Financial Planning and Decision Making as Predictors of Financial Performance in Msmes

Abstract

Purpose: the present study demonstrates that the combination of financial planning and decision making jointly contribute as predictors of efficient financial performance, permeating into MSMEs’ market sustainability. Theoretical Framework: Micro, small and medium enterprises (MSMEs) currently have a relevant role in gross domestic product and direct job creation in Latin American countries. The literature shows that financial planning is a highly valuable tool for large businesses, facilitating decision making and creating positive impacts on financial performance. However, these studies are centered on businesses classified as large, excluding MSMEs. Recent studies have approached financial planning, decision making, and financial performance in MSMEs on an individualized basis. Methodology: The study carried out was quantitative, non-experimental, correlation, cross-sectional, and explanatory. A total of 308 MSMEs participated, obtained from the National Geography and Statistics Institute (INEGI, 2019), of which 34.41% were industrial, 32.14% commercial, and 33.41% from the service sector. Normal distribution tests were done (Kolmogorov-Smirnov tests), along with symmetry and kurtosis. Findings: The findings suggest that MSMEs which have been around for seven years or more have financial planning knowledge favoring their decision-making and generating efficient financial performance, making time a determining factor. Research, Practical & Social Implications: Our findings have significant implications for generating proper planning based on solid tools, with the effect of assertive decision making which favors financial performance. Originality/Value: The most important contribution from this study to MSMEs is to show that financial planning is not only for large organizations, but can apply to them as well.