Financial management is an essential management function for any small business. Short-term financial management is especially crucial for start-ups and established businesses. Owners of small businesses in South Africa often need to perform this function themselves; however, many do not possess the skills and practices required to perform this function effectively. Financial self-efficacy acts as an important motivating factor in managing the finances of a business. Focused training is important in developing financial management skills, but little research has been conducted to determine whether this type of training improves financial management skills and financial self-efficacy.
To determine whether a tailor-made financial management training course improves the development of short-term financial management skills and financial self-efficacy of small business owners in South Africa.
This study sampled small business owners who attended a tailor-made financial management training course that focused on short-term financial management principles.
A quasi-experimental study using a pre-test–post-test single-group design was applied using self-administered questionnaires.
The results from a one-tailed paired-sample
Tailor-made financial management training courses enhance the short-term financial management skills of owners of small businesses and also improve their financial self-efficacy. By improving both their skills and self-efficacy, small business owners are likely to make better financial decisions and be more motivated to implement financial management practices.
Small, medium and micro-enterprises (SMMEs) contribute significantly to employment and the economy in South Africa (Groepe
Financial management skills are critical in operating a business in South Africa (Mamabolo, Kerrin & Kele
The literature also reveals that not only financial management skills and resources are necessary for small firms to be successful, so too are attitudinal factors such as financial self-efficacy (or the self-confidence to be able to perform a task), which influence the desire to persist and pursue managing the finances of a business (Amatucci & Crawley
Training is important to develop financial management skills for newly formed and existing small businesses (Maas & Herrington
The literature shows that, while it is important that focused financial management training develops financial management skills, training also needs to enhance the financial self-efficacy of small business owners in South Africa in order to increase the likelihood of them implementing what they have learnt. Short-term financial management skills should be acquired before long-term financial management skills. The objectives of this study are therefore to determine whether a tailor-made training course improves the participants’ understanding of short-term financial management principles, as well as their associated financial self-efficacy.
The rest of this paper is structured as follows. The next section provides a literature review of the financial management skills and practices which small business owners require to manage their business, the role of financial self-efficacy and the importance and nature of the training required to develop skills in small business owners. This is followed by the formulation of the hypotheses, the research methods and design of the study. The results of the study and discussion thereof are presented thereafter. The final section concludes on the findings of the study.
Financial management involves acquiring and managing financial resources optimally in order to achieve long-term and short-term objectives (Conradie & Fourie
Brijlal, Enow and Isaacs (
Wolmarans and Meintjies (
Self-efficacy is a term that was first used in social learning theory by Bandura (
More recently, research has extended to investigating self-efficacy in relation to managing personal finances (consumers) and financial management (entrepreneurs). The term used to describe self-efficacy in these studies is ‘financial self-efficacy’; it is used in this article to refer to self-efficacy which relates to the financial management of small businesses. Lapp (
Literature shows the importance of presenting and designing training programmes that suit the needs of small businesses. McGee et al. (
Based on the preceding literature review, the following two hypotheses were formulated relating to a tailor-made training course covering short-term financial management topics:
In order to determine whether a tailor-made training course improved, firstly, the participants’ understanding of short-term financial management and secondly their financial self-efficacy, a quasi-experimental study was applied using a pre-test–post-test single-group design. This design is appropriate as it determines whether expected changes have occurred in the participants according to the objectives of the intervention (Babbie & Mouton
The target population for this study was South African small business owners who attended a tailor-made financial management training course that focused on short-term financial management principles. Forty-nine participants attended the training and all of them were invited to participate in this study on a voluntary basis. The questionnaires of 43 participants were complete for both the pre-test and the post-test, and these responses formed the basis of this study.
A programme was devised by a municipality in the Cape Winelands region in the Western Cape Province of South Africa to enhance entrepreneurial development in this region. The focus of the programme was to enhance the business and management skills of owners of qualifying small businesses who came from previously disadvantaged communities in this rural region. Beneficiaries were also provided with financial support to grow or start their businesses. This programme was managed by an external not-for-profit organisation and included training and mentoring of participants in areas such as general business management, marketing and financial management. The not-for-profit organisation made use of field specialists to conduct the training and mentoring for each component of the programme. For the financial management training component of this programme, beneficiaries attended a Sector Education and Training Authority (SETA)-accredited training course which was designed to develop the short-term financial management skills of small business owners.
The training course broadly covered short-term financial management principles, such as record-keeping; planning for future profitability (costing, pricing, break-even); measuring past performance (preparation and interpretation of financial statements); working capital management (stock, debtors and cash flow); and compliance (tax and legal). Participants used a case study (based on a fictional small business that provides both goods and services) for practical application of the short-term financial management principles covered during the training course. A number of toolkits were used during the training to help participants understand the processes involved in applying financial management principles to the case study. Participants could later use these toolkits and apply them to their businesses. The training course was presented over two days at five different training sites in rural towns in the Cape Winelands region. The training courses were facilitated by accounting lecturers from a local university who volunteered to present the training course as part of a social impact initiative.
An assessment using simple constructed-response questions was used to measure the participants’ understanding of the short-term financial management principles that were covered in the training course. For example, respondents were asked to explain how a small business should keep record of its transactions; what the term ‘working capital’ means; and what an income statement is, and what it is used for. The same assessment was used for the pre-test and the post-test. Constructed-response questions allow the participants to develop their own answers by reflecting on the knowledge they have gained from the intervention (Tankersely
Financial self-efficacy related to short-term financial management was measured using a five-point Likert scale (ranging from ‘no confidence’ to ‘very confident’), combined with a happy-face graphic rating scale in order to complement the meaning of the response options of the Likert scale. Stange et al. (
The primary source of data was the self-administered questionnaires. Participants were requested to complete a questionnaire shortly before the commencement of the two-day training course (the pre-test) and to complete the same questionnaire directly after the completion of the course (the post-test). The questionnaire consisted of two sections. One section required participants to rate their financial self-efficacy relating to short-term financial management and the other required participants to complete an assessment to test their understanding of the short-term financial management principles covered during the training course. Demographic data of the participants were obtained from a questionnaire they completed when they initially registered for the entrepreneurial development programme.
The internal validity of this study’s design may be threatened because of maturation, history, testing and regression effects (Marsden & Torgerson
The training course was presented on two consecutive days and participants were tested directly before the training commenced on the first day and directly after the course was concluded at the end of the second day. The threat of maturation and history effects is therefore regarded as low. Participants may have been alerted to the testing and initiated some form of learning after the pre-test. However, participants did not receive any direct feedback on their answers after completing the pre-test, and no learning which was independent of the training was considered likely by the researcher because of the brief time that elapsed between the pre- and post-testing. The threat of testing effect is, therefore, also regarded as low. Participants were not selected based on their pre-test scores, as all participants who attended the training course were included in the pre-test, as well as the post-test, thus eliminating the regression threat. Thus, the internal validity of this study is considered to be high. Field experiments have a high external validity (Zikmund et al.
The responses from the completed questionnaires were captured onto an Excel spreadsheet by the researcher. The data captured were double-checked for correctness. Numbers were assigned to the participants’ responses once the data were captured to ensure anonymity in further data analysis. The assessment of each participant was marked by a single examiner using an analytical scoring rubric, containing six rating score categories ranging from ‘no understanding’ to ‘excellent understanding’. The assessment was moderated by an independent senior colleague. The responses were coded in order to upload them to the statistical package. Possible-code cleaning was performed to examine the distribution of responses to each item in the data set, and any errors detected were corrected. To test the hypotheses that the financial management training course improved the participants’ understanding of short-term financial management principles and financial self-efficacy, a one-tailed paired-sample
The views expressed in this article are my own and not an official position of the institution or funder.
The characteristics of the participants who took part in the financial management training course are shown in
Demographic characteristics of the participants in the study.
Variable | % | |
---|---|---|
Men | 22 | 51.2 |
Women | 21 | 48.8 |
<30 | 5 | 11.6 |
30–39 | 10 | 23.3 |
40–49 | 17 | 39.5 |
50–59 | 8 | 18.6 |
60 and older | 3 | 7.0 |
Lower than Grade 7 | 1 | 2.3 |
Grade 7 | 2 | 4.7 |
Grade 10 | 9 | 20.9 |
Grade 12 | 23 | 53.5 |
B Tech degree | 3 | 7.0 |
Baccalaureus degree | 4 | 9.3 |
Honours degree | 1 | 2.3 |
Manufacturing | 8 | 18.6 |
Service | 31 | 72.1 |
Retail | 4 | 9.3 |
Opportunity | 33 | 76.7 |
Necessity | 10 | 23.3 |
Sole proprietor | 22 | 51.2 |
Close corporation | 10 | 23.3 |
Private company | 9 | 20.9 |
Partnership | 1 | 2.3 |
Co-operative | 1 | 2.3 |
R0 | 11 | 25.6 |
R1 – R50 000 | 8 | 18.6 |
R50 001 – R100 000 | 6 | 13.9 |
R100 001 – R200 000 | 10 | 23.3 |
R200 001 – R500 000 | 6 | 13.9 |
R500 001 – R1 000 000 | 2 | 4.7 |
R0 | 11 | 25.6 |
R1 – R20 000 | 10 | 23.3 |
R20 001 – R50 000 | 7 | 16.3 |
R50 001 – R100 000 | 9 | 20.9 |
R100 001 – R600 000 | 4 | 9.3 |
R600 001 – R2 500 000 | 2 | 4.6 |
0 | 10 | 23.3 |
1–5 | 25 | 58.1 |
6–10 | 8 | 18.6 |
The one-tailed paired-sample
Before performing the analysis, the assumption of normally distributed difference scores was analysed. The skew and kurtosis levels were determined at 0.142 and -0.760, respectively. Thus, the assumption of normal distribution was considered satisfied, as the values were less than the maximum allowable values for a
Means and 95% confidence intervals for understanding short-term financial management principles associated with the pre- and post-training conditions.
The skew and kurtosis levels were determined at 0.285 and 0.542, respectively, which was less than the maximum allowable values for a
Means and 95% confidence intervals for financial self-efficacy associated with the pre- and post-training conditions.
A key finding of this study was that not only did the focused financial management training course significantly improve the participants’ understanding of short-term financial management principles, the training was also able to significantly improve the participants’ associated financial self-efficacy. Having improved their understanding of short-term financial management principles, the participants are better equipped to manage the finances of their business in the short term. The literature has shown that having gained knowledge or skills through training may not necessarily translate into applying what one has learnt unless self-efficacy is also improved. Thus, having also improved their financial self-efficacy, the participants are likely to better utilise the knowledge gained from the training for financial decision making and be more motivated to implement the financial management practices covered in the training course in their businesses. As the participants are able to better manage the finances of their businesses in the short term, there may be an increased likelihood of their businesses surviving and growing.
This study was able to determine that the short-term financial management skills actually improved, as the participants’ understanding of short-term financial management principles was measured using an assessment and was not based on self-reporting. A limitation of the study is that financial self-efficacy was measured based on self-reporting of participants, which may have caused it to be misrepresented because of ‘social desirability bias’ (Holbrook
By first improving the development of short-term financial management skills and financial self-efficacy through focused training, owners of start-ups and existing small businesses can establish a strong basis on which to make better financial decisions. In order to grow their businesses, small business owners would need to build on their financial management skills and financial self-efficacy and work towards developing financial management skills in order to achieve long-term financial management objectives. Thus, once the initial training has been completed, Schwarze (
Kirsten and Fourie (
A possible area for future research is to determine the extent to which other types of intervention using field specialists improve the development of financial management skills and financial self-efficacy. Research could also investigate the extent to which participants in focused training courses are able to implement financial management practices themselves, or whether they need assistance.
In summary, this study found that a tailor-made financial management training course improves not only the short-term financial management skills of small business owners but also their financial self-efficacy. After attending this type of focused financial management training, small business owners in South Africa are likely to make better financial decisions relating to their businesses and be more motivated to implement financial management practices. This will have a beneficial impact on both small business owners in South Africa and the success of their businesses.
The author wishes to extend her thanks to Prof Charlene Gerber, University of Stellenbosch Business School, for her assistance with designing the self-administered questionnaires and the research methodology, as well to Mr Len Steenkamp, School of Accountancy, Stellenbosch University, for reviewing the draft of this research paper.
The author declares that she has no financial or personal relationships that may have inappropriately influenced her in writing this article.