Financial Practices and Performance of Small and Medium - sized Enterprises in Sri Lanka

Abstract

The objective of this research is to find out the financial practices among Small & Medium-sized Enterprises (SMEs) in Sri Lanka. Further, it finds out the impact of financial practices upon business performance amongst SMEs in Sri Lanka. The SME sector has become a crucial segment and a major section of private sector in developing countries. Therefore, for the developing countries, it is important to accelerate the growth of SMEs in order to gain sustainable development. However, poor record keeping, inefficient use of accounting information to support their financial decision-making and the low quality and reliability of financial data are part of the main problems in financial management concerns of SMEs. Therefore, through this research an attempt is made to ascertain the comprehensiveness of financial practices adopted by SMEs in Sri Lanka and evaluate whether financial practices have an impact on performance of these organizations. The data and information required for the study are obtained through a questionnaire survey conducted. The primary concern is with the various financial practices within cooperating SMEs. Here, financial systems and their review, financial audit, historical and future-oriented financial reporting practices and historical financial statement analysis practices are all considered. Secondly, the study is able to establish some associations exist between the comprehensiveness of financial practices adopted by SMEs in the study sample and measures of SME performance and the relationship were evaluated by using correlation coefficients. The findings suggest a significant difference in comprehensiveness of financial practices between small enterprises and medium-sized enterprises in study sample, with these practices being more extensive in medium-sized concern. Further, the findings establish that the comprehensiveness of financial practices may have some potential as an explanatory factor for business performances in SMEs. Overall, findings seem that SMEs who are complying with financial practices are performing well than the SMEs, who are not complying with financial practices.