| Abstract: | Small and Medium Enterprises (SMEs) in Addis Ketema, Ethiopia, are recognized as vital drivers
of economic development, job creation, and income generation, particularly for low-income
communities. However, their growth potential is hampered by inadequate financial management
practices. This study investigates the impact of these practices on business growth. Employing a
mixed-methods approach, the research utilized quantitative surveys and open-ended questions to
gather data. The study population comprised 2,400 small and medium enterprises within Addis
Ketema, with a sample of 320 SMEs selected for participation.
Data analysis involved the use of descriptive statistics to draw conclusions about the wider SME
population in Addis Ketema. The analysis focused on key financial practices, including working
capital management, investment decisions, financial reporting, and control systems. The findings
revealed significant deficiencies in the financial management practices of SMEs. Notably, 80% of
SMEs lacked formal business planning and control mechanisms, while 70% neglected proper
record-keeping practices. Additionally, 83% of SMEs demonstrated an absence of comprehensive
business studies, reflecting a pervasive lack of informed decision-making.
These deficiencies hinder SMEs from effectively allocating resources, making informed decisions,
and accessing necessary financing, ultimately limiting their contribution to the local economy. The
study highlights the urgent need for improved financial management practices to enhance the
sustainability of SMEs in Addis Ketema. Recommendations include promoting financial literacy,
providing training programs, and encouraging the adoption of technology to improve financial
management. By addressing these challenges, this study offers valuable insights for policymakers,
practitioners, and researchers to develop targeted interventions that improve financial management
practices and foster the growth and sustainability of SMEs in Addis Ketema. |
