While it is commonly held that access to finance constitutes one of the major hurdles for the SME sector’s growth and sustainability, a new study has disclosed that technical assistance is the topmost need for businesses – even ahead of capital.
According to the study, targetted training is required in specific areas to significantly enhance SME performance. Business-specific and systemic issues, the study found, include 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.
The study emphasises that with tailored digital and financial literacy assistance, as well as good corporate governance training, SMEs can demonstrate steady, sustainable growth.
A senior lecturer of the Finance Department, University of Ghana Business School (UGBS) and Principal Investigator for the project, Dr. Lordina Amoah, 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.
“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,” the senior lecturer stated.
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.
The research put a spotlight on SMEs’ working capital management (WCM) practices and aspects of financial management, with the intention to understand the nature of their WCM practices and further investigate the impact of WCM training on SMEs’ financial performance.
It disclosed that, indeed, SMEs lack technical skills the most.
WCM involves managing cash, receivables, payables and inventory to ensure a good balance between liquidity 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.
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.
