An assessment of financial management practices of small businesses: case study of Sokoru District

Small firms have been identified as an important contributor to the economy. In Ethiopian economy, this sector contributes to the national objective of creating employment opportunities, generating income, and providing a source of livelihood for low income households. However, the small firms have not been able to contribute considerably as needed to the economic development mainly because of inadequate financial management practices. Given that, the issues of financial management are one of the key aspects of the well being and survival of a business. The study aims to explore the financial management practices of small business enterprises in Sokoru District to those variables namely, working capital management, financing, investment, financial reporting, financial planning, analysis, and control, and accounting information systems. For the purpose of this study the sample of 70 small firms were taken from the total population of 115. To achieve the stated objectives of the study the primary data were obtained from owners' of small firms and trade and industry office of Sokoru District. Both stratified and simple random sampling methods were used to select sample used for the study. The study found that the financial management practices of small firms are very weak - especially in the areas of financial planning, analysis, and control, working capital management, and investment decision. The study also recommended that it is advisable that the owners of small firms avail themselves with various training programs; better to engaged in financial planning, analysis, and control in order to compare their financial plan with performances; and also keep professional accountants so as to maintain complete accounting records.