Global Journal of Management and Business Research, A: Administration and Management, Volume 22 Issue 8

Financial Performance Measurement of Manufacturing Small and Medium Enterprises in Pretoria, South Africa: A Multiple Exploratory Case Study Bouba Ismaila α & Edmund Ferreira σ Abstract- This article focuses on the financial performance measures used by manufacturing small and medium enterprises (SMEs) in Pretoria, South Africa. The objectives were to identify the financial tools that are used by SMEs to measure their financial performance, and recommend improvements (if any) and training interventions that would possibly be needed to measure financial performance successfully. Semi-structured interviews were conducted with SME owners. Most of the respondents use financial ratios when measuring their financial performance, although to a limited extent. None of the respondents use bankruptcy prediction models. SMEs could benefit from using ratios that have been proven to be the best financial measures as well as the ratios that have worked well for most of the participants. Bankruptcy prediction models known to many of the participants as well as financial software packages should also be considered as they might enhance the success rate of SMEs. Keywords: bankruptcy prediction models, financial management, financial performance measurement, manufacturing smes, ratio analysis. I. I ntroduction he lack of managerial skills (including financial performance measurement skills) and training is one of the most widespread causes of general business failure among small and medium enterprises (SMEs) in South Africa ( Arasti, 2011, Christian, 2008 & Mbonyane, 2006). Christian (2008) found that 90% of a sample of 1000 entrepreneurs “believe that small businesses fail due to the lack of managerial skills”. The problem may become more acute when it comes to the specific financial performance management used in the SME sector, and to the question of whether SMEs are using the available tools (financial ratio analyses and bankruptcy prediction models) for the purposes of performance management . The characteristics common to unsuccessful enterprises are directly related to personal decision-based characteristics of the owner, such as inflexibility and lack of insight; managerial Author α : e-mail: bayolaismaila@gmail.com Author σ : Professor, University of South Africa, Pretoria Campus. e-mail: eferreir@unisa.ac.za deficiencies, such as lack of management skills and appropriate managerial training; and financial shortcomings, such as no accounting background, cash flow analysis and financial records (Arasti, 2011). The contribution of SMEs around the globe is undeniable, especially in developing countries, and the SME sector serves as an engine of job creation and economic growth. Creating opportunities for SMEs can advance development and reduce poverty (Ebrahim, Ahmed & Taha, 2010; International Finance Corporation, 2011). Precisely because of the importance of the contribution of SMEs to economies throughout the world and in South Africa in particular, many studies have been conducted on financing these SMEs, or on the obstacles that they face in obtaining finance. It appears, however, that very few studies have been undertaken on how SMEs manage their finances and especially how they measure their financial performance. Even top South African companies do not use the full arsenal of financial tools available to measure their financial performance (Mosalakae, 2007). Financial performance management forms an important part of the business management field, and financial measurement is also crucial for the survival of businesses. It must be noted though, that financial measures alone are not enough to measure companies’ performance, since a number of non-financial performance measures also play an important role in their overall performance. However, this article will focus on financial measures only. The present article has the potential to benefit managers and owners of SMEs by encouraging them to reconsider their current financial performance measurement tools (if any) and consider training on how to use these tools, especially if their businesses are not doing well. It may serve to preserve many of these SMEs from failure. It could help them to foresee failure and change their course of action in time to prevent it. This article could contribute by raising awareness of the importance of studying financial management (as a whole) in the SME context and also persuade researchers to shift the emphasis away from obstacles to accessing finance to financial performance measurement or financial management as a whole. T 33 Global Journal of Management and Business Research Volume XXII Issue VIII Version I Year 2022 ( ) A © 2022 Global Journals