Financial Management Challenges In Small And Medium-Sized Enterprises: A Strategic Management Approach

Hande Karadag

doi:10.5195/emaj.2015.67

Abstract

Abstract :Due to their significant role in creation of new jobs, rise in GDP, entrepreneurship and innovation, small and medium-sized enterprises (SMEs) are recognized as the the drivers of socio-economic growth, both in developed and developing economies. In Turkey, 99.9 % of all enterprises fall into SME category. Therefore, the significance of SMEs for Turkish economy and society is much higher in Turkey, compared to other emerging and developed countries. Small and medium-sized companies are faced with a number of challenges whereas the problems arising from “poor financial management” are reported as the major causes of business failures in SMEs. Strategic financial management (SFM) which is a research area that has attracted the interest of researchers after 2010, is one of the key managerial areas of SMEs, due to its vital role on the survival, growth and performance of SMEs. The purpose of this paper is to analyze the central role of financial management and identify the financial management challenges and practices that influence the organizational performance in Turkish SMEs, from a strategic management perspective. Within the course of this paper, the importance and challenges of SMEs in Turkey are presented in the first section, while the literature on strategic and financial management in SMEs are reviewed in the second part. In the third section, the recent strategic financial management concept, the implications of strategic financial management practices for SMEs in Turkey and the relationships between strategic financial management practices and SME performance, are discussed. Small and medium sized enterprise finance in Turkey is a developing research area, therefore this paper aims to make a significant contribution to the existing literature by analyzing the major challenges at the conduct of financial management in Turkish SMEs and the influence of strategic financial management practices on the performances of small and medium sized companies in Turkey.Additionally, the conceptual framework developed is expected to be useful to academics in developing an agenda for future empirical research.

Highlights

Small and medium sized enterprises (SMEs) form a large part of economy and are regarded as the drivers of socio-economic development in all countries
Strategic financial management practices and SME performance In Turkey, as in most developing economies, lack of capital and poor access to finance are considered as the main financial challenges for small and medium sized companies (Öndeş & Güngör, 2013; Şahin, 2011; Çetin, Akyüz & Genç, 2011; Güler, 2010; Koyuncugil & Özgülbaş, 2008)
Other elements of financial management, such as accounting information systems, are not included in the model, as these practices have been reported by the SME owner/managers, as being significantly correlated with SME performance in Turkey

Summary

Introduction

Small and medium sized enterprises (SMEs) form a large part of economy and are regarded as the drivers of socio-economic development in all countries. Previous studies have shown that, among these several problems, challenges related with financial decisions and actions have a strategic importance for SMEs in Turkey, as the efficient and effective conduct of financial management has the potential to elevate or diminish the performance of a small and medium sized company (Öndeş and Güngör, 2013; Şahin, 2011; Çetin, Akyüz and Genç, 2011; Güler, 2010; Koyuncugil and Özgülbaş, 2008). Despite the importance of strategic thinking and implementation on the conduct of financial management in SMEs which have to operate in contexts of high risks and uncertainty with limited resources, SME owner/managers regard production/service or marketing functions as priorities in the startup phase of new ventures, which eventually results with poor financial management, and in most cases failure of business (Jindrichovska, 2013). The following section presents a conceptual model as a new perspective of looking at the financial conduct in small and medium sized companies, by firstly identifying the “strategic” practices of financial management in Turkey, followed by a discussion on their interrelationships and their impact on organizational performance

Strategic financial management practices and SME performance

Findings

. Discussion and conclusion