THE PECULIARITIES OF FINANCIAL MANAGEMENT PRACTICES IN SMALL BUSINESSES
Journal Title: VADYBA - Year 2014, Vol 25, Issue 2
Abstract
Small and medium enterprises play an important role in the development of national economies both in developed and developing countries. Consequently, effective financial and business management of these companies could be considered a prerequisite of sustainable economy. In comparison with large corporations, small businesses have different financial goals and characteristics resulting in the need for different financial techniques and sources of funds. The study aims to explore financial management practices in small businesses and to contrast them with techniques used by large companies. The research object is financial management practices in small companies, changes of and main trends in their development. It has been revealed that usually financial management practices in small companies depend on the stage of their development. Small businesses are inclined to preparing capital budgets by necessity unlike large companies which have annual budgets. Traditionally, small companies are reluctant to use newer and more sophisticated financial management techniques and practices. Although over the years the popularity of such methods as discounted cash flow has increased, the percentage of small companies using them is lower compared with large companies. Few small companies adopt traditional formal approach to working capital management. Instead, they give preference to subjective working capital decision-making. The majority of small businesses concentrate just on one area of working capital management (cash, stock or debtors) and the minority do not manage any area. The maximization principle of available amounts of cash instead of its skilful short-term investment as well as poor control over receivables are believed to be a really acute problem. In comparison with large companies, cash balances of small businesses are proportionately higher. Many small companies still use manual methods of stock control and the majority does not adopt any stock optimization methods at all.
Authors and Affiliations
Artūrs Prauliņš, Valda Bratka
Keywords
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