IMPACT OF FINANCIAL MANAGEMENT PRACTICES ON FINANCIAL PERFORMANCE OF SMES IN MAIDUGURI METROPOLIS, BORNO STATE, NIGERIA

Abstract

Existing research on SMEs in Maiduguri has primarily focused on isolated financial decisions such as investment choices rather than adopting a holistic view. Also, studies on financial management have often neglected the unique and severe challenges faced by SMEs in conflict-affected regions like Borno State. Hence, this study addresses these gaps by examining the impact of financial management practices on the financial performance (FP) of SMEs in Maiduguri Metropolis, Borno State. The research focuses on two key financial management practices: working capital management and financing practices. The study population comprises the top 100 SMEs in the region, with a purposively selected sample of 60 respondents (2 per SME: owner and manager). Primary data were collected using structured questionnaires. Correlation and multiple regression analyses were conducted using SPSS version 25. Thus, the study employed multiple regression analysis, and diagnostic tests confirmed that all regression assumptions (normality, linearity, homoscedasticity, multicollinearity, independence of errors, and absence of outliers) were met, ensuring the validity and reliability of the findings. The results reveal that both financial management practices, working capital management (WCM) (B = 0.623, p = 0.002) and financing practice (B = 0.188, p = 0.004), have a statistically significant positive effect on the financial performance of SMEs. Correlation analysis further confirmed a strong positive relationship between these financial management practices and financial performance. The study concludes that effective financial management practices significantly enhance the financial performance of SMEs in Maiduguri Metropolis. Thus, this study provides empirical evidence that will guide actionable improvements for SMEs in a challenging economic environment. It offers concrete recommendations by demonstrating that enhancing WCM (e.g., optimizing cash flow and inventory) and improving financing strategies are not just theoretical concepts but statistically significant drivers of FP. Also, the findings equip SME owners and managers with a clear focus for intervention and provide financial institutions and policymakers with evidence to tailor accessible financing products and support programs for SMEs in the region. The study therefore recommends that SMEs should improve WCM to enhance liquidity and financial stability, while financial institutions should offer more accessible financing options tailored to SMEs' needs.