Financial Management Practices and Financial Performance of the Selected Micro, Small and Medium-SizedEnterprises (MSMEs)

Abstract

Regardless of the business size, sound financial management is necessary to stay in business and grow. Financial management is one of the several functional areas of management that plays a central role in the success of any small business. The study aims to determine the relationship between financial management practices and financial performance of micro, small and medium-sized enterprise MSMEs and how the business owners could attain their financial objectives through efficient and effective financial practices. It will employ the three aspects of financial management: financial planning, financial control, and financial decision-making. It will consider such variables as working capital management, financing, and investment decisions of the firm’s owners or management. The researcher used qualitative methods of research for this study based on the fact that the researcher intended to collect detailed and current information that would enable him to identify and describe the current situation concerning financial management in MSMEs. Readings enabled a comparative analysis of the variation of financial management among small-sized enterprises. Studies had identified that often the cause of business failure was due to poor or careless financial management. Though many articles show that there’s not much change in the financial management practices experienced among MSMEs over the past years, there is variation on how the firms are implementing these. The results might have an impact on their future policy decisions. The adoption of sound financial management gives an entity an advantage as it enhances its profitability and survival in a dynamic environment and will help MSMEs to have effective control on their working capital that includes cash flows, inventories, accounts receivable, and payables, and enabling them as well to provide accurate and up to date financial records. It will also identify their strengths, weaknesses, opportunities, and threats. In studying the relationship between the financial practices and the performance of organizations, it is important to note other intervening variables that may directly impact the organization's performance. It is essential to take them into account. These factors include the size of the firm, degree of exposure of the firm, capital market, and intensity, including its product market share. These variables may be held as the control factors.