for state-owned enterprises.

In 1990, the accounting reporting regime for small and medium-sized enterprises was promulgated in the Accounting Regime for Non-State-Owned Production and Business, according to Decision No. 598/TC/QD-CDKT dated December 8, 1990 of the Minister of Finance.

Non-state enterprises that must implement this reporting regime include: business households of all kinds, small industrial households, private enterprises, private companies, cooperatives, collective business organizations of unions, administrative agencies, etc.

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