Do Financial Management Practices Drive Profitability? Evidence from Small and Medium Scale Enterprises in Ibadan, Nigeria

Sanusi; Nurudeen Adeola; Akanbi; Paul Ayobami Ph.D

doi:10.56201/jafm.vol.12.no7.2026.p444.455

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Do Financial Management Practices Drive Profitability? Evidence from Small and Medium Scale Enterprises in Ibadan, Nigeria

Sanusi, Nurudeen Adeola, Akanbi, Paul Ayobami Ph.D

Abstract

In Nigeria, small and medium-sized enterprises account for 96% of all registered businesses. They also have the highest business failure rate in the country. This is often attributed to poor financial management as opposed to the level of market demand. Evidence from Nigeria tends to be scant. Most of the studies focus on one financial management practice, use secondary data from listed firms, or consider financial management as a homogeneous practice. Therefore, there is no empirical evidence to help owner-managers decide priority financing practices, when they have limited time and financial resources. This study assesses the joint and individual effects of five financial management practices: budgeting, working capital management, financial reporting, investment appraisal, and financial planning, on the profitability of SMEs in Ibadan, Oyo State. A descriptive survey design was used in this study. Out of the 4,000 registered SMEs in the study area, 364 owner- managers and financial officers were selected using stratified and simple random sampling. A thirty-item five-point Likert scale with good reliability was used to collect data. This yielded a response rate of 93.9%. The results showed that the model accounted for 70.9% of the variation in profitability, and was significant (F = 165.294, p < 0.05). The results also showed that all the financial management practices had a positive effect on profitability, with financial planning being the strongest predictor of profitability, and investment appraisal being the least predictor. The study, therefore, advocates that financial management is a package of complementary practices and, therefore, training and capacity development should be undertaken in a sequenced manner with financial planning and budgeting.

Keywords

Financial ManagementSME; Profitability; Working CapitalFinancial Planning

References

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Do Financial Management Practices Drive Profitability? Evidence from Small and Medium Scale Enterprises in Ibadan, Nigeria

Abstract

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