A new study on improving small and medium scale enterprises’ (SMEs) financial performance in Ghana has disclosed that technical assistance is the topmost need for businesses, even ahead of capital.
The study demonstrates that targetted training needed in specific areas can significantly enhance SME performance.
Business-specific and systemic issues, the study found, includes absence of working capital plans and frameworks; inability to conduct cash planning and budgeting; and inability to consistently maintain accounts – with household financing activities not separated from business.
Deploying a randomised control trial using retooling in Working Capital Management (WCM) practices, the study emphasised that with tailored digital and financial literacy assistance as well as good corporate governance training, SMEs can demonstrate steady sustainable growth.
Senior Lecturer-Finance Department, University of Ghana Business School (UGBS) and Principal Investigator for the project Dr. Lordina Amoah, presenting the report to stakeholders, stressed that with appropriate support SMEs can improve their financial performance, create jobs and contribute to economic transformation as expected from the economy’s biggest sector.
“SMEs are key to Ghana’s economic growth, but effective WCM is crucial for their sustainability. Most often we mention access to capital as their core challenge – but there are other vital factors that need addressing even more than capital investment, which has been the focus. So, this study is meant to identify key areas where SMEs require assistance to grow their operations,” she said.
She emphasised that the team will work with stakeholders on securing funding and scaling up the pilot project to cover more SMEs across the country for greater impact and transformation
The WCM Study
SMEs account for 90 percent of all businesses and generate 70 percent of the country’s GDP. They also contribute significantly to job creation and innovation, but empirical studies indicate that within the first five years about 40 percent of new businesses fail.
This has mainly been attributed to lack of access to finance. However, some experts believe that other core issues also account for the challenges SMEs face.
The research – which put the spotlight on working capital management (WCM) practices of SMEs and aspects of financial management, with the intention to understand the nature of WCM practices of SMEs and further investigate the impact of WCM training on SMEs’ financial performance – disclosed that, indeed, SMEs lack technical skills the most.
The WCM Challenge
WCM involves managing cash, receivables, payables and inventory to ensure a good balance between liguidity and profitability. Ineffective WCM can lead to slow, excessive inventory, customer payments and weakened supplier relationships.
Systemic challenges include absence of clear credit policy – and while the majority of lenders do not offer credit because of previous experiences with non-payment, slow, grinding legal processes and lack of trust also affect SMEs’ growth.
Furthermore, SMEs’ inability to maintain healthy vendor/client relationships, non-usage or inconsistent use of technology and digital systems in their operations are also major factors.
Benjamin Tandoh, Built Financial Technologies – a partner to the project, noted that adopting digitalisation is one of the major ways to improve SMEs growth; hence, Built Financial has developed a simplified platform that enables book-keeping, budgeting, invoicing and taking stock easier for SMEs.
Strengthen technical training and assistance to improve SMEs sector
Representing the GIZ, Eunice Acheampong indicated that GIZ has also realised the need for increased technical assistance for micro-, small- and medium-scale enterprises (MSMEs), hence her outfit is now focused on providing coaching services to them.
She said this approach will involve segmenting MSMEs into small cohorts based on size or capacity, providing tailored technical assistance essential for their survival.
“Micro enterprises have different challenges from macro or bigger SMEs, hence the need to segregate them and tailor the training and support services based on their peculiar requirements,” she said.
The study was put together by the University of Ghana Business School in partnership with Ghana National Chamber of Commerce and Industry (GNCCI) and the International Growth Centre (IGC) with support from GIZ.
