Abstract
The study was conducted to establish the impact of financial management practices on the perdomance of SMEs in Zimbabwe. The problem statement identified lack of business growth of SMEs. The objectives of the study were to establish the impact of financial management practices on the sustainable growth of SMEs. The study was based on a sample of 101 SMEs from the Catering Industry that were selected through random sampling. Data analysis was done through SPSS version 2.2. The findings revealed that SMEs used mostly four financial management practices: capital budgeting, working capital management, Capital structure, and financial reporting analysis. The challenges faced by SMEs in implementing prudent financial management practices were mainly poor management skills, lack of business registration and lack of financial literacy skills. The results of the study implied that most challenges faced by SMEs were internally localised. The study recommended a model for growth of SMEs in which the government was the major supporter of SMES through financial literacy training and provision of financial support. SMEs were recommended to use equitable financial management practices.
Highlights
Small and Medium Enterprises (SMEs) are a strong vehicle for the growth of the world economy and hugely contribute to economic development of poor countries (Abor et al, 2010, Azize, 2013))
The results largely showed no association between the financial management practices and the performance metrics of the Small to Medium Enterprises (SMEs)
The only contrasting finding was on return on assets where the modal value of 2 showed that the majority of respondents were of the opinion that their SME organisations just had low performance
Summary
Small and Medium Enterprises (SMEs) are a strong vehicle for the growth of the world economy and hugely contribute to economic development of poor countries (Abor et al, 2010, Azize, 2013)) Despite their importance, the mortality rate for SMEs in very high. Myers and Majluf (1984) developed the Pecking order theory which suggests that firms have a particular preference order of raising capital, starting with less risky retained earnings, safe debt and equity This order is dictated by asymmetric information, released onto the market in each financing category that business managers analyze to make a prudent decision. In this study cash flow management will be used as proxy for financial management practices while ROA, net revenue and ROI will be used as proxy for profitability
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