EVALUATING THE IMPACT OF FINANCIAL MANAGEMENT PRACTICES ONTHE PROFITABILITY OF SMALL AND MEDIUM ENTERPRISES (SMES) INGANDHINAGAR, GUJARAT

Abstract

Small and Medium Enterprises (SMEs) have a very critical role to play in the economic development of Gujarat and are an important contributor to the generation of employment, generation of industrial output, and thereby local entrepreneurship. Even though SMEs are crucial to a small business economy, financial management practices are often lackluster in most SMEs making them unable to achieve sustainable profitability. The objective of this study is to evaluate the effects of using important financial management practices such as budgeting, cash flow monitoring, investment decision, debt management and working capital management on profitability of the SMES operating in Gujarat. The research also includes both qualitative insights obtained from SME owners and financial managers from quantitative data and draws on them to identify fundamental barriers to the adoption of sound financial practices. The study shows that this is true because most SMEs do basic financial activities but there are limitations such as financial illiteracy, lack of skilled professionals, limited access to credit, low digital adoption, which limit effective implementation. These findings have implications for SME practitioners, policymakers, and financial institutions seeking to encourage a financially disciplined and resilient SME sector. This research contributes to a growing concern over SME financial sustainability in emerging economies.

Keywords: Financial Management, SMEs, Profitability, Working capital, Budgeting

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