METHODIST UNIVERSITY COLLEGE GHANA

THE IMPACT OF FINANCIAL MANAGEMENT PRACTICES ON

PERFORMANCE OF BUSINESS ORGANIZATIONS IN GHANA: A

CASE STUDY OF THE NATIONAL BOARD FOR SMALL SCALE

INDUSTRIES (NBSSI)

GROUP MEMBERS INDEX NUMBERS

SOMEVI BRIGHT KODJO BBAA/ET/161043
ABUSAH MILLICENT BBAA/ET/162487
DARLINGTON ATSU JOHN BBAA/ET/162035

July, 2020
DECLARATION

Candidate’s Declaration

We hereby declare that this thesis is the result of our own original research and

that, no part of it has been presented for another degree in this university or

elsewhere.

NAME INDEX NUMBER SIGNATURE

SOMEVI BRIGHT KODJO BBAA/ET/161043 …..……………

ABUSAH MILLICENT BBAA/ET/162487 ………………..

DARLINGTON ATSU JOHN BBAA/ET/162035 ………………..

i
 CERTIFICATION

I hereby certify that the preparation and presentation of the thesis were

supervised in accordance with the guidelines on supervision of thesis laid

down by Methodist University College Ghana.

Supervisor’s Signature:.................................... Date:.........................

Name: Mr Offei Kofi Williams Mensah

ii
 DEDICATION

To our family and friends.

iii
ACKNOWLEDGEMENTS

We acknowledge the power of God, the maker, and the provider of

knowledge for enabling us to complete our business administration degree in

the right spirit. Most importantly, we sincerely wish to acknowledge the

support from our supervisor William Offei Mensah, without whom we could

not have gone this far with our project work. You have been our inspiration

as we hurdled all the obstacles in the completion of this research work. We

could not have imagined having better advisor and mentor for our Bachelor

of Business Administration in accounting project work. To Methodist

University College Ghana for offering us the opportunity to do this study and

all our lecturers who contributed in one way or another in quenching our

thirst for knowledge. Finally, our deepest thanks and appreciation to our

families, for the understanding, patience, kindness, and giving full and moral

support throughout the period of our study. Thanks for your continuous

encouragement and believing in us. We offer our regards and blessings to our

children, for their patience and support. Lastly but not the least, We are also

indebted to our Bachelor of Business Administration in Accounting

colleagues and friends and all those who assisted us in one way or another

throughout this period of study and though we may not name each one of you

individually, your contribution is recognized and appreciated immensely. We

owe you our gratitude. To you all, God bless.

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ABSTRACT

Proper financial management is essential for business survival because firm’s

inability to identify and implement relevant financial management practices
can affect its performance. This study examines the impact of financial
management practices and their relationship with performance of business
organizations, which focuses on SMEs funded by National Board for Small
Scale Industries (NBSSI) in the Accra metropolis. The process of financial
management includes sourcing of funds, cash management, bookkeeping, and
reporting. It’s through reporting that enterprises are aware of their
performance. The major tenets of financial management include: efficient and
effective usage of enterprise’s resources; accountability to the various
enterprise stakeholders; long term sustainability of the enterprise through
effective forecasting and sales growth; achievement of the financial goals of
the enterprise and or gain competitive advantage over the competition. The
study objectives were to examine the effects of cash management, financial
planning, financial reporting and bookkeeping on the performance of
enterprises funded by NBSSI. Quantitative data was computed for both
descriptive statistics. The study concludes that enterprises funded by NBSSI
have challenges in managing their cash since it was found that they have not
embraced and implemented efficient cash management practices in their
business operations. They have weaknesses in integrating financial planning
and control into financial management limited the perceived value of the
financial planning process within the organization. They applied financial
standards in ensuring accountability of finances in the organizations for the
purposes of proper financial planning and they do not keep complete
accounting records because of lack of accounting knowledge and the cost of
hiring professional accountants. As a result, there is inefficient use of
accounting information to support financial performance measurement by
them. The study recommends that Enterprises funded by NBSSI should adopt
computerized accounting packages to help improve their efficiency in cash
management.

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 TABLE OF CONTENTS

DECLARATION i
CERTIFICATION ii
DEDICATION iii
ACKNOWLEDGEMENTS Error! Bookmark not defined.
ABSTRACT Error! Bookmark not defined.
TABLE OF CONTENTS v
LIST OF TABLES ix
LIST OF FIGURES x
CHAPTER ONE 1
INTRODUCTION 1
1.0 Introduction 1
1.1 Background of the study 1
1.2 Statement of the problem 4
1.3 Objectives of the Study 5
1.4 Research Questions 6
1.5 Significance of the Study 6
1.6 Research methodology. 8
1.7 Scope of the study 9
1.8 Limitations of the study 9
1.9 Organization of the Study 10
CHAPTER TWO 11
LITERATURE REVIEW 11
2.0 Introduction 11
2.1 Theoretical Framework 11
2.1.1 Financial Liberalization Theory 11
2.1.2 Financial Sustainability Theory 13
2.1.3 The Contingency Theory 14
2.1.4 The Concept of Small and Medium Enterprises in Ghana 16
2.2 Conceptual Framework 17
2.3 Financial Management Practices 20
2.4 Organizational Performance 23
2.5 Financial Performance 25

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2.6 Relationship between financial management practices and financial
performance. 28
2.7 Empirical Literature Review 29
2.7.1 Studies relating to financial management practices 30
2.7.2 Studies relating to Cash Management 31
2.7.3 Studies relating to Financial Planning 33
2.7.4 Studies relating to Financial Reporting 34
2.7.5 Studies relating to Book Keeping 35
CHAPTER THREE 37
RESEARCH METHODOLOGY 37
3.0 Introduction 37
3.1 Research Design 37
3.2 Population of the study 38
3.3 Sample size and sampling technique 39
3.4 Data collection method 40
3.5 Data collection procedures 41
3.6 Data Analysis and presentation 41
CHAPTER FOUR 44
DATA ANALYSIS AND PRESENTATION 44
4.0 Introduction 44
4.1 Response Rate 44
4.2 Demographic Information 45
4.2.1 Gender Of The Respondents’ 45
4.2.2 Age ofRespondents’ 46
4.2.3 Academic Background Of The Respondents’ 47
4.2.4 Work Experience Of The Respondents’ 48
4.3 Descriptive And Inferential Statistics 49
4.3.1 Cash Management 49
4.3.2 Financial Planning 51
4.3.3 Financial Reporting 53
4.3.4 Record-Keeping 56
4.3.5 Performance of SMEs Funded By NBSSI 59
CHAPTER FIVE 61
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS 61
5.0 Introduction 61

vii
5.1 Summary of the Findings 61
5.2 Conclusion 63
5.3Recommendations of the Study 64
5.4 Suggestions for Further Research 65
REFERENCES 66

viii
 LIST OF TABLES

Table Page

3.1: Target Population…………………………………………………………...37

3.2: Sample Size…………………………………………………………………39

4.1: Respondents Response Rate………………………………………………..44

4.2: Age of Respondents………………………………………………………...45

4.3: Respondents Educational Level…………………………………………….46

4.4: Respondents Work Experience……………………………………………..47

4.5: Cash Management List of Statements………………………………………49

4.6: Does financial planning have impact on the performance of the

enterprises?............................................................................................................50

4.7: Financial Planning List of Statements……………………………………...51

4.8: Financial Reporting and Performance………………………………………53

4.9: Views on the Impact of Bookkeeping on Performance of SMES…………..55

4.10: Book Keeping List of Statements…………………………………………56

4.11: Performance of Enterprise Funded by NBSSI…………………………….58

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 LIST OF FIGURES

Figure Page

2.1: Conceptual Framework19

Figure 4.1: Gender of Respondents……………………………………45

Figure 4.2: Respondents educational level…………………………….46

Figure 4.3: Cash Management and Performance………………………48

Figure 4.4: Financial reporting and Performance………………………53

x
 CHAPTER ONE

INTRODUCTION

1.0 Introduction

This chapter contains the background to the study, statement of the problem and

objectives of the study. It also sets the research questions that will be answered in the

research and identify how the research would be useful to others. The chapter further

outlines significance, scope and finally limitations of the study. Generally, the key

highlight of chapter one is to provide introductory information on the impact of

financial management practices on performance of business organizations in Ghana.

1.1 Background of the study

Financial management is one of management functional areas which is core to

success of business enterprises. Inefficient financial management, combined with the

uncertainty of the business environment often led business enterprises to serious

problems (Lakew & Rao, 2014). According to Kwame (2007), careless financial

management practices are the main cause of failure for business enterprises. Today,

businesses are under constant pressure to develop, implement and rapidly revise their

financial management strategies (Shah, 2009). To do this, businesses need to develop

and implement financial strategies to manage risk and improve financial performance

and capabilities as depicted in the resource-based theory. Paramasivan and

Subramanian (2009) argued that financial management helps to improve the

profitability position of business organizations with the help of strong financial

control devices such as budgetary control and ratio analysis.

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Financial management is concerned with raising the needed funds to finance the

firm’s assets and activities, effective allocation of funds between competing uses,

and ensuring that the funds are used effectively and efficiently in order to accomplish

the desired goal of the business (McMahon, Holmes, Hutchinson, & Forsaith (2008).

As cited by kieu (2004) Walker and Petty defined the main areas of financial

management to include financial planning that is cash planning, fixed asset planning

and profit planning, investment decision-making, working capital management that is

cash, receivable and inventory management plus sources of financing (short-term and

long-term financing, intermediate financing and going public).

Financial management is one of the basic functions practice in all organizations

(Brock, 2007). It is the way forward and represents the future for best practice

organizations. Through this function, bases are determined for authority levels of

financial control, budgeting and processing financial resulting information. A

financial plan determines cash inflow and outflows of the treasury (Gary, 2003). The

corporate sector plays a vital role in the economic outlook of any country. Financial

literature suggests that capital structure has a greater impact on the economic system

(Myers & Majluf, 2011) and managers should identify the ideal corporate structure

for the company (Pinegar& Wilbricht, 2009). Gloy and LaDue (2011) studied the

impacts of financial management practices on firm profitability. To measure the

extent of business analysis, the authors identified the producers who benchmarked

their profitability relative to other firms, producers who kept track of their financial

profitability over time, and those who hold formal business meetings each year.

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Financial management in SMEs is often different to that found in large firms due to

the more dynamic nature of their cash flow cycle, general paucity of working capital,

and their ability to raise finance through debt or equity (Mazzarol et al., 2015). SMEs

also lack the financial management and accounting systems available to large firms,

as well as the professional staff who manage such systems. Typically, the owner-

manager is required to perform these tasks, often, but not always, with support from

a bookkeeper and an accountant. This is a pattern found throughout the world, both

within the advanced economies that comprise the Organization for Economic Co-

operation and Development (OECD) group of nations, and the developing economies

(Lasagni, 2012).

Performance entails a set of objective indicators (mission statement, a strategic plan,

the human resource system, an independent financial audit and an information

technology system) that help measure this performance (Herman and Rentz, 2008).

Performance is one of the most important variables in the management research and

arguably the most important indicator of the organizational performance. (Monique,

2012) defined corporate performance as an organization's ability to exploit its

environment for accessing and using the limited resources. An organization is

successful if it accomplishes its goals using a minimum of resources hence an

organization that achieves its performance objectives based on the constraints

imposed by the limited resources (Lusthaus & Adrien, 2008).

When seeking to improve the performance of an organization, it is very helpful to

conduct regularly assessments of the current performance of the organization (Neely

& Adams, 2009). Well-done assessments typically use tools, such as comprehensive

3
questionnaires, SWOT analyse and diagnostic models along with a comparison of

results to various best practices.

Financial performance refers to the act of performing financial activity. In broader

sense, financial performance refers to the degree to which financial objectives being

or has been accomplished. It is the process of measuring the results of a firm's

policies and operations in monetary terms (Earle and Estrin, 2006). According to

Gitman (2007), financial performance is the degree to which financial objectives

being or has been accomplished and is an important aspect of finance risk

management. Financial performance principally reflects business sector outcomes

and results that shows overall financial health of the sector over a specific period of

time (Maseko and Manyani, 2011). Over the years, company financial performance

has been the central interest to shareholders, managers, researchers and policy

makers. Yet there is little convergence of opinion how such performance should be

measured. To evaluate a firm’s performance, analysts apply certain yardsticks, the

most frequently being used are ratios. However, recently focus has shifted to other

performance indicators besides the financial aspect.

1.2 Statement of the problem

Small and medium-sized enterprises (SMEs) are the backbone of the Ghanaian

economy – they represent about 85% of businesses, largely within the private sector,

and contribute about 70% of Ghana’s gross domestic product (International Trade

Centre, Accra 2016). However, studies have shown that financial management

remains a major constraint to SMEs (Peacock, 2004; Irena, 2013; Agyei, 2014). A

study by Boachie et al (2005) showed that 60 percent of SMEs in Ghana collapse

4
within the five years of commencement of operations. This is undoubtedly a

worrying phenomenon.

Having in place a sound financial management system to efficiently govern the

incomes, expenses, assets and liabilities of the organisation is key to organisational

performance (Abanis et al 2013). An organisation may have the best quality

management practices, a large capital base, a large market share and benefit from

low corporate tax rate; but may still risk collapse if it fails to manage its finances

efficiently.

The additional pressure that is brought to bear on Ghanaian businesses such as highly

competitive turbulence as a direct consequence of trade liberalisation; and

unfavourable macroeconomic variables (inflation, high interest rates, unfavourable

terms of trade and high exchange rates), makes it important that firms in Ghana

employ the right performance tools to survive. Unfortunately, there appear to be no

coherent performance model that would guide profitability improvement of most of

the SMEs in Ghana. Consequently, this study is aimed at assessing the impact of

financial management practices on the performances of SMEs being funded by the

National Board for Small Scale Industries (NBSSI) in Ghana.

1.3 Objectives of the Study

The general objective of the study was to examine the impact of financial

management practices on financial performance of enterprises funded by the

National Board for Small Scale Industries (NBSSI) in Ghana. The specific objectives

of the study include the following:

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 1. To examine the effect of cash management on the performance of enterprises

funded by NBSSI in Accra, Ghana.

2. To establish the influence of financial planning on the performance of SMEs

funded by NBSSI in the Greater Accra Region of Ghana

3. To investigate the impact of financial reporting on the performance of small

medium enterprises funded by NBSSI in the Greater Accra Region of Ghana.

4. To assess the effect of book keeping on the performance of enterprises funded

by NBSSI.

1.4 Research Questions

1. What are the effects of cash management on the performance of enterprises

funded by NBSSI in Accra, Ghana?

2. What is the relationship between financial reporting on the performance of small

medium enterprises funded by NBSSI?

3. How does financial planning affect the financial performance of SMEs funded

by NBSSI

4. What is the outcome of book-keeping on the financial performances of SMEs

funded by National Entrepreneurship and Innovation Program?

1.5 Significance of the Study

The findings of this study will be of great significance to various stakeholders and

will add value to organizational competitiveness as indicated below:

i. The study first of all will contribute to finance theory. It will draw on

researchers’ observation from the obviously ignored area on the relationship

6
 between financial management practices and financial performance of SMEs in

Ghana.

ii. The study will also provide potential investors interested in establishing an SME

understand the factors that influence the performance of SMEs, their competitive

characteristics, the impact of sound financial management practices on the

profitability of SMEs in addition to appreciating the comparative strengths and

inefficiencies among SMEs.

iii. Most of the NBSSI funded enterprises are usually operated by youths with no

management skills knowledge with only a few operated by seasoned

businesspersons and entrepreneurs. Most of the enterprises fail in their /before

their third year. Therefore, this study was significant in to assessing the many

factors that may lead to a breakthrough in the investigation and mitigation of the

failure rate. This research therefore assists these new business owners develop

skills in managing their enterprises effectively and thus ensure the enterprises

survive at a foreseeable future.

iv. It will give a fresh insight into the possible correlation between financial

management practices and financial performance in SMEs by theoretical

exploration and finally help expands the existing findings in the finance

literature.

v. The findings of this study would also be of relevance to the owners and

managers of SMEs to appreciate the key role played by prudent financial

management in the performance, viability and sustainability of their businesses.

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vi. The study will help the policy makers in formulating policies that will contribute

to the growth and development of SMEs which as a result will improve the

economic development of the country.

vii. The study will add to the scanty literature in the financial management practices

in indigenous Ghanaian businesses, and serve as a basis for further research, for

all those interested in the field.

1.6 Research methodology.

The source of materials for the study was obtained from primary and secondary

sources. Primary data was collected by the use of a structured questionnaire designed

and administered to staff of the SMEs funded by NBSSI, for information on the

impact of financial management practices on the performances of enterprises funded

by NBSSI. Secondary materials were extracted from relevant textbooks, newspapers,

reports/articles, journals, bulletins and documents presented by corporate strategists

and inventory managers.

The stratified simple random sampling technique is used in attaining the sample size,

by basically concentrating on enterprises funded by NBSSI within the Accra

Metropolis. Due to time and limited resources constraints, proportionate staffs were

sampled for input for this study. Out of the 60 questionnaires distributed, 55 staff of

the enterprises funded by NBSSI were received for data input.

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1.7 Scope of the study

The research involved exploring and assessing the effect of financial management

practices on the performance of SMEs funded by NBSSI in the Accra Metropolitan

Area in the Greater Accra Region of Ghana. The study focused on how cash

management, book keeping, financial reporting and financial planning affect the

performance of enterprises funded by NBSSI. The study used both secondary and

primary data. The primary information on financial management practices were

obtained from senior management and middle management employees of the SMEs

through questionnaire, whiles the Secondary data was collected from the financial

statements. The study is a case study approach and focuses on SMEs funded by

NBSSI in the Accra metropolis, hence cannot cover other SMEs in Ghana to reflect

the entire industry approach to financial management practices on corporate

performance and profitability of the sector. As a result, the results will not generalize

but its findings will place in the relevant context of the SMEs that will be studied.

1.8 Limitations of the study

It is worth mentioning that the study covers a small portion of the enterprises funded

by NBSSI in the Greater Accra Metropolis due to time and financial constraints. The

researchers carried out this study within a limited time frame as is the case with

every academic research. The time limitation imposed severe constraints on the

thoroughness of this investigation. This limitation manifested itself in lesser sample

size and minimal coverage.

Financial constraints were another problem that the researchers encountered. Every

research work is a costly activity, involving cost of stationery and printing, cost of

9
travelling and administering questionnaire as well as interviewing respondents. As

this is an academic exercise, the researchers’ encountered difficulty in soliciting for

funds since it was not a direct request from the organization concerned. Finally, poor

response rate was another constraining factor that hindered the study. The

willingness of the respondents to provide information on the questions asked. This is

because financial information is sensitive to any business and thus a major

impediment.

1.9 Organization of the Study

This study was organized in five chapters. Chapter one comprises of the background

to the study, research problem, objectives of the study, significance of the study,

research questions, scope of the study, limitation of the study of the study. Chapter

two comprise of the theoretical review, empirical review, conceptual framework,

knowledge gaps and summary of the literature review. Chapter three comprise of the

research methodology, that is, research design, target population, sampling and

sample size, data collection instruments, pilot study, data collection techniques,

method of data analysis and ethical issues. Chapter four comprise of the research

findings and discussion and finally, chapter five comprise of the summary of the

findings, conclusion and recommendations.

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 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter reviewed the literature available on the financial management. It started

with a theoretical framework followed by an empirical review of the literature that

best relate to the objectives of the study are presented and discussed.

2.1 Theoretical Framework

A theoretical framework consists of concepts, together with their definitions, and

existing theory(s) that are used for your particular study. The theoretical framework

must demonstrate an understanding of theories and concepts that are relevant to the

topic of your research paper that will relate it to the broader fields of knowledge in

the class you are taking (Torraco, 2015). The theoretical framework presented herein

demonstrates an understanding of theories and concepts that are relevant to the topic

of the study.

2.1.1 Financial Liberalization Theory

Ronald McKinnon (1973) and Edward Shaw (1973) were the first to explicate the

notion of financial liberalization theory sometimes referred to as McKinnon and

Shaw or Financial Repression Theory. The theory proposes that there exist two ways

of evaluating the connection between finance and development. One of the ways is

“demand-following” and takes place when finance deepens as economy grows

(Ahmed, Abdullahi, Islamand Sardar 2017); the other is “supply leading” and takes

suppose growth of firm is pursuant to its financial expansion. Reinhart, Ostry,

11
Jonathan and Carmen (2016) point out that financial liberalization can improve the

rate of growth as interest rates move towards market average value, and resources are

properly utilized. Consequently, removing controls on interest rates and letting

interest rise could inspire increased saving rates. Additionally, with the supposition

that increased savings leads to reduced interest rates, increased rates are expected to

raise financial intermediation (Reinhart et al., 2016). Strictly with the above

assumptions, it is probable that financial liberalization yields increased savings

which eventually increases economic development through alterations in quality

(through allowing efficient resource locations) and investment quality. The adoption

of policies of financial liberalization will lead to improved productivity and boost

growth in the economy. Ahmed et al., (2017) asserts that the strategies lead to

increased propensity to save and this increased savings to investors and in turn

lowers the interest rates. The proposition here is that interest rates are retained below

the market rates under the repressed financial system, with the purpose to achieve

sufficient capital for SMEs. The result is that there will be reduced investment and

savings leading to increased disparity amid borrowing and SME's rates, and this can

lead to low business. However, Ahmed et al., (2017) state that financial liberalization

is expected to rectify the aforementioned disparities by letting market determination

of all SME’s interest rates and stabilization of inflation. This study considers this

theory essential since it also leads to increased allocative efficiency and improved

performance of the investment. It is through financial liberalization that SMEs can

institute various mechanisms to ensure that there is sufficient flow of credits to

borrowers and creditors (SMEs) get optimal value for their investments (Ahmed et

12
al., 2017). Among the measures include quantifiable credit strategies, the

concessional interest rate to specific SMEs, restricted liquidities and cash reserve

ratios. Financial liberalization also entails removing all non-market strategies of

interest rate control, leaving market system pricing and fund allocations. The

economic reforms enacted through financial liberalization improve the investment

effectiveness via the efficient use of available resources, and this eventually boosts

the performance of SMEs.

2.1.2 Financial Sustainability Theory

Sustainability refers to operations that build and maintain sustainable economic,

social and natural environments. Thus, the concept of sustainability links to the

economic performance of an organization, to the health of employees and to the

stock of natural resources in the long term (Dunphy, Andrew, & Suzanne, 2014).

SME that upholds these three principles is termed sustainable organization.

Economic sustainability implies the application of various organizational strategies

that lead to utilization of available resources to the best advantage. This is done in the

most efficient responsible way in order to ensure long-term benefits (Grant, 2014).

Sustainability” has been used to define organizational sustainability. It can be

measured using two stages: financial self-sufficiency and operational sustainability

of the SME. Operational Sustainability is the ability for an organization to support all

its operations using the generated income (Thapa, Chalmers, Taylor and Conroy,

2015). Self-sufficient is the ability for the organization to cater for their individual

generated income, financing and operating and other forms of subsidy valued at

market price. That is, its ability to cover its costs suppose its activities are not funded

13
and suppose it raised funds at commercial rates (Balkenhol, 2017). The ability for an

organization to sustain itself in a long-term is essential for SMEs to reach their

clientele and also to be able to have sufficient funds to take care of operational costs

(Wells, 2015). Even though SMEs should have the objective to reach poverty-

stricken and poor communities, the ability for them to remain sustainable should be

their first priority. The sustainability for the SMEs has external and internal

implications. The financial sustainability theory is applicable in this research in two

key areas. The first area is to help the researchers focus on human sustainability

(Dunphy, et al., 2014). An SME can achieve this by setting up a system for providing

continuous services to the target group. Secondly, the theory is applicable in

manifesting principles of sustainability by focusing on the economic sustainability of

SME (Dunphy, et al., 2014). This involves ensuring that SME’s capital used as

inputs are economically recycled. SME upholding this principle becomes an active

promoter of ecological sustainability values.

2.1.3 The Contingency Theory

Contingency theory is a behavioural theory based on the views that there is no “one

best way” to lead an organization, organize a cooperation or to make a decision.

Contingency theory states that these actions are dependent (contingent) to the

internal and external factors. Thus Contingency theory states that there is no single

theory of contingency management. Contingency theory therefore asserts that one

thing depends on other things, and for organizations to be effective, there must be a

“goodness of fit” between their structure and the conditions in their external

environment. As such the correct management approach is contingent on the

14
organization’s situation (Daft, 2001). The position of the organizational theorist is

that "the best way to organize depends on the nature of the environment to which the

organization relates." (Scott, 1992: 89) Contingency theory has two basic underlying

assumptions: First, there is no one best way to organize and second, any way of

organizing is not equally effective (Galbraith, 1973). The study accepts the notion of

contingency theory, which suggests that the selected performance measurement

system (PMS) design and use must conform to its contextual factors. Contingency

theory represents a rich blend of organizational theory such as organizational

decision making perspectives and organizational structure (Pugh, Hickson, Hinnings

& Turner 1969; Donaldson, 2001). The essence of the contingency theory paradigm

is that organizational effectiveness results from fitting characteristics of the

organization, (such as its cultures) to contingencies that reflect the situation of the

organization (Burns & Stalker, 1961; Lawrence & Lorsch, 2004). According to

Donaldson (2001), organizations seek to attain the fit of organizational

characteristics to contingencies which leads to high performance. Thus, the

organization becomes shaped by the contingencies (fit) to avoid loss of performance.

Thus, there is an alignment between organization and its contingencies, creating an

association between contingencies and organizational contextual characteristics

(Burn & Stalker, 1961). The contingency theory offers a useful way of

conceptualizing the relationship between certain contingency variables and

organization structure for impressive performance. This theory was relevant to the

study because organizational performance of a company depends on the financial

management practices in place.

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2.1.4 The Concept of Small and Medium Enterprises in Ghana

In Ghana, Kayanula and Quartey (2000) indicate that various classifications on what

constitute SMEs have been provided. However, most frequently used criterion for

classification has been the employment size. For example, the GSS classifies firms

with less than 10 employees as small-scale enterprise and firms with more than 10

employees as medium and large-sized enterprises. Another case in point is the UN

Advisor Group (2008) which uses the employment cut off point as stated in the Steel

and Webster (1991) criteria in defining small scale enterprises in Ghana. They

disaggregated SMEs into 3 categories: (i) micro: employing less than 6 people; (ii)

very small: employing 6-9 people; and (iii) small: employing between 10 and 29

employees. An alternate criteria used in defining small and medium enterprises is the

value of fixed assets in the organisation. The National Board for Small Scale

Industries (NBSSI) mandated to promote the growth and development of SMEs in

Ghana applies both the `fixed asset and number of employees’ criteria. NBSSI

defines micro enterprises as one that employ up to 5 employees with fixed assets

(excluding realty) not exceeding the value of $10,000; small enterprises: employ

between 6 and 29 employees with fixed assets of $100,000. Medium enterprises:

employ between 30 and 99 employees with fixed assets of up to $1million (Mensah,

2004). A more recent definition is the one given by the Regional Project on

Enterprise Development Ghana manufacturing survey paper as cited in Abor and

Quartey, (2010), classified firms in Ghana as follows: (i) micro enterprise, less than 5

employees; (ii) small enterprise, 5-29 employees; (iii) medium enterprise, 30-99

employees; (iv) large enterprise, 100 and more employees. However, the Ghana
16
Statistical Service (GSS) defines small businesses as enterprises that employ less

than 10 persons while those that employ more than 10 people are classified as

medium and large-sized enterprises (Amoako, 2012).

Abor and Quartey (2010) posit that, the process of valuing fixed assets poses a

problem and the continuous depreciation of the local currency as against major

trading currencies often makes such definitions out-dated. For these reasons, this

study adopts the definition of SMEs based on the number of employees as this

criteria has been used in previous studies (Amonoo, Acquah & Asmah, 2003) and it

is accessible, reliable, and can be used readily for comparative purposes (Voulgaris,

Doumpos & Zopounidis, 2000). Hence, for the purpose of this research, the GSS and

the NBSSI definition of small businesses is adopted. This is because, the researchers

used data on registered SMEs under NBSSI provided by the National Board for

Small Scale Industries (NBSSI).

2.2 Conceptual Framework

Kombo and Tromp (2009), define a concept as an abstract or general idea inferred or

derived from specific instances. The scholars further define a conceptual framework

as a set of broad ideas and principles taken from relevant fields of enquiry and used

to structure a subsequent presentation. The goals of a conceptual framework are

threefold. Firstly, to describe existing practice, secondly, to prescribe future practice;

and thirdly, to define key terms and fundamental issues. A conceptual framework is a

written or visual presentation that explains graphically or in narrative form the main

things to be studied, the key factors, concepts or variables and presumed relationship

among them, (Miles & Huberman, 1994).

17
The conceptual framework developed for this research is intended to assist the

researchers to develop awareness and understanding of the impact of financial

management practices on financial performance of enterprises funded by the

National Board for Small Scale Industries (NBSSI) in Ghana. The framework has

been adopted for its potential usefulness as a tool to assist the researchers to make

meaning of subsequent findings. The conceptual framework is therefore based on

four (4) independent/explanatory variables, and one dependent variable as shown

diagrammatically in Figure 2.1 that illustrates the conceptualized relationship

between the explanatory and dependent variables. The conceptual framework shows

how variables interact in a diagram format.

INDEPENDENT VARIABLES

DEPENDENT VARIABLE

Cash Management
 Cash conversion
 Cash holding
 Cash flow

18
Financial Planning
 Short term
 Medium term
 Performance of NBSSI
funded enterprises
 Return On Equity
 Return On
Investment

Financial Reporting
 Income statement
 Balance sheet

Book Keeping
 Financial
transactions
 Accounting
information
 Business information

Source: Researchers Illustration (2020)

Figure 2.1: Conceptual Framework

Figure 2.1 shows the relationship between independent variables and a dependent

variable. That is business performance which is the dependent variable can be

influenced by the independent variables. The independent variables comprise of cash

management, financial planning, financial reporting and book keeping whiles the

dependent variable is the performance of NBSSI funded enterprises. The figure

depicts the model developed for the study and the relationship between the research

variables.

19
2.3 Financial Management Practices

According to Chung & Chuang, (2010), financial management refers to the systems

of efficient and effective management of resources in such a manner as to

accomplish the objectives of the organization. Financial management can also be

explained as the process of managing financial resources, including management

decisions concerning accounting and financial reporting, forecasting, and budgeting,

as well as capital budgeting decisions, which include decisions whether to lease or

buy, and whether to issue debt or equity (Lightbody, 2014). Lightbody (2014) also

indicates that financial management framework comprises the processes, systems,

internal controls and practices relating to the way the department manages its

revenues, expenses, assets, liabilities and contingencies. It also includes its systems

for managing risk and monitoring its financial and operational performance,

including budget performance and reporting on these functions, both internally and

externally.

Cash management practices comprise critical analysis of determining the optimal

amount of cash a business should maintain in their cash tills while minimizing the

opportunity cost associated with either holding too much or holding too little (Ross,

Westerfield, Jaffe and Jordan, 2011). Atrill (2013) argued that objective of

systematic analysis of cash flow management in the business is for Small and

Medium Enterprises (SMEs) to hold just the required amount of cash necessary to

cater for the SMEs operations highlights that cash management requires the use of

business model like Baumal model or Miller-Orr model that will assist businesses to

ascertain the required amount of cash in the entity to sustain the operation of the

20
business. Ramachandran (2009) asserts that cash management essentially aims at

establishing the financial position of the business. It is a set of guidelines established

by management to ensure that the enterprise has optimal cash balance to meet the

business goals. Hence, cash management basically deals with managing cash inflows

and cash out flows.

Knowledge and skills in bookkeeping is especially one major factor that impacts

positively on sustainability and growth of SMEs. Failure to record business financial

transactions (bookkeeping) leads to collapsing of the business within few month of

its establishment (Nansamba, 2015). Mbroh and Attom (2012) observe that

underlying the success of a business enterprise is the establishment and application of

controls by the owners or management in addition to the systematic record keeping

of business transactions, which, at the end of the period, keeps the owner well-

informed about the performance of the business.

Vedant, (2009) opines that financial records keeping is the art and science of

systematically recording financial transactions and maintenance of correct and up-to-

date financial records of the organization so as to enable a trader know the result of

his trade at the end of a certain period and may also prove the accuracy of such

record.

Financial reporting is the process of preparing and distributing financial

information to users of such information in various forms. Financial reporting is not

only a final output; the quality of this process depends on each part, including

disclosure of the company’s transactions, information about the selection and

21
application of accounting policies and knowledge of the judgments made. Financial

information issued by a company has become an essential resource for any market

participant, since it provides a reduced amount of information asymmetries between

managers, investors, regulatory agencies, society and other stakeholders (Gong,

Henock and Sun, 2014). Hong and Andersen (2011) observe that those companies

with better quality of financial information are associated with subsequent higher

performance, due to the fact that the market positively assesses those companies

which are more committed to the issuance of good information for shareholders and

other stakeholders, aiming to reduce or avoid information asymmetries between

market participants.

Financial planning activity involves assessing the business environment;

confirming the business vision and objectives; identifying the types of resources

needed to achieve these objectives; quantifying the amount of resource (labor,

equipment, materials); calculating the total cost of each type of resource;

summarizing the costs to create a budget; and identify any risks and issues with the

budget set (Abdul-Jalil, Dzuljastri and Ferdous, 2013).

Financial management is at the heart of running a successful business. It affects

every aspect, from managing cash flow and tracking business performance to

developing plans that ensure that business owners can make the most of opportunities

(Kwame, 2015). In this regard, financial management is one of the several functional

areas of management, but it is the center to the success of any business. Inefficient

financial management combined with the uncertainty of the business environment

often led Business Enterprises to serious problems. According to Kwame (2010),

22
careless financial management practices are the main cause of failure for business

enterprises in most parts of the world.

2.4 Organizational Performance

Organizational performance refers to how well an organization achieves its market

oriented goals as well as its financial goals. Organizational performance means

attainment of ultimate objectives of the organization as set out in the strategic plan.

In general, the concept of organizational performance is based upon the idea that an

organization is the voluntary association of productive assets, including human,

physical, and capital resources, for the purpose of achieving a shared purpose

(Barney, 2001). Those providing the assets will only commit them to the

organization so long as they are satisfied with the value they receive in exchange,

relative to alternative uses of the assets.

As a consequence, the essence of performance is the creation of value. So long as the

value created by the use of the contributed assets is equal to or greater than the value

expected by those contributing the assets, the assets will continue to be made

available to the organization and the organization will continue to exist. Therefore,

value creation, as defined by the resource provider, is the essential overall

performance criteria for any organization. How that value is created is the essence of

most empirical research in management.

Although, many studies have found that different companies in different countries

tend to emphasize on different performance measurement, the literature suggests

financial profitability and growth to be the most common measures of organizational

23
performance. Nambisan (2002) claimed that profitability is the best indicator to

identify whether an organization is doing things right and hence profitability can be

used as the primary measure of organization success. Furthermore, Earl (2000)

pointed profitability as the most common measure of performance in western

companies. Profit margin, return on assets, return on equity, return on sales are

considered to be the common measures of financial profitability. To measure the

performance of the firm, metrics such as net income, revenue growth, productivity,

customer satisfaction, and employee retention have evolved, representing the

outcome of performance but not the causes of them.

Dorothy (2009) indicated that numerous measures of corporate performance could be

used as dependent variables. However, more important than a specific measure

chosen is the use of multiple measures, because different criteria of performance are

likely to be differentially affected by the various independent variables. Efficiency

relates to how well resources are used to achieve a goal while effectiveness focuses

on the appropriateness of the goals chosen. Since performance is a reflection of an

organization’s goals and strategic objectives, performance measures have to be

tailored to the conditions and needs of the firm. Conceptually therefore,

organizational performance has been viewed as the comparison of the value created

by a firm, measured through the three general elements (efficiency, effectiveness &

relevance) of organizational performance, with the value the owners expect to

receive from the firm (Chen & Dodd, 2001). Performance in this study will be

measured by employee turnover rate, enrolment and retention of students, timeliness

24
of client service, customer satisfaction index and success as compared to industry

averages.

2.5 Financial Performance

According to Earle and Estrin (2006) financial performance refers to the act of

performing financial activity. In broader sense, financial performance refers to the

degree to which financial objectives being or has been accomplished. It is the process

of measuring the results of a firm's policies and operations in monetary terms. It is

used to measure firm's overall financial health over a given period of time and can

also be used to compare similar firms across the same industry or to compare

industries or sectors in aggregation. According to Gitman (2007) financial

performance is the degree to which financial objectives being or has been

accomplished and is an important aspect of finance risk management. It is the

process of measuring the results of a firm's policies and operations in monetary

terms.

Financial performance principally reflects business sector outcomes and results that

shows overall financial health of the sector over a specific period of time (Maseko

and Manyani, 2011). It indicates that how well an entity is utilizing its resources to

maximize the shareholders wealth and profitability. Although a complete evaluation

of a firm’s financial performance take into account many other different kind of

measures but most common performance measurement used in the field of finance

and statistical inference is financial ratios.

25
The subject of financial performance has received significant attention from scholars

in the various areas of business and strategic management. It has also been the

primary concern of business practitioners in all types of organizations since financial

performance has implications to organization’s health and ultimately its survival.

High performance reflects management effectiveness and efficiency in making use of

company’s resources and this in turn contributes to the country’s economy at large.

(Naser and Mokhtar, 2004).The financial performance of organizations is usually

measured using a combination of financial ratios analysis, benchmarking, measuring

performance against budget or a mix of these methodologies (Barley, 2000).

Performance measurement serves as a source of information about financial

outcomes and the internal operations shown in an organization’s financial statements.

Effective performance measurement is key in ensuring that an organization’s strategy

is successfully implemented. Ofley (2003) argues that financial measure of

performance is very crucial as it serves as a tool of financial management, a major

objective of a business organization, and a mechanism for motivation and control

within an organization.

The recommended measures for financial analysis that determine a firm’s financial

performance are grouped into five broad categories: liquidity, solvency, profitability,

repayment capacity and financial efficiency. Liquidity measures the ability of the

farm business to meet financial obligations as they come due, without disrupting the

normal, ongoing operations of the business. Liquidity can be analyzed both

structurally and operationally. Structural liquidity refers to balance sheet measures of

the relationships between assets and liabilities and operational liquidity refers to cash

26
flow measures. A frequent cause of liquidity problems occurs when debt maturities

are not matched with the rate at which the business‟ assets are converted to cash,

return on sales reveals how much a company earns in relation to its sales, return on

assets determines an organization's ability to make use of its assets and return on

equity reveals what return investors take for their investments. The advantages of

financial measures are the easiness of calculation and that definitions are agreed

worldwide. Traditionally, the success of a processing firm or any company has been

evaluated by the use of financial measures (Tangen, 2003).

Solvency measures the amount of borrowed capital used by the business relative the

amount of owner’s equity capital invested in the business. In other words, solvency

measures provide an indication of the business‟ ability to repay all indebtedness if all

of the assets were sold. Solvency measures also provide an indication of the

business‟ ability to withstand risks by providing information about the operation’s

ability to continue operating after a major financial adversity (Harrington and

Wilson, 1989).

Profitability measures the extent to which a business generates a profit from the

factors of production: labor, management and capital. Profitability analysis focuses

on the relationship between revenues and expenses and on the level of profits relative

to the size of investment in the business. Four useful measures of profitability are the

rate of return on assets (ROA), the rate of return on equity (ROE), Operating profit

margin and Net income (Hansen and Mowen, 2005).

Repayment capacity measures the ability to repay debt from both operation and non-

operation income, It evaluates the capacity of the business to service additional debt

27
or to invest in additional capital after meeting all other cash commitments. Measures

of repayment capacity are developed around an accrual net income figure. The short-

term ability to generate a positive cash flow margin does not guarantee long-term

survivability (Jelic and Briston, 2001).

2.6 Relationship between financial management practices and financial

performance.

Literature on financial management of many firms identifies the components of

financial management practices crucial to the performance of every firm as financial

planning and control, financial analysis, accounting information, management

accounting, capital budgeting and working capital management (Osman 2007; Azhar

et al. 2010 ).According to Maseko and Manyani (2011), accounting systems provide

a source of information to owners and managers of businesses operating in any

industry for use in the measurement of financial performance. It is crucial therefore

that the accounting practices of businesses supply complete and relevant financial

information needed to improve economic decisions made by entrepreneurs.

Ismail and Zin (2009) note that business strategy is one of the main components that

contributes towards growth of any firm. Padachi (2010) points out that the main

factors that contribute to success or failure of business are categorized as internal and

external factors. The external factors include financing (such as the availability of

attractive financing), economic conditions, competition, government regulations,

technology and environmental factors. The internal factors are managerial skills,

workforce and the accounting systems. This is consistent with the views of Ismail

and Zin (2009) and Nandan (2010) that in the context of small and big businesses,

28
accounting information is important as it can help the firms manage their short-term

problems in critical areas like costing, expenditure and cash flow, by providing

information to support monitoring and control. Ismail and King (2005), Son et al.

(2006), and Shahwan and Al-Ain (2008) point out that accounting information is also

useful for firms operating in a dynamic and competitive environment as it can help

them integrate operational initiatives within long-term strategic plans. Sarapaivanich

(2003) find that SMEs lack of access to capital and high interest rates charges are

partially the result of incomplete accounting records, and the inefficient use of

accounting information. Poor record keeping and accounting information make it

difficult for financial institutions to evaluate potential risks and returns making them

unwilling to lend to SMEs.

2.7 Empirical Literature Review

Review of literature enables the researchers to have a clear picture of what had been

done in the particular field in recent years, thus avoiding duplication of work. It

facilitates a clear view of what should be done in the field. Reviews have been

collected from various sources like books, journals, unpublished thesis and e-

resources. It thoroughly investigates both National and International literature

pertaining to the, financial management practices, cash management, financial

planning, financial reporting, and book-keeping. A brief summary of available

literature on the subject is presented as follows:

29
2.7.1 Studies relating to financial management practices

Lakew and Rao (2013) investigated the effect of financial management practices and

financial characteristics on profitability of business enterprises in the Jimma Town of

Ethiopia. They pointed out that the efficiency of financial management practices and

characteristics can bring about higher profitability.

Fatoki (2012) conducted a study on financial management practices of new micro

enterprises in South Africa. He focused on financial planning and control, financial

analysis, accounting information, management accounting, investment appraisal and

working capital management. From the study it has been concluded that, financial

management practices of Micro Enterprises are very weak in the areas of financial

planning, analysis and control and investment decisions. Hence, the study suggested

that training should be given in the areas of financial management, e-accounting and

the evaluation of investment decisions.

Okafor (2012), analyzed the financial management practices of small firms in

Nigeria impacted on their profitability, growth and survival. Accounting systems,

financial management information, working capital management and budgeting

practices have been evaluated. It has been found that accounting system and financial

management information alone dominate the risk perception of fund providers.

Hence, the study advised to employ the services of qualified accountants in order to

upgrade their financial management practices and enhancing their overall

performance.

Azhar et. al. (2010), investigated the financial management components and

techniques practiced by the SMEs in Malaysia. The findings of the study show that

30
three components of financial management to be categorized as core components

practiced by the SMEs, that is, financial planning and control, financial accounting,

and working capital management. Three other components which are financial

analysis, management accounting, and capital budgeting can be categorized as

supplementary components practiced by the SMEs due to the small percentage of the

SMEs using these components in the management of their business.

2.7.2 Studies relating to Cash Management

Hamza, Mutala and Antwi (2015) study looked at how cash management practices

affects financial performance of Small and Medium Enterprises (SMEs) In the

Northern Region of Ghana. The study adopted a descriptive cross-sectional survey

research design. The target population was 1000 owner/managers of SMEs. Stratified

random sampling technique was used. The data was analyzed using both descriptive

and inferential statistics. The study revealed that SME financial performance was

positively related to efficiency of cash management (ECM) at 1 per cent significance

level. The study concluded that cash management practices have influence on the

financial performance of SMEs, hence there was need for SME managers to embrace

efficient cash management practices as a strategy to improve their financial

performance and survive in the uncertain business environment.

A study carried out by Muthama (2016) on how cash management practices affects

the operational performance of selected public hospitals in Kisii County, Kenya

established that cash budget has a significant influence in determining the operational

performance of public hospitals and also the study revealed that operating bank

accounts has a significant effect in determining the operational performance. The

31
study recommends that the hospital management should maintain and encourage the

accountants and other relevant employees to prepare cash budget always for this will

help in making purchases for goods and services only budgeted for. The hospitals

management should also be encouraged to open bank accounts to which they can

deposit excess cash since this will act as a safe custody of the hospital funds until

when the need to use them arises.

Danson, Kinyanjui, Kiragu and Kamau (2017) study focused on how cash

management practices affects the financial performance of Small and Medium

Enterprises in Nyeri Town, Kenya. The studies employed a descriptive research

design with target population being the registered SMEs in Nyeri town. Data was

collected using a self-administered semi-structured questionnaire from a sample

population of 62 SMEs operating in Nyeri town and registered by the business

registrar’s office in Nyeri County. Results obtained indicated that cash holding

practices and use of technology in cash management had a relevant effect on

financial performance of SMEs in Nyeri. The study recommended that all

stakeholders in business operations ranging from suppliers, customers, and financiers

should embrace use of technology to facilitate electronic data interchange. Future

research could focus on comparative study of large organizations to establish

whether the same factors affecting SMEs financial performance also affect large

businesses.

32
2.7.3 Studies relating to Financial Planning

Kinyua (2014) did a study to investigate the factors affecting the performance of

small and medium enterprises in the Jua-Kali Sector in Nakuru town in Kenya. His

specific objectives were; to investigate the role of finance, management skills,

macro-environment factors and infrastructure factors on performance of small and

medium-sized enterprises in the Jua-Kali sector in Nakuru town in Kenya. The

findings made in this study indicated that; that access to finance had a positive effect

on performance of SMEs; management skills were also found to positively and

significantly affect performance of SMEs together with the macro environment

factors.

A study carried out by Mwaura (2013) on the effect of financial planning on the

financial performance of automobile firms in Kenya using descriptive design and

both qualitative and quantitative methods were applied in data collection and analysis

found that financial planning measures such as earnings before interest and tax and

the capital employed which comprises of fixed assets and working capital had an

impact on the financial performance of the firm measured by Return on Capital

Employed (ROCE). The study recommended that organizations should have sound

financial planning measures which can be integrated into the financial management

system as financial planning is an integral part of financial management which deals

with the management of a firm’s funds with a view to maximizing profit and the

wealth of shareholders.

33
2.7.4 Studies relating to Financial Reporting

McMahon and Davies (1994) established significant association between financial

reporting and analysis and achieved growth 39 rates and financial performance. The

following results were also found out: Enterprises that had more comprehensive

reporting, in terms of both the number of statements obtained and their frequency,

were more likely to employ financial analysis. Moreover, there is apparently no

statistically significant association between rates of growth in turnover and

employment achieved by participating enterprises and their historical financial

reporting practices. Also, there appears no statistically significant association

between achieved rates of growth in turnover, employment, and net profit and use of

financial ratio analysis.

Martinez-Ferrero (2014) did a study on the effects of financial reporting quality on

corporate performance. The proposed hypotheses are tested on an unbalanced sample

of 1,960 international non-financial listed companies from 25 countries and the

special administrative region of Hong-Kong for the period 2002-2010. The results

show that companies which report financial statements with better quality

information (associated to better earnings quality, accounting conservatism and better

accruals quality) enjoy a higher FP, measured by market measures which reflect the

trust that stakeholders have not only in the company at present, but also in the past

and future.

Simionato (2014) study looked at the impact of sustainability reporting on corporate

financial performance. The study established that the laws, regulations and standards

on sustainability reporting are contemplated to become more stringent and mandatory

34
in near future. Thus, the companies should adopt sustainability reporting as early as

possible to avoid regulatory actions in future. Another important issue which needs

to be addressed is concern over the reliability of sustainability reports. To resolve this

issue, firms should get their sustainability reports externally assured from credible

assurance providers like KPMG, Ernst and Yong, etc. to establish their image as a

credible reporter in the perception of stakeholders. Without the credibility and trust

that is put by stakeholders, business is impossible to run.

2.7.5 Studies relating to Book Keeping

Kofi et al. (2014) in their study revealed that non-existence of proper book-keeping

and basic accounting procedures in Small Scale Enterprises in Ghana. Most Small

Business Entities did not present financial statement for tax assessment, due to poor

financial record keeping. High cost of hiring the service of trained accountant, lack

of knowledge about financial report and it’s important to the business and lack of

computerized accounting systems, were the challenges faced by the Small-Scale

Enterprises in Ghana.

Mutua (2015) did a study on how bookkeeping affects the growth of small and

medium enterprises in Chuka Town using both purposive and random methods to

sample the respondents. The study found that the SMEs do not keep complete

accounting records because of lack of accounting knowledge and the cost of hiring

professional accountants. As a result, there is inefficient use of accounting

information to support financial performance measurement by SMEs. This made it

difficult for the entrepreneurs to calculate their business profit efficiently. The study

recommends that more bookkeeping consultancy firms that provide bookkeeping

35
advice should be opened up throughout the country to facilitate better bookkeeping

amongst SMEs.

Muchira (2012) study on the effects of record keeping and growth of Micro and

Small Enterprises in Thika Municipality in Kenya found that the MSEs do not keep

complete accounting records because of lack of accounting knowledge and the cost

of hiring professional accountants. As a result, there is inefficient use of accounting

information to support financial performance measurement by MSEs. This made it

difficult for the entrepreneurs to calculate their business profit efficiently. Lack of

keeping of accurate records was highly blamed on the lack of skills in this field by

the owners or managers. The study further revealed that the owners and managers of

MSEs were highly willing to learn more about how to keep accurate records of their

business transactions.

36
 CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

This chapter presents the methodology for the study. Research methodology,

according to Kothari (2004), refers to the logical sequence of the research, the

research methods and instruments used. It starts with the various approaches that

were followed to obtain data for the study and how the data obtained were analyzed.

It covers the research design, the research population, the sample size sampling

design, data collection method, data collection procedures, data analysis and

presentation as well as brief profile of National Board for Small Scale Industries

(NBSSI).

3.1 Research Design

According to Cooper and Schindler (2014), research design constitutes the blueprint

for the collection, measurement and analysis of the data. They further add that

research design is the plan and structure of investigation so conceived as to obtain

answers to the research questions and aids the researcher in the allocation of the

limited resources by posing crucial choices in methodology.

The study adopted a cross-sectional research design. According to Kothari and Garg,

(2018), a cross sectional study is a study that is carried out at one-time point or over a

short period. It is usually conducted to estimate the prevalence of the outcome of

interest for a given population, commonly for the purposes of economic and health

planning (Bryman & Bell, 2015). In this case, data is collected on individual

37
characteristics, including exposure to risk factors, alongside information about the

outcome. Financial performance is as a result of persistent and constant management

of the finances of an enterprise over a period. Due to the period involved in financial

management, the researcher used cross-sectional study approach.

3.2 Population of the study

A population refers to an entire group of individuals, events or objects having a

common observable characteristic. Hence, it’s an aggregate of all that conforms to a

given specification (Mugenda & Mugenda, 2003; Hyndman, 2008). In this study, all

persons involved in the management of the enterprises comprising the business

owners and the employees constituted the population of the study. This study target

population constituted the 600 individuals involved in the management of the 100

youth enterprises funded by the National Board for Small Scale Industries Greater

Accra Region. Information regarding the study population was sought from the

NBSSI national office in Accra.

Table 3.1: Target Population

TARGET GROUP POPULATION

Staff (employees) 500

Business owners 100

Total 600

Source: National Board for Small Scale Industries, (2020).

38
3.3 Sample size and sampling technique

The sample size is the number of respondents chosen from the population to be a fair

and unbiased representation of the population. The confidence level and margin of

error is considered in selecting a sample size (Saunders et al 2009).

According to Collins & Hussey (2009), the sampling technique is the process of

selecting the specific methodology to use in deciding the entities in the study.

The study adopted a stratified simple random sampling technique. The strata

included one for the managers and the other for employees. The main reason for

adopting stratified simple random sampling is that every object has the same

probability of being chosen to be included in the sample population (Kombo and

Tromp, 2006). Stratified random sampling technique is used when population

ofinterest is not homogeneous and can be subdivided into groups or strata to obtain

arepresentative sample. In this case, six (6) individuals involved with the

management of the SMEs will randomly be picked from each of the enterprises

giving a total of 60 respondents (10% of 600). This percentage was chosen because

according to Cresswell, (2003) and Sekaran, (2003) the ideal sample size of 5-20%

of a population is considered acceptable for most research purposes as it provides the

ability to generalize for a population. This study used 10% sample size of the target

population. The sample size was 60 respondents comprising of 10 business owners

and 50 employees. The selection was tabulated as follows:

Table 3.2: Sample Size

39
Target group Population (frequency) Sample ratio Sample size

Staff (employees) 500 0.1 50

Business owners 100 0.1 10

Total 600 0.1 60

Source: Researchers, 2020

3.4 Data collection method

Questionnaire was designed as an instrument for the collection of data. According to

(Saunders et. al., 2009), questionnaire is used as a general term to include all

technique of data collection in which each person is asked to respond to the same set

of questions in a predetermined order. The questionnaire target owner managers of

SMEs in the study area. The items in the questionnaire were made up of both open-

ended and close-ended items to allow for the elicitation of both specific and detailed

responses. The development of the instrument was informed by the objectives of the

study, research objectives, research/study design, as well as pertinent issues

identified in the literature review. The primary data was collected using semi-

structured questionnaire which comprised of both open and closed ended questions.

The use of structured questionnaire ensures consistency of questions and answers

from the respondents. A questionnaire is more preferred by respondents due to

anonymity and they are straightforward and less time consuming for both the

researcher and the participants (Owens, 2002).The questionnaires were administered

through drop and pick later method to the sampled population.

40
3.5 Data collection procedures

This study used primary data which is also called original data. According to

Quinlan, (2011), primary source provides original information or evidence and are

the first evidence of a phenomenon being observed and recorded. Data was collected

through questionnaires that contained the relevant questions that guided the

respondent and a brief introduction of the purpose of the study. Self-administered

questionnaires were dropped to each respondent and picked later after three weeks.

The respondents were informed of the date the questionnaires were to be collected

and also the researcher made a visit after one week to remind the respondents.

3.6 Data Analysis and presentation

Data analysis involves the drawing of inferences from raw data. It is important that

raw data be managed well for ease of analysis (Boeije, 2010). According to Adre,

Mellenbergh, andHand (2007), data analysis is carried out in order to inspect, clean,

transform and model data with the aim of identifying and highlighting useful

information that can be used to support the decision-making process. Completed

questionnaires were first edited for completeness and consistency. Data collected was

coded using a predetermined coding scheme and analysed both qualitatively and

quantitatively. The researcher used statistical packages for the social sciences (SPSS)

Version. Quantitative data was computed for descriptive statistics and the results

presented in tables, pie charts, and bar charts. The qualitative data on the other hand

was first grouped into subcategories, analysed using content anal technique and

reported in narrative form. Also, part of the qualitative data was used in

interpretation of the study results.

41
3.7 Brief profile about NBSSI

The National Board for Small Scale Industries (NBSSI) is a non-profit public sector

organisation under the Ministry of Trade, Industry and Presidential Special Initiatives

and came into being in 1985. NBSSI has its Head Office in Accra, secretariats in all

the regional capitals and Business Advisory Centres (BACs) in one hundred and ten

(110) district capitals. Services offered by the NBSSI include business development

services for micro and small enterprises. Micro and Small Enterprises are the bone of

a country's economic development. The government of Ghana in an effort to ensure

the growth of these enterprises established the National Board for Small Scale

Industries by Act 434 of 1981 and is mandated to promote the growth and

development of Micro and Small Enterprises (MSEs). In order to create a single

dynamic integrated organization adequately capitalized and capable of responding to

the needs of the small-scale enterprises sector, the Government merged the Ghanaian

Enterprises Development Commission (GEDC) in 1991 and the Cottage Industries

Division of the Department of Rural Housing and Cottage Industries in 1994 with the

Board. The vision of NBSSI is to create a vibrant entrepreneurial economy by

fostering the growth and development of micro, small and medium enterprises

(MSMEs). NBSSI’s mission is to improve the competitiveness of micro, small and

medium enterprises (MSMEs) by facilitating the provision of business development

42
programs and integrated support services. NBSSI provides credit resources to

MSMEs at very affordable rates. The funds are also very accessible to businesses that

work with the body. NBSSI also works with other financial institutions to provide

tailor-made financial solutions to MSMEs.

43
 CHAPTER FOUR

DATA ANALYSIS AND PRESENTATION

4.0 Introduction

The purpose of this study was to investigate the impact of financial management

practices on the performances of the enterprises funded by the National Board for

Small Scale Industries (NBSSI) by establishing how cash management, book-

keeping, financial planning and financial reporting influence the performances of the

enterprises funded by the NBSSI. This chapter presents computed quantitative and

inferential statistics from the data gathered through the use of the questionnaires. The

findings are grouped into three broad categories; background information on the

respondents, descriptive statistics regarding the variables in the study and inferential

statistics. Results are presented by the use of tables and bar graphs.

4.1 Response Rate

A total of 60 questionnaires were distributed out of which 55 were properly filled and

returned representing 91.7% response rate, whiles 5 questionnaires constituting 8.3%

were not returned as indicated by table 4.1. According to Bryman and Bell, (2015)

show that a response rate of 50% is adequate for analysis and reporting, a response

rate of 60% is good and that of 70% and above is very good. Thus, a response rate

of68% was considered reliable and appropriate for the study. In order to obtain useful

information for the study, the data was subjected to analysis.

44
Table 4.1: Respondents Response Rate

Response rate Frequency Percentage (%)

Returned questionnaires 55 91.7%

Unreturned questionnaires 5 8.3%

TOTAL 60 100%

Source: Field work (2020)

4.2 Demographic Information

This section consists of information that describes basic characteristics; gender, age

of the respondent, level of education and work experience. Each respondent’s

demographic characteristics were important for the study since it helped to

understand the background of the respondents before embarking on obtaining the

responses which were aimed to achieve the specific objectives.

4.2.1 Gender of the Respondents’

This section aimed at establishing the gender of the respondents. This was used to

determine the gender balance and diversity among the respondents for the study. As

shown in figure 4.2 below, it was observed that 75% of the respondents were males

and 25% were females. This implies that the targeted population consisting of

managers was gender bias.

45
Figure 4.1: Gender of Respondents.

0%
25%

Male
75% Female

Source: Field Work (2020)

4.2.2 Age of Respondents’

This section determined the age of the respondents. This was used as a measure of

their maturity and experience. The findings obtained are shown by Table 4.2

Table 4.2: Age of Respondents

Frequency Percentage (%)

21-30 years 8 14.5%
31-40 years 26 47.3%
41-50 years 18 32.7%
Over 50 years 3 5.5%
TOTAL 55 100%
Source: Field work (2020)

As shown by table 4.2, 47.3% were between 31-40 years, 32.7% were between 41-50

years, 14.5% were between 21-30 years, whiles only 5.5% were over 50 years

represented by 26, 18, 8, and 3 respondents respectively. This implies majority of the

46
respondents were between 31years and 50 years (80%), hence, reliable and accurate

information was provided.

4.2.3 Academic Background of the Respondents’

This section sought to determine the academic background of the respondents based

on the highest level of education. These findings obtained are shown below by figure

3 and Table 4.3:

Figure 4.2: Respondents educational level

Professional 5

Postgraduate 10

Degree 25

Diploma 10

Secondary 5

0 5 10 15 20 25 30

Source: Field Work (2020)

Table 4.3: Respondents Educational Level

FREQUENCY PERCENTAGE (%)

Secondary 5 9.1%
Diploma 10 18.2%
Degree 25 45.4%
Postgraduate 10 18.2%
Professional 5 9.1%
TOTAL 55 100%
Source: Field work (2020)

47
As shown above, majority at 45.4% had undergraduate degrees, 18.2 % each

possessed diploma and postgraduate degrees, whiles 9.1% each obtained secondary

and professional membership certificates. This is an indication that respondents are

well educated and qualified for their respective positions, hence, conversant with the

study topic.

4.2.4 Work Experience Of The Respondents’

This section determined the work experience of the respondents. These findings

obtained are shown below by Table 4.4 below:

Table 4.4: Respondents Work Experience

FREQUENCY PERCENTAGE
Less than 5 years 6 10.9%
5-10 years 28 50.9%
11-15 years 13 23.6%
16-20 years 5 9.1%
More than 20 years 3 5.5%
TOTAL 55 100%

Source: Field work (2020)

Table 4.4 shows that majority (50.9%) of the respondents had worked between 5-10

years, 23.6% between 11-15 years, 10% for less than 5 years, 9.1% between 16-20

years, and 5.5% for over 20 years. These findings show that majority of respondents

had worked for more than 8 years and therefore, were able to respond to the research

questions adequately.

48
4.3 Descriptive And Inferential Statistics

Meaningful and sound financial management practices were accredited by cash

management, book-keeping, financial planning and financial reporting within

sampled population consisting of managers (senior and operational level) and general

staff of SMEs funded by NBSSI in Ghana. Inferential analysis was conducted to

come with meaningful relation between financial management practices (independent

variables) and financial performance of SMEs funded by NBSSI (dependent

variable). The study employed the following ratings; 1 = Strongly Disagree, 2 =

Disagree, 3 = Neutral, 4 = Agree, and 5 = Strongly agree

4.3.1 Cash Management

The first research objective sought to establish the impact of cash management on the

performance of SMEs funded by NBSSI. In this regard, 37 (66%) of the 55

respondents agreed, 10 (18%) held a contrary view while 8 (15%) indicated that they

were not sure as indicated in Figure 4 below:

Figure 4.3: Cash Management and Performance

15% 0%

18% YES

67% NO
NOT SURE

Source: Field Work (2020)

49
Extent of agreement on the impact of cash management on SMEs performance:

The respondents were further given a list of statements to indicate the extent to which

they agree on the impact of cash management on the performance of enterprises

funded by NBSSI.

Table 4.5: Cash Management List of Statements

Strongly Strongly
Disagree Neutral Agree
Disagree Agree
State of Account receivables
influence the success of SMEs 10% 5% 24% 31% 31%
funded by NBSSI
State of Account payables
influence the success of SMEs 5% 7% 26% 36% 26%
funded by NBSSI
Liquidity of cash influence the
success of SMEs funded by 5% 12% 10% 38% 36%
NBSSI
Accessibility of cash influence 17% 17% 7% 45% 14%
the success of SMEs funded by
NBSSI
Average 9% 10% 17% 38% 27%
Source: Field Work (2020)

From the findings in Table 4.5, 26 (62%) of the respondents agreed that state of

Account receivables influenced the success of enterprises funded by YEFD, 10

(24%) remained neutral while 6 (15%) disagreed to this statement. Similarly, 26

(62%) of the respondents agreed that the state of Account payables influenced the

success of enterprises funded by YEFD, 11 (26%) of the respondents were neutral

while 5 (12%) disagreed with the statement. Also, 31 (74%) of the respondents

50
agreed that liquidity of cash influenced the success of enterprises funded by YEFD, 4

(10%) were neutral while 7 (17%) opposed the statement. on the same, 25 (59%) of

the respondents agreed that accessibility of cash influenced the success of enterprises

funded by YEFD, 3 (7%) chose not to agree or disagree while 14 (19%) opposed the

statement. on average, 65% of the respondents agreed to the statements on effect of

cash management on success of youth enterprises, 17% were neutral while 19% of

the respondents disagreed to these statements as presented in Table 4.5.

4.3.2 Financial Planning

The second research objective sought to find out the consequence of financial

planning on the performance of SMEs funded by NBSSI. In this regard, 38 (69.1%)

of the respondents agreed, 10(18.2%) disagreed while 7 (12.7%) indicated that they

were not sure as indicated in table 4.6

Table 4.6: Does financial planning have impact on the performance of the

enterprises?

FREQUENCY PERCENTAGE (%)

Yes (Agree) 38 69.1%

No (Disagree) 10 18.2%

Not sure 7 12.7%

TOTAL 55 100%
Source: Field Work (2020)

51
Extent of agreement on the impact of financial planning on SMEs performance:

The respondents were further given a list of statements to indicate the extent to which

they agree on the effects of financial planning on the performance of enterprises

funded by NBSSI. The findings are shown in Table 4.7

Table 4.7: Financial Planning List of Statements

Strongly Disagree Neutral Agree Strongly

Disagree Agree
Cash Flow and Budgeting 0% 2% 7% 55% 36%
influences the performances
of enterprises funded by
NBSSI
Sales maximization 7% 7% 14% 50% 21%
influences the success of
SMEs funded by NBSSI
Financial objectives of the 2% 7% 5% 67% 19%
business influence the
performances of enterprises
funded by NBSSI
Cost Volume Analysis and 5% 14% 17% 48% 17%
benefits influences the
success of SMEs funded by
NBSSI
Average 4% 8% 11% 55% 23%
Source: Field Work (2020)

The results in Table 4.7 indicates that 38 (91%) of the respondents agreed that Cash

Flow and Budgeting influenced the performances of enterprises funded by NBSSI, 3

(7%) remained neutral while 1 (2%) opposed the statement. Similarly, 30 (71%) of

the respondents agreed that sales maximization influenced the success of SMEs

52
funded by NBSSI, 6 (14%) remained neutral while 6 (14%) disagreed with the

statement. Also, 36 (86%) of the respondents agreed that Financial objectives of the

enterprise influenced the performances of enterprises funded by NBSSI, 2 (5%) were

neutral while 4 (9%) opposed to the statement. On a similar note, 27 (65%) of the

respondents agreed that Cost Volume Analysis and benefits influences the success of

enterprises funded by NBSSI, 7 (17%) neither agreed nor disagreed while 8 (19%)

opposed to the statement. On the average, 78% of the respondents agreed to

statements on effect of financial planning to performance of enterprises, 11% were

neutral while 12 % disagreed to these statements.

These findings are in line with the findings of Birech, Kevin and Alang'o, (2016) did

a study on how financial planning relates to financial performance of organizations in

Nandi County, Kenya and found a strong positive relationship between financial

planning and financial performance in the county Government of Nandi and

concluded that sound financial planning by the county government of Nandi led to a

better financial performance as accountability was enhanced through all levels of

decision making. The study recommended that awareness was to be created by policy

makers to the employees on the importance of the financial planning in business

operations.

4.3.3 Financial Reporting

The third research objective sought to find out the impact of financial reporting on

the performance of enterprises funded by NBSSI. The study established that 34

(81%) of the respondents agreed, 2 (5%) disagreed while 6 (14%) indicated that they

were not sure as indicated in Figure 5

53
Figure 4.4: Financial reporting and Performance

90
80
70
60
50
40
30
20
10
0
Agree Disagree Not sure

Frequency Percentage

Source: Work Field (2020)

Extent of agreement on the impact of financial reporting on SMEs

performance: The respondents were further given a list of statements to indicate the

extent to which they agree on the effects of financial reporting on the performance of

enterprises funded by NBSSI. The findings are shown in Table 4.8.

Table 4.8: Financial Reporting and Performance

Strongly Strongly
Disagree Neutral Agree
Disagree Agree
Production of financial
documents influences the
17% 14% 12% 29% 29%
performance of SMEs funded
by NBSSI
Preparation of financial
documents in time influences
10% 19% 17% 33% 21%
the success of enterprises
funded by NBSSI
Availability of a financial
5% 10% 14% 36% 36%
system influences the

54
performances of SMEs funded
by NBSSI
Efficiency from the installed
financial system influences the
7% 10% 19% 33% 31%
performance of enterprises
funded by NBSSI
Average 10% 13% 15% 33% 29%

Source: Field Work (2020)

The results in Table 4.8 indicates that 24 (58%) of the respondents agreed that

production of financial documents influences the success of SMEs funded by NBSSI,

5 (12%) remained neutral while 13 (31%) disagreed to the statement. Similarly, 23

(54%) of the respondents agreed that preparation of financial documents in time

influences the success of enterprises funded by NBSSI, 7 (17%) remained neutral

while 12 (29%) disagreed with the statement. Also, 30 (72%) agreed that availability

of a financial system influences the performance of SMEs funded by NBSSI, 6

(14%) were neutral while 6 (14%) disagreed with the statement. Additionally, 27

(64%) of the respondents agreed that efficiency from the installed financial system

influences the performance of enterprises funded by NBSSI, 8 (19%) remained

neutral while 7 (17%) disagreed to the statement. On average, 62% of the

respondents agreed to the statement on effect of financial reporting on the

performance of SMEs, 15% were neutral while 23% of the respondents disagreed to

these statements. These findings agree with the findings of Simionato (2014) who in

the study looked at the impact of sustainability reporting on corporate financial

performance and established that the laws, regulations and standards on sustainability

55
reporting are contemplated to become more stringent and mandatory in near future.

Thus, the companies should adopt sustainability reporting as early as possible to

avoid regulatory actions in future. Another important issue which needs to be

addressed is concern over the reliability of sustainability reports.

4.3.4 Record-Keeping

The fourth research objective sought to find out the impact of book keeping on the

performance of SMEs funded by NBSSI. The respondents were first asked to give a

view on whether record keeping affected the performances enterprises. In this regard,

21 (50%) of the respondents agreed, 12 (29%) disagreed while 9 (21%) indicated that

they were not sure of the effect as indicated in table 4.9

Table 4.9: Views on the Impact of Bookkeeping on Performance of SMES

Frequency Percentage

Yes 30 54.5%

No 14 25.5%

Not sure 11 20.0%

TOTAL 55 100%

Source: Field work (2020)

Extent of agreement on the impact of book keeping on SMEs performance: The

respondents were further given a list of statements to indicate the extent to which

they agree on the effects of book keeping on the performance of enterprises funded

by NBSSI. The findings are shown in Table 4.10

56
Table 4.10: Book Keeping List of Statements

Strongly Strongly
Disagree Neutral Agree
Disagree Agree
Book keeping is key to
the performance of SMEs 10% 12% 31% 21% 26%
funded by NBSSI
Good records on all
transactions in the
business influences the
10% 19% 17% 31% 24%
performance of
enterprises funded by
NBSSI
Book keeping improves
on enterprises
5% 7% 19% 36% 33%
efficiencies and
effectiveness
Accuracy as a result of
book keeping influences
the performance of 7% 10% 26% 31% 26%
enterprises funded by
NBSSI
Average 8% 12% 23% 30% 27%

Source: Field Work (2020)

The results in Table 4.10 indicates that 20 (47%) of the respondents agreed that book

keeping is key to the performance of SMEs funded by NBSSI, 13 (31%) were neutral

while 9 (22%) disagreed to the statement. Similarly, 23 (55%) of the respondents

agreed that good records on all transactions in the business influences the

performance of enterprises funded by NBSSI, 7 (17%) were neutral while 12 (19%)

57
disagreed. Further, 29 (69%) of the respondents agreed that book keeping improves

on company’s efficiency and effectiveness, 8 (19%) of the respondents were neutral

while 5 (12%) disagreed to the statement. Also, 24 (57%) of the respondents agreed

that accuracy as a result of book keeping influences the performance of enterprises

funded by NBSSI, 11 (26%) were neutral while 7 (20%) disagreed with the

statement. On average, 57% of the respondents agreed to statements on effect of

record keeping on performance of enterprises, 23% were neutral while 20%

disagreed with these statements.

These findings concur with the findings of Mutua (2015) who did a study on how

bookkeeping affects the growth of small and medium enterprises in Chuka Town

using both purposive and random methods to sample the respondents and found that

the SMEs do not keep complete accounting records because of lack of accounting

knowledge and the cost of hiring professional accountants. As a result, there is

inefficient use of accounting information to support financial performance

measurement by SMEs. This made it difficult for the entrepreneurs to calculate their

business profit efficiently. The study recommends that more bookkeeping

consultancy firms that provide bookkeeping advice should be opened up throughout

the country to facilitate better bookkeeping amongst SMEs.

58
4.3.5 Performance of SMEs Funded By NBSSI

Table 4.11: Performance of Enterprise Funded by NBSSI

Strongly Disagree Neutral Agree Strongly

Disagree Agree
Management of cash is 0% 2% 5% 52% 40%
important to day to day
running of the business
Financial planning in 0% 2% 7% 24% 67%
important for the future of
the business
Financial reporting 0% 2% 24% 40% 33%
influences the performance
of the business
Book keeping does 2% 12% 17% 19% 50%
influence the performance
of the business
Average 1% 5% 13% 34% 48%

Source: Field Work (2020)

In regard to statements on performance of enterprise funded by NBSSI, the results in

Table 4.11 show that majority of the respondents (92%) agreed that management of

cash is important to day to day running of the business, 5% of the respondents

remained neutral while only 2% of the respondents disagreed. Further, 91% of the

respondents agreed that financial planning in important for the future of the business,

7% of the respondents remained neutral while only 2% of the respondents disagreed

with the statement. According to Ross, Westerfield, Jaffe and Jordan, (2014)

effective cash management practices comprise critical analysis of determining the

59
optimal amount of cash a business should maintain in their cash tills while

minimizing the opportunity cost associated with either holding too much or holding

too little. Knowledge and skills in bookkeeping is especially one major factor that

impacts positively on sustainability and growth of SMEs. Failure to record business

financial transactions (bookkeeping) leads to collapsing of the business within few

months of its establishment (Nansamba, 2015).73% of the respondents agreed that

financial reporting influences the performance of the business, 24% remained neutral

while only 2% disagreed with the statement. On a similar note, 69% of the

respondents agreed that book keeping does influence the performance of the

business, 17% remained neutral while 14% of the respondents disagreed to the

statement. On average, 82% of the respondents agreed to statements on performance

of enterprises funded by NBSSI, 13% were neutral while only 6 percent disagreed

with the statements. Gong, Henock and Sun (2014) financial reporting is not only a

final output; the quality of this process depends on each part, including disclosure of

the company’s transactions, information about the selection and application of

accounting policies and knowledge of the judgments made. Abdul-Jalil, Dzuljastri

and Ferdous (2013) observe that the financial planning activity involves assessing the

business environment.

60
 CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.0 Introduction

The chapter is established on the results and discussions undertaken on the data

analysis of the study. It highlights the main findings and conclusions derived from

the research and also offer recommendations to the management and general staff of

the various enterprises funded by the National Board for Small Scale Industries

(NBSSI). The chapter finally covers suggestions for further study in the quest of

addressing the research question or achieving the research objective.

5.1 Summary of the Findings

This study sought to examine the financial management practices and their impact on

the performance of SMEs funded by NBSSI in the Accra metropolis. The research

followed a descriptive cross-sectional design. Data for the study was collected

through a structured questionnaire. The target population for this study consists of

owner managers or of SMEs funded by NBSSI operating in the Accra metropolis. A

simple random sample of 60 respondents was targeted for the survey. In all, a total

number of 55 questionnaires representing a response rate of 91.7% were used for the

analysis. Both descriptive and inferential statistical techniques were used to analyse

the data. Frequencies and percentages were employed to present the responses

obtained from the respondents. Statistical Product for Service Solution (SPSS)

version 21.0 was employed to analyse the data.

61
This study was summarized under the setup of the study which included; cash

management, financial planning, financial reporting, and record keeping. Judging

from the various descriptive and inferential analysis andfindings, the results revealed

some pertinent facts from which the researchers drewcertain conclusion. Results

showed that financial management practices among SMEs are defined in terms of the

four observed variables (cash management, financial planning, financial reporting,

and record keeping).

Most of the respondents strongly agreed that financial management practices enhance

organizational financial performance of the various enterprises funded by National

Board for Small Scale Industries (NBSSI). Hence, based on the results obtained, it

can be concluded that there is a link between financial management practices and

financial performance using the above responses as proves. This study reveals that,

NBSSI funded SMEs in Ghana have used financial management practices which are

articulated to all of its employees at various levels and departments but in most cases

such practices have not been followed or used well which in the long run affect

financial performance of such organizations. The study further reveals that the strong

agreements of factors of various dimensions of financial management practices

indicate the effectiveness and efficiency of such practices that SMEs employ which

have affected their financial performance in a positive manner.

62
5.2 Conclusion

The main focus of the study was to examine the impact of financial management

practices on financial performance of enterprises funded by National Board for Small

Scale Industries (NBSSI). Based on the analysis and findings, the study concludes

that: To begin with, financial management practices such as, cash management;

financial planning, financial reporting, and record keeping are very important and

indeed influence performance of SMEs funded by NBSSI. SMEs funded by NBSSI

have challenges in managing their cash since it was found that they have not

embraced and implemented efficient cash management practices in their business

operations. This was shown in their low means of the efficiency levels in cash their

limited application of theories of cash management in their operations. Enterprises

have weaknesses in integrating financial planning and control into financial

management. It limited the perceived value of the financial planning process within

the organization. The success of any business depends on the manner the financial

plans are formulated. An important function of financial management is the

coordination of the various decisions taken within a company so that they are

mutually consistent, having regard for financial aims and constraints. The SMEs

applied financial standards in ensuring accountability of finances. Accountability

requires that the enterprises comply with all applicable laws and ethical standards;

adhere to the organization’s mission; create and adhere to conflict of interest, ethics,

personnel and accounting policies; protect the rights of members; prepare and file its

annual financial report with the NBSSI executive board.

63
The enterprises do not keep complete accounting records because of lack of

accounting knowledge and the cost of hiring professional accountants. As a result,

there is inefficient use of accounting information to support financial performance

measurement by them. They do not also keep complete accounting records. As a

result, there is inefficient use of accounting information to support financial

performance measurement by them.

5.3Recommendations of the Study

Based on the results, findings and conclusions the following recommendations have

been deciphered. To begin with the study established financial management practices

have a significantly positive effect on financial performances of SMEs. The study

thus recommends that the managers in SMEs should highly prioritize financial

management practices during the formulation of the organization strategies. This will

enhance transparency, accountability, and consistency in financial operations. The

study also recommends that NBSSI should formulate appropriate policies and

regulations which will facilitate the implementation of financial management

practices in SMEs funded by the regulatory body. This will enhance efficiency and

effectiveness in managing SMEs as well as foster consistency in the implementation

of financial management practices. The enterprises should adopt computerized

accounting packages to help improve their efficiency in cash management. The

NBSSI should monitor the savings habits of the SMEs especially their peak and lean

periods and improve their advisory services to enable them invest in short-term

instruments.

64
5.4 Suggestions for Further Research

Some suggestions for other future studies have been provided below:

Firstly, financial management practices and its effect on performance is a very

significant area due to the importance of financial management. However, most of

the studies are carried out in the Western world and on larger firms which

necessitated this study. It is therefore important that more researchers especially

those in Africa continue to explore the area empirically. Despite the study’s objective

been accomplished, there are certain areas which are still demanding. The study

investigated only four (4) financial management practices namely, cash management,

financial planning, financial reporting, and record keeping. In order to enable

comprehensive determination of the phenomenon that exist, the study suggest that

further study should be conducted, investigating other financial management

practices such as retained profits, working capital management, fixed assets

management, and risk management practices which have not been covered by the

study.

65
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