Building Financially Resilient SMEs: Linking Financial Management Practices, Competitive Advantage, and Organisational Sustainability

Abstract

Now the days small and medium enterprises (SMEs) contribute significantly towards employment generation, social development and economic growth, but till yet many continue to experience financial problems that affect the long term sustainability. As SMEs facing growing market competition, political issues, technical changes and sustainability challenges, effective financial management practices have become important to overcome these challenges. The current study investigates the impact of financial management practices on the financial performance and sustainability of SMEs operating in Odisha. The study based on 231 SME owners, accountants and managers through a structured questionnaire by adopting a quantitative research design using primary data collection method. To study the proposed relationship amongst the variables Structural Equation Modelling (SEM) was used by adopting ADANCO software. The outcome of this study point out that effective financial management practices expressively enhance the financial performance and contribute directly towards organisational sustainability. Financial forecasting, budgeting, accounting information system, working capital management and financial planning assist SMEs to utilize financial resources effectively, improves liquidity, boost profitability and enhance long term survival. Financial performance plays an important apparatus through which financial management practices contribute directly towards sustainable organisational growth. The study provides empirical evidence from a developing economy like India and practically applicable for SME owners, managers, policy makers, financial institutions and other stakeholders to strengthen financial competency and sustainable business development. The results of the study contribute towards emergent literature on financial management of SMEs by signifying that efficient financial management practices contribute positively towards organisational performance and long term sustainability.