THE IMPACT OF FINANCIAL MANAGEMENT ON THE GROWTH OF SMEs

Abstract

The study was undertaken to investigate the impact of Financial Management (FM) practices on Small and Medium Enterprises (SMEs) growth and further identify the factors that enhance sustainable SME growth and further, the extent to which these factors have contributed to the performance and growth of SMEs in Zambia. The proposed area of this study is Kalingalinga, where there is a high concentration of SMEs. The study has also proposed measures that would enhance and sustain SME growth for them to be competitive and assume their expected role in the economic development process in Zambia. The literature reviews reveal that much of the work previously done concentrated more on the importance of SMEs in the development agenda of most economies. How little has been done in the area of Financial Management and this aspect affects SMEs' performance. A survey method of data collection using self-administered structured questionnaires. The respondents were managers/owners and other levels of employees of the participating SMEs. The study revealed that most of the SMEs in the chosen sample had not adapted to the use of Financial Management practices, had no stock inventory records, credit management procedures were not adequate and did not practice any risk management procedures. There were few SMEs with proper financial management practices and these were found to operate profitably. The lack of Financial Management practices in most SMEs was attributable to a lack of qualified and skilled manpower. Many SMEs found it difficult to obtain funds for business growth from banks and other lending institutions because of failure to produce cashflows and sound business plans. Many of them operated in poor infrastructure and lacked ICT skills and cannot compete effectively with local and foreign large enterprises due to poor quality products and lack of marketing strategies. Reskilling and training programs in entrepreneurship in financial management were found to be necessary. Recommendations were made for Government to intervene and provide the necessary infrastructure, providing appropriate training, and equipping the SMEs with marketing skills.