The Budgeting Practice in East Java MSMEs
Sulastri, Dhika Maha Putri, and Miranti Puspaningtyas
Economics Faculty, Universitas Negeri Malang, JL Semarang No. 5 Malang, Indonesia
Abstract. Micro, Small and Medium Enterprises (MSMEs) are the backbone for
the economy of East Java. The MSME population in East Java is 9.59 million
with a contribution to the East Java GRDP of 54.98 percent. The development of
MSMEs is inseparable from budgeting system. Budgeting is a planning and profit
control tool for MSMEs. A good budgeting system can make the business have
long-term sustainability. This research discusses the budgeting practice carried
out by MSMEs in East Java. This is qualitative research with a case study
approach that used interview, observation and documentation study. The results
show that the implementation of bud geting in MSMEs in East Java carried out
with the traditional system. The budgeting only used to record cash flow. Based
on the result, it can be concluded that MSMEs have not fully maximized the
budgeting function as a tool for planning and profit control.
Keywords: MSMEs ꞏ Budgeting ꞏ Planning ꞏ Control ꞏ Sustainability
1 Introduction
The movement of the MSME sector (Micro, Small and Medium Enterprises) is vital to
create economic growth and employment. MSME is a type of business unit that is
flexible enough so that it can easily adapt to the tides and direction of market demand.
MSMEs have advantages in terms of utilizing natural resources and labor-intensive;
such as food crops, plantations, animal husbandry, fisheries, trade, and restaurants. The
performance of MSMEs does not depend on imported materials thereby strengthening
national development (Solikatun and Masruroh, 2018). MSMEs are able to provide
goods and services for low to moderate purchasing power consumers and make a
significant contribution to the country's foreign exchange. Microbusiness is one of the
main components of local economic development and is able to empower the weak
economy. The MSME sector has a strategic role both economic, social and political.
Economic growth in East Java Indonesia cannot be separated from the role of
MSMEs. 54.98% of East Java's GRDP (Gross Regional Domestic Product) was
obtained from the MSME sector. Based on the BPS census in 2012, it is known that the
number of MSMEs in East Java reached 9.59 million businesses. The average
development of UMKM in East Java is 54.34% per year and accommodates 98% of the
workforce. MSMEs have a role in economic growth, reducing unemployment, poverty
and foreign exchange earnings (Republika, 2014). When classified by sector, it shows
that the agricultural sector occupies the top position of the total number of MSMEs in
the amount of 4,112,443 MSMEs, followed by the trade, hotels and restaurants sector
148
Sulastri, ., Putri, D. and Puspaningtyas, M.
The Budgeting Practice in East Java MSMEs.
DOI: 10.5220/0009839600002900
In Proceedings of the 20th Malaysia Indonesia International Conference on Economics, Management and Accounting (MIICEMA 2019), pages 148-152
ISBN: 978-989-758-582-1; ISSN: 2655-9064
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 2022 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

at 1,720,042 MSMEs and the service sector at 411,342 MSMEs. In terms of
employment, the sectors that absorb the most labor are agriculture, trade, hotels and
restaurants and the manufacturing industry (Renstra Dinas Koperasi dan UMKM
Provinsi Jatim 2019).
The sustainability of the MSME sector is very important to be maintained because
it is a vital sector that provides many benefits. The success of a company or UMKM in
realizing its goals both short and long term is inseparable from the role of management
in carrying out its functions. One of the functions of management is planning and
control which can be realized through the budgeting system. The preparation of the
budget plan is the process of preparing financial projections and costs that may arise
due to functional processes in the fields of production, marketing, financial
administration, and other related fields to achieve company goals. The preparation of a
budget plan can avoid wasteful and unnecessary payments, streamlining the use of
resources such as labor, equipment, and funds. The financial budgeting system
generally consists of a sales budget, a production budget, a raw material budget, a labor
budget, a factory overhead cost budget, a variable budget, a capital expenditure budget,
a receivable budget, and a cash budget. In this case, the budget can be a tool for MSMEs
for better management of entities.
The budgeting system proved to be very important for the sustainability of MSMEs.
This is consistent with what is expressed by Tanzil (2017) that planning is the starting
point for developing businesses, failing in planning means failing in everything. Based
on this, this study intends to describe the budgeting system used by MSMEs, especially
in East Java Province. The basis of this research is the importance of the sustainability
of the MSME sector for the Indonesian economy
.
2 MSMEs and Budgeting
Undang-Undang No. 20 Tahun 2008 states that MSMEs (Micro and Small and
Medium Enterprises) are productive business opportunities owned by individuals or
individual business entities that meet the criteria for micro-business as stipulated by
law. Small business is a productive economic business opportunity that stands alone,
which is carried out by individuals or business entities that are not subsidiaries or
branches of the company. Mastered, or become a part either directly or indirectly
from medium or large businesses that meet the criteria of small businesses as referred
to in the law.
The development and sustainability of MSME cannot be separated from the
management system of management. One form of the management system is the
financial management system. Financial management in terms of control and
planning can be realized through the budget. Understanding the budget is a collection
of statements about estimates of revenues and expenditures that are expected to occur
in one year or several periods to come. The Governmental Accounting Standards
Board (GASB) defines the budget as a financial operating plan, which includes
estimates of proposed expenditures, and sources of income expected to finance it
within a certain time period. The function of the budget, is; (a) is the final result of
the work plan preparation process; (b) is an activity blueprint that will be
implemented in the future; (c) as an internal communication tool that connects
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various work units and work mechanisms between superiors and subordinates; (d) as
a means of controlling work units; (e) as a motivational and persuasive tool for
effective and efficient action in achieving the organization's vision; and (f) is a
political instrument.
Characteristics of the budget, are; (a) stated in financial units and non-financial
units; (b) generally covers a certain period of time, one or several years; (c) contains
the commitment or ability of management to achieve the goals set; (d) the budget
proposal is reviewed and approved by the authorities higher than the budget; and (e)
once prepared, the budget can only be changed under certain conditions. Budget
preparation requirements, among others; (a) realistically, the budget is expected to be
achieved in accordance with the current situation, neither too optimistic nor too
pessimistic; (b) flexible, not rigid and likely to adapt to changing circumstances; (c)
continuous, requires continuous attention; (d) participatory, requiring participation
from the whole company to achieve the company's goals that have been reflected in
the budget; (e) educative, can educate employees and management to work in
accordance with their commitments; (f) communicative, the budget is used as a
communication tool between departments; (g) integrative, the budget must be able to
unite the implementation of all the activities in a budget report; and (h) coordinative,
can coordinate all departmental activities to achieve company goals.
Based on the explanation of MSMEs and the budget outlined above, it can be
concluded that in managing a business an appropriate budgeting system is needed. With
a variety of inherent functions, the budget can be an effective planning and control tool
for MSMEs
3 Methods
This type of research is a case study research conducted in the MSMEs in East Java.
The rationality of the object of research is that MSMEs in East Java are MSMEs that
have successfully developed their businesses so that they become one of the biggest
contributors to GRDP for the Province of East Java. Data collection is done through
interviews, observation and documentation studies. Interviews were conducted with
MSMEs owners and employees. Furthermore, observations are made by observing the
business processes that occur in the MSMEs. Another method is through documentation
studies related to the implementation of budgeting in East Java MSMEs. Data analysis
in this study was carried out together with other parts of research development, namely
data collection and writing findings. Research data analysis is done by "separating" the
data, which is a process that focuses on some data and ignores other parts (Guest,
MacQueen, & Namey in Creswell, 2016). Data analysis activities in this study, namely
data reduction, data presentation, conclusion and verification of data. This study, using
source triangulation techniques and method triangulation, to carry out validity tests on
the results of the study. In addition, researchers will also conduct member checks to
reduce the bias that might occur.
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4 Analysis and Discussion
4.1 Analysis
Based on the results of interviews that have been carried out at MSMEs in East Java
Province, it can be concluded that there are several things as follows,
a. MSMEs owners in Blitar City, East Java already know the definition of budgeting
in general and know the benefits of budgeting, but have not implemented
budgeting comprehensively. MSMEs in Blitar City require the type of sales
budget, raw materials, labor and production budget.
b. The MSMEs of the City of Ponorogo has implemented simple budgeting and felt
the benefits of budgeting as a management tool. The budget that has been made is
a cash budget to record cash flow. In the future, MSME owners want to learn how
to make a comprehensive budget, especially the sales and production budget.
c. Malang City's SMEs, using the budget, especially in the production process. The
budget is used as a means to maintain the sustainability of the company. MSMEs
in Malang mainly need sales budgets, raw material budgets, and more detailed
production budgets.
d. The MSMEs of Tulungagung City, have not used the budget in managing the
organization. MSME owners do not fully understand the benefits of budgeting and
only rely on memory for company management.
e. Surabaya MSMEs have understood the meaning and benefits of budgeting. In
addition, there has been training and provision of material from the Surabaya city
government. The owner of UMKM has made a budget but it has not been detailed
and only looks at annual trends.
f. MSMEs City of Jember has implemented simple budgeting on the management
of its business. This was driven by the training and provision of material by the
City Government of Jember. Budgeting is mainly done to see cash flow and plans
for using cash in the next period. In the future, MSMEs in the City of Jember want
to create a more detailed sales budget and raw materials.
4.2 Discussion
The budgeting system is one way for SMEs to realize efficient and effective
organizational management. Budgeting can estimate how the planned utilization of
resources will be carried out by the company in one period. The budget can also show
how a resource is managed by the organization. The budget becomes an effective
evaluation tool so that in the future the company can design a better management
system than before. Based on the results of interviews conducted at MSMEs in East
Java, it can be seen that MSMEs in East Java on average have not yet implemented
comprehensive budgeting. Organizational management is carried out manually and
traditionally based on the owner's memories, simple records, and annual trends. This
happens because there are still limited human resources (HR) who understand well the
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151

preparation of the budget. On the other hand, there are habits inherent in the
management of MSMEs. The owner feels that the simple management of UMKM has
been able to survive. This certainly becomes very worrying, especially in the current
era of disruption. MSMEs that do not want to adopt in the long run can be eroded so
that they are at risk of bankruptcy. With an increasingly high level of business
competition, it is important for MSMEs to have an adequate management system so
that businesses can be run in the most efficient and effective way.
5 Conclusion and Suggestion
5.1 Conclusion
The results show that the implementation of budgeting in MSMEs in East Java carried
out with the traditional system. The budgeting only used to record cash flow. Budgets
are made only based on the owner's memory, simple records, and annual trends. This
happens because of the still limited HR (Human Resources) and there are habitual
factors inherent in budget management. Based on the result, it can be concluded that
MSMEs have not fully maximized the budgeting function as a tool for planning and
profit control.
5.2 Suggestion
In order to encourage an adequate management climate for MSMEs, a comprehensive
budgeting system is needed. This budgeting system must be adapted to the needs of
MSMEs. The budgeting system can be outlined in a module in the future which can be
further developed into an application or software to facilitate UMKM in its utilization.
The role of government is crucial for the realization of the budgeting climate for
MSMEs.
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