Financial management practices of small firms in Ghana: An empirical study

The contribution of small firms to the employment of the youth in Ghana is highly recognised, but their contribution towards revenue to the national budget seems to be negligible. The reason for this situation is that these small firms do not have sound financial management systems in place which will help them to prepare financial reports. The end result is that it becomes very difficult for tax authorities to compute their taxable incomes. The three most influential factors that did motivate the sample firms in pursuing sound financial management practices were: (1) Pressure from bankers (90%); (2) Pressure from external accountants (80%) (3); Pressure from providers of capital (70%). The three most influential factors that prevent them from practicing sound financial management practices were: (1) Qualified accountants too expensive to maintain (93%); (2) Accounting records too difficult to understand (87%); (3) Lack of internal accounting staff (73%). In the light of the findings of the study, it has been recommended among other things that, they should avoid mixing business transactions with non-business transactions. It was also recommended that small firms should disclose fully the financial position by keeping full set of information on business transactions.