The Impact of Financial Management Practices on the Performance of Small and Medium Enterprises: A Case of Monduli District

Meinyali Mevaashi Sabore

doi:10.37284/eajbe.8.1.2850

Meinyali Mevaashi Sabore Tengeru Institute of Community Development

DOI: https://doi.org/10.37284/eajbe.8.1.2850

Keywords: Financial Management Practices, Performance and SMEs

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Abstract

Despite the significance of small and medium enterprises (SMEs) in the manufacturing sector and economic growth, many of these SMEs struggle to achieve sustainable growth and profitability due to inadequate financial management practices. Therefore, this study assessed the impact of financial management practices on the performance of manufacturing small and medium enterprises in Monduli District. Financial management practices, including working capital management practices, financial reporting and analysis practices, accounting records practices, capital budgeting practices, and performance of SMEs are variables of this study. The study used a correlational research design and a quantitative approach. The study used a simple random sampling technique to select 96 SMEs to be included as a sample size. The study used closed-ended questionnaires for data collection in the Likert scale format. The study used descriptive analysis, including tables and bar charts. Also, multiple regression analysis was used to analyze the impact of working capital management practices, financial reporting and analysis practices, accounting records practices, and capital budgeting practices on the performance of manufacturing SMEs. Findings showed that capital budgeting practices, financial reporting and analysis practices, accounting records practices, and working capital management practices are statistically 0 significant at (t=6.349, p (0.000) <0.05, n=96), (t=3.434, p (0.001) <0.05, n=96), (t=2.041, p (0.044) <0.05, n=96) and p (t=3.179, p (0.002) <0.05, n=96) respectively. These results imply that working capital management practices and capital budgeting practices show a higher positive contribution to the performance of SMEs, while financial reporting and analysis practices and accounting records practices show a lower positive contribution to the performance of SMEs. Therefore, the research concludes that budgeting practices, financial reporting and analysis practices, accounting records practices, and working capital management practices improve the performance of SMEs. It is recommended that manufacturing SMEs prioritize effective, structured, and comprehensive financial management practices to improve their overall performance.

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