Effect of Financial Management Practices on Profitability of SmallScale Enterprise: Case Study Hawassa City Administration, Ethiopia

Abstract

Small-Scale Enterprises (SSEs) are very important to the economic growth and development of a country. Sensible Financial Management Practices (FMP) can help Small-Scale Enterprises to become profitable and for that matter, it stays in business for a long period of time. This study was aimed to examine the effect of Financial Management practices on the profitability of Small-scale Enterprise in Hawassa City Administration. The mixed research approach was used to collect data; while, questionnaires used to collect primary data and secondary document assessments to collect secondary data. The survey was taken FMP of the 116 Small-Scale Enterprise for empirical examination from the part of Fixed Asset Management practice, Accounting Information Systems practice, capital budgeting management practice, Working Capital Management practice and Capital Structure Management practice on the Small-scale enterprises of profitability or performance. The data was analyzed by using statistical package SPSS version 20 and descriptive and econometrics tool OLS; The Results revealed that good Financial Management Practices is a backbone to Small-Scale Enterprises Profitability, success and expansion. Analytical finding revealed that, Fixed asset management practices, accounting information system and financial reporting analysis, Working Capital Management Practices, and Capital Budgeting Management Practices have a positive relationship with profitability; but Capital Structure Management Practices has a negative relationship with profitability. Accordingly, it recommended that ownermanagers and financial managers are advised to improve strategically update through time and give an indication to policy maker to design supportive policy to SSEs like training, legal prospects regarding gov’t support like loan accessibility.