Aim/Purpose
The goal of this study was to investigate the financial management practices of SMMEs operating in under developed regions as a challenge facing SMMEs operating in underdeveloped regions using former Transkei Homelands in Eastern Cape Province as a case study.
Background
In South Africa, the works of Cameron and Miller (2008) highlights that South Africa is ranked among top countries in the world with high failure rates of SMMEs during the first year of establishment. This calls for continues research works to identify factors that could be impeding the progress of SMMEs in South Africa. According to Jayansankaran, (1999) proper financial management practices are among the key deciding factors when it comes to the survival of SMMEs. Mostly SMMEs in underdeveloped regions are owned and managed by one person, the lack of financial management competence on the side of the SMMEs owners or managers in turn could bring serious consequences to the financial stability and grow of the SMMEs. It is against this background that this study focuses on financial management practices among SMMEs entrepreneurs operating their businesses in former Transkei Homelands where survival of SMMEs are critical for economic development of the region.
Methodology
The researcher in this study uses both quantitative and purposive sampling approaches to design an exploratory study to sample 68 SMMEs owners/managers based in the various towns of the selected region.
Contribution
This research will add to the growing knowledge about identifying factors that may be impeding survival of SMMEs.
Findings
The major findings of the study revealed that 95.59% of the owners/managers have no financial management/accounting skills as well as 58.82% of the internal system of recording financial transactions are not audited.
Recommendations for Practitioners
In view of the findings it is recommended that agencies charged with looking after SMMEs provide training in the area of financial management skills for the SMMEs owners/managers.
Recommendation for Researchers
Future studies can include the other four principles of financial management principles highlighted by Armstrong (2001).
Impact on Society
The research will assist to highlight to funders of SMMEs, policy makers and business support agencies the need for educating SMMEs entrepreneurs especially those operating their businesses in underdeveloped regions in proper financial management practices in order to curve the problem of cash flow faced by SMMEs which leads to SMMEs failure.
Future Research
Exploring the skills of the SMMEs entrepreneurs’ to prepare, understand and interpretation of financial statements are critical in this context.