Abstract

Small businesses are vital for economic development and employment generation. The study set out to analyze the effects of cash management practices on the growth of SMEs in the Buea Municipality, (a) To find out how cash control affect the growth of small and medium-size enterprises in Buea (b) to find out how cash budget affect the growth of small and medium-size enterprises in the municipality of Buea, and (c) to find out the effect of cash planning on the growth of small and medium-sized enterprises in Buea. This study adopted a quantitative research design.

This study adopted a multi stage sampling technique that comprised of Stratified sampling, random  and purposive sampling techniques. 60 samples of SMEs in Buea were used for the study, data were collected using five-point Likert Scale Questionnaires. The study found that cash management practices has a significant effect on the growth of SMEs.

It clarifies that t values was significant at 0.005 levels Both variables have a coefficient which means that growth of SMEs increases with increasing level of cash management practices. Base on the findings of the study, the following conclusions was drawn that cash control by SMEs leads to improved growth in terms of sales turnover. From the findings of objective two, it can be concluded that the use cash budgeting leads to better growth and performance.

Lastly, based on the findings of objective three, the study concludes that cash planning leads to improved growth of SMEs. It was, therefore, recommended that SMEs should intensify the practice of cash control, cash budget and cash planning as well as the recruitment of field officers to provide counsel and other non-financial services to the small business operators so as to help improve their cash management efficiency levels.

CHAPTER ONE

INTRODUCTION

1.1 Background of the study

There is a worldwide consensus that the action of Micro and small enterprises contribute to high rates of economic growth, economic and social development as well as poverty reduction. Micro and small enterprise does not have any unique definition. This is due to the diverse and flexible nature of the sector that overcomes any minute categorization.

Therefore, micro and small enterprises definition are based on the following features such as the yearly sales turnover, labor, and size of the loan, capital, and non-current assets. Most enterprises usually make use of these features to define micro and small enterprises. For instance, in Canada, it is defined based on the number of workers and total sales. While South Korea defines it on the capital or assets. European Commission’s defines small and medium enterprises as those enterprises that employ less than ten workers, having an annual turnover not more than 2 million euros with a yearly position statement not exceeding two million euros.

Micro and small businesses mean privately own business in which the owner practices a close control policy. The definition and characteristics of small and medium businesses have been seen in different perspective in the World today. For example in the United State (US), it refers to own independent enterprises that employ less than 50 workers with a revenue of less than $10 million practicing a close control. These businesses in the US have been able to employ close to half of the labor force. Equally, Babson (2016) states that MSEs have been accounted for more than 60% of the private sector in the US.

They have also been characterized by lower revenue and profitability, short-term employees, small market areas, located in limited areas (Ingram.2006). Around the 1980s in the Middle East, the Australia Bureau of statistic (ABS) defined small and medium businesses as those with employees lesser than 20 persons (Mazzarol, 2012) and are characterized in terms of their low income, small size, less number of employees or operators . The record has proven that small and medium enterprises have let to the development of Australian economy”.

Cash is the lifeblood of every business, big and small alike (Abioro, 2013). A business may be profitable and yet without cash to meet its obligations they fall due will be forced to close down (Enow, 2015).Cash management has attracted increasing attention among both academics and practitioners during the last decades. The term cash management has been defined in different ways by different scholars.

Barrett (2014) defines cash management as the series of processes used by an organization to obtain the maximum benefit from its flow of cash funds. Sound cash management involves better timing of expenditure decisions, earlier collection king of revenue, and more accurate forecast of cash flows. Positive cash flow is the lifeblood of small and medium enterprises (SMEs)-critical to sustaining and growing the business.

Cash is used to pay business obligations, cash management assumes more importance than any other current asset and the major aim is to maintain adequate control over cash position to keep the firm with sufficient liquid and use the excess cash in some profitable way (Abu Tabanja, 2015). Cash is a vital component of working capital because it keeps running. It is the hub around all finances because the management of cash is crucial for the success of an enterprise. The adequacy of cash and other current assets together with their efficient handing virtually determines the survival or extinction of a business concern.

Cash is an important current asset for the business operation of a business. It is the basic input needed to keep the business running a continuous basis (Abu Tabanja, 2015). No business operation is isolative of cash management; cash is regarded as the most important current asset for operation of the business (Olowe, 2013) Basically cash management is concerned with managing cash flows and cash out flows.

Major sources of cash inflow include cash from operating activities sells of business assets among others sources of cash outflows are settling of creditors, purchase of inventory among others. Cash need to be efficiently managed and allocated to meet the routine of business objectives. The gap between cash expenses and cash collection enhances liquidity, position, profitability, leading to overall business growth over a period of time (Brinchk et al, 2014).

Equally, The”2013 Best practice Handbook on European cash management” looks at cash management implementation trends and challenges. According to this Handbook, cash management is a system that comes to reduce working capital requirements over a longer term by improving efficiencies and generating cost savings in the management of cash flows and overall liquidity. So for companies to overcome financial and liquidity crisis both internal as well as externally, they should effectively look at their existing cash management structures and procedures.

Despite these strategies put in place, they, however, encountered some contemporary cash management challenges such as tough business conditions, instability in the global market and risk management. The Chartered Institute of Management Accountant (CIMA, 2015) stipulated that cash management is imperative in every business organization, cash is considered as the living blood of any business.

In Africa, cash management implementation is becoming more sophisticated. It has been 15 years since the original cash management handbook was written. Equally, a work by Kwame (2016) that was centered on the fact that, the putting in place of a cash balance policy ensures prudent cash budgeting and investment of surplus of cash. Therefore, reducing the time cash is tied up in the operating cycle improves business profitability and market value as well as business performance.

Proper management of cash will enable the owners of micro and small enterprises to meet up with cash disbursement, minimizing funds committed to cash balance as well as to meet up with optimum cash balance. The various ways through which an enterprise can manage cash includes; planning, control, budgeting and collection of cash.

All over the world small and medium size enterprises (SMEs) are considered as backbone of a country’s economic. They all play a key role in economic development and make important contribution to employment and gross domestic product (GDP), and are important contribution to total employment and job creation.

Small and medium size enterprise have been defined in various way according to the capital of the enterprise, size the number of people employed by the enterprise, the ownership and management of the enterprise and sales volume, all the definitions agree on the common views that small and medium size are characterized by few people and a relatively small amount of capital and turn over.

In Cameroon, SMEs officially makeup 95% of the country’s economy, affirms Laurent Serge Etoudi Ngoa, Minister of Small and Medium-Sized enterprises, Social Economy and Craft. Fully aware of SMEs’ importance in any development strategy, Cameroon has been increasing in the last few years, its support for them.

This includes the creation of the SME bank on July 20th, 2015 in Yaounde which was conceived to reduce the challenges faced by SMEs in Cameroon when seeking financing and the opening of the Upgrading office with the EU’s support, to reinforce the competitiveness of Cameroonians. In addition, Cameroon now has an Agency for the Promotion of SMEs, which aims to transition SMEs from an informal to a formal economy and tax management centers put in place by the Finance Ministry, where SMEs receive tax advice to better play their part in the development of the Cameroonian economy.

A business organization could measure its performance using the financial and non-financial measures. The financial measures include; profit before tax, return on investment, profitability ratio (Smith et al, 2013), and the non-financial measure focuses on issue pertaining to customer satisfaction and customers’ referral rates, delivery time, waiting time and employees turn over (Lucy Komen,2014).

For an organization to be successful an ideal situation an ideal situation is to have adequate cash balances as well as healthy profit figures ie, it should try to be profitable and cash generative. There often a great deal of confusion over this two term as many thinks that these are similar terminologies used interchangeable. However, what need to be learnt is that the profit is not the same as the cash. Cash is more like and organization engine on which the company runs. If cash management is not up to the standard required, then the company is likely to go bankrupt.

Moreover, high profit does not in any way mean that the business is liquid.

Cash flow analysis gives an insight into the core business activities and management decisions on which the company is profitable lingers. For companies, often is the overriding objective but if cash is not sufficient, the company growth will slump and there may be a threat to survival. Hence, cash flow is absolutely critical for the existence and survival of an enterprise as such an enterprise generating healthy cash balance will invariable have high profitability (Damian. Okele, 2013)

However, the perception of cash management is not different like that in Cameroon. Globally in Buea, there exist many small and medium businesses. Some of these enterprises includes clothing vendors, book vendors, shoe vendors, saloons, bakeries, poultry vendors, restaurants, hotels, tomatoes sellers, provision shops, micro institutions, just to name the few. The operations of these businesses through employment has contributed tremendously to the booming nature and growth of the area.

Due to it hospitality nature, it has therefore let to the cohabitation of other inhabitants who are not indigenes of the area. These enterprises are however facing some challenges. Some of the problems encountered by these Businesses include absence to get micro credits, inadequate Infrastructures, bad debts challenges as well the absences of good record keeping and bank accounts problem. Also, poor financial performance was equally seen as an issue to these small and medium enterprises. It was therefore because of this that the researcher decided to carry out a study in these enterprises.

More deeply with the willingness to investigate the reasons behind the issue with their financial performance. So, it was observed that, they equally encountered issues with their cash planning, control budgeting, and collection as it was noticed by these SMEs in the Buea municipality. In essence, it is against this background that this study was set to find out engagement in cash management by SMEs Owners and accountants/ cashiers in Buea municipality, the activity which is key to the success of their business

1.2 Statement of the problem

Irrespective of the efforts made by the government of Cameroon through the Ministry of small and medium sized enterprises as well as the chamber of commerce to support the growth of SMEs by creating and enabling good business environment through appropriate legal and regulatory procedures. There is no indicator that the sector is growing. For the past years in the South West region specifically Buea, the growth of SMEs has been dropping drastically (Information from owners of SMEs in BUEA). This has been the alternate reason why some of them reduced their employment capacity, send away most of their workers, inability to have branches elsewhere, less diversification, drop down in their market share, decrease in profit  and inadequate cash as well as a reduction in the return on capital employed. So the researcher has been wondering why the situation is the way it is and started looking for what could have been the reasons for this poor growth

Further more, from a discussion with the owners of some SMEs in Buea, the researcher discovered that, according to them, the lack of growth observed in these SMEs are as a result of the poor cash management practices in these enterprises. In fact,these enterprises faced a lot of challenges with their cash management practices. For instance, in the cash planning there are facing problems like, having a very vague estimation of the amount of cash they will have in the next month, they did not have a proper plan for their expected cash inflows and outflows. For the cash budgeting, the problem observed is that they fail to practice sound cash forecasting to know when they will experience the peaks and slump of the business cycle.

As it was found out by Mong (1999) that, only 30% of the small businesses drew up cash budget. With the case of cash control, thses owners cited that, they don’t have good safeguarding procedures as well sound record keeping procedures and equally at times fails to issue receipts on their invoices issued. The researcher noticed that these SMEs face issues of bad debts as well as debtors payment period.

As it is asserted that, sound receivable timing helps for business success. Its therefore out of this poor background that the researcher seeks to ascertain whether this poor growth observed in these SMEs is being resulted in the poor cash management practices among them.

1.3 Research Questions

Main Objective

What are the effects of cash management on the growth of small and medium sized enterprses within the Buea municipality ?

 Specific Research Questions

1. What are the effects of cash planning on the growth of SMEs within the Buea Municipality?
2. How does cash budgeting influence the growth of SMEs within the Buea Municipality?
3. To what extent do the effects of cash control contribute to the growth of SMEs within the Buea Municipality?

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