Assessing the influence of financial management practices on organizational performance of small- and medium-scale enterprises

Abstract

Purpose Optimal application and commitment toward financial management practices enhance organization performance. This study aims to assess the influence of financial management practices on organizational performance of small- and medium-scale enterprises. Design/methodology/approach Data were collected from 45 small-sized and 72 medium-sized firms. Data supported the hypothesized relationships. Construct reliability and validity were established through confirmatory factor analysis. The conceptual model and hypotheses were evaluated by using structural equation modeling. Findings The results indicate that working capital significantly influenced organizational performance. Capital budget management significantly influenced organizational performance. A non-significant influence of asset management on organizational performance was observed. Research limitations/implications The generalizability of the findings will be constrained due to the research’s SMEs focus and cross-sectional data. Practical implications The study’s findings will serve as valuable pointers for stakeholders and decision-makers of SMEs in the development of well-articulated and proactive financial management systems to ensure competitiveness, sustainability, viability and financial competences. Originality/value The study adds to the corpus of literature by evidencing empirically that financial management practices significantly influenced SMEs’ performance.