Understanding financial management as a determining factor for the success of MSMEs: A qualitative study

Abstract

Purpose: This study aims to explore the understanding of financial management among micro, small, and medium enterprises (MSMEs) and how such understanding influences the success and sustainability of their businesses. The primary focus is to identify key financial management factors considered essential by MSME owners and the challenges they face in implementing effective financial practices. Research Methodology: This research employs a qualitative literature review methodology, analyzing relevant studies, reports, and articles related to MSME financial management. The study synthesizes insights from various sources to provide a comprehensive understanding of the current practices, challenges, and factors that contribute to the financial success of MSMEs. Results: The findings indicate that a solid understanding of financial management, including cash flow management, transaction recording, and long-term financial planning, plays a crucial role in the success of MSMEs. Despite the recognition of its importance, many MSME owners face barriers such as lack of financial knowledge, limited access to financial resources, and reliance on manual accounting methods. Moreover, many fail in long-term financial planning, which impedes their ability to manage risks and plan for business expansion effectively. Limitations: This study is limited to a qualitative literature review, which may not capture the full range of experiences from MSME owners across different sectors or regions. Contribution: This research contributes valuable insights for MSME owners, financial institutions, and policymakers in understanding the critical role of financial literacy and providing better support for MSMEs.