Financial Management Practices and Firm Performance: Evidence from Small and Medium Enterprises in Libya

Abstract

In this paper, the impact of financial management on the performance of small and medium-sized enterprises (SMEs) in Libya for the financial year 2024-2025 is explored. A quantitative approach is used in this study and the data were collected using a survey questionnaire designed for SME managers. 384 valid responses were obtained from the participants giving a response rate of 74%. From the analysis of the data collected, it is evident that there is a significant and positive association between the financial management practices and the SME performance. Out of the financial management practices studied, budgeting emerges as the most critical determinant (β = 0.331, p < 0.001) followed by cost accounting (β = 0.298, p = 0.003) and performance measurement (β = 0.243, p = 0.008). Several obstacles to the implementation of financial management in the SMEs were found which include lack of adequate financial skills, poor accounting system and lack of finance.