The Effect of Financial Management Practices On The Performance Of Small And Medium Scale Enterprises In Nigeria

Abstract

The uncertainty of the business environment in Nigeria combined with poor knowledge of financial management often makes Small and Medium Scale Enterprises (SMEs) face serious challenges regarding productivity and financial performances, which is a threat to the survival of

businesses. This study focused on the effect of Financial Management Practices (FMP) on the performance of SMEs in Nigeria. The main objective of the study was to gain a deeper understanding of how SMEs in Nigeria are affected by FMP such as working capital management, accounting information systems, financial reporting and analysis, investment decisions, and financial planning.

The study adopted positivism philosophy with a deductive approach, the collection of quantitative data was carried out with the questionnaire administered through the internet. 250 business owners, business partners, firm managers, financial managers, and other employees working in SMEs gave their consent to participate in this study by filling the closed-ended questionnaires drafted to answer the questions of this research. Five hypotheses were drawn from the literature reviewed and were tested with simple linear regression.

In this study, it was shown that working capital practices have a significant influence on the performance of SMEs in Nigeria, investment practices have a significant effect on the performance of SMEs in Nigeria, financial planning practices have a significant impact on the performance of SMEs in Nigeria, accounting information systems contribute to the performance of SMEs in Nigeria, and financial reporting has a significant impact on the performance of SMEs in Nigeria. The study recommends that FMP should be highly prioritized by SME managers during the formulation of the strategies of their businesses. This will enhance consistency, accountability, and transparency in their financial operations. And, before adopting any FMP, SMEs should carefully evaluate the structures of their companies. Since companies differ in capital structures, this will help firms to adopt the practices suited to their particular firm.