Cashflow Management Practices and Financial Performance of Small and Medium Business Enterprises in Kenya

Abstract

This comprehensive review examines cash management and its impact on the financial performance of Small and Medium Enterprises (SMEs). The review covers theories, practices, and empirical evidence, providing insights into financial management strategies. Theoretical perspectives include the Dynamic Trade-Off Theory and the Free Cash Flow Theory, which shed light on the implications for SMEs' financial management strategies. Empirical evidence underscores the importance of cash accountability, internal controls, cash policy, cash budgeting, and financial performance metrics like profitability, liquidity, and solvency. Effective cash management is crucial for SMEs as it enables growth, optimizes investments, enhances profitability, and ensures financial stability. This synthesis offers valuable insights for policymakers, practitioners, and academics seeking to understand and enhance SMEs' financial performance through sound cash management practices.