Best Financial Practices Lead Financial Performance of SMES

Purpose: The purpose of this research effort is to understand various effects of financial management practices onsmall firm performance.Design/Methodology/Approach: A questionnaire-based field survey was conducted to collect data from 103 owner/managers from a random sample of SMEs located in the 4 cities of Punjab state of India. The multiple correlation and regression statistical test were used to analyze the derived 5 hypotheses in conjunction with SPSS 16 software the findings.Findings: This research finds detailed consequence of financial management practices on firm performance which mediate via financial planning capabilities. It covers 4 aspects mainly include, financial forecasting & budgetary planning capabilities, working capital planning capabilities, inventory management capability, financial reporting & financial analysis capabilities. Simply study emphasis from beginning to end of all applied financial management practices effects on small firm financial performance. It has tried to understand capital structure issues via financial forecasting and its lateroutcomes on liquidity management. Study also indicates to trace why working capital issues occur at small firms? Study shows to assess comparative analysis of inventory management issues and financial reporting practices on financial performance of small firms. Research Limitations/Implications: This quantitative study is exploring an analysis of small firms and suggests antecedents to understand the impact of financial management practices on financial performance. Used variables have been selected as per best available sources of literature and based on researcher’s knowledge. Further study is also required that identifies the other critical areas to evaluate the different effects. Here limitations of practicality and opportunism inthe sampling also acknowledged.Practical Implication: Certainly findings of the study indicate to undertake more research efforts to justify the effects of financial planning capabilities on financial performance of small firm which also leads their failure at a later stage.Originality/Value: Present paper contributes to the understanding how financial performance of small firm often faces issues which are gape of application financial management practices. A combination of few selected capabilities which is designated as financial planning capabilities in the study are essentially to implement for getting the soundfinancial performance.