The purpose of the study was to examine financial literacy of small business owners, financial records keeping and enterprise performance in the Tarkwa-Nsuaem Municipality of Ghana. Financial literacy level and operating performance of those enterprises as a measure of business economic performance was examined. In addition, the study examined financial records kept by small business owners. It was an explanatory study which employed quantitative methodology and survey strategy. Findings were based on responses from 120 small business owners, comprising 60 retailers, 30 artisans and 30 food manufacturers. Data was analyzed using Descriptive Statistics, Index Pool, Chi-square Test for independence, Independent Sample T-Test and Linear Regression. The study revealed that there is a weak positive correlation between the financial literacy and performance of small business enterprises. It came out from the results that most small business owners are confronted with some complicated financial decisions in running and managing their businesses. Most small business owners’ lack of knowledge, skill and attitude to manage the finances of their organization in a professional way poses a significant obstacle to performance growth of sustainable small scale enterprises. Finally, it can be concluded that the financial literacy of small business owners have a significant influence on small business performance. Developments in the financial markets make financial literacy increasingly important for financial well-being. Therefore, in order to boost the financial literacy of small business owners within the municipality, policy makers should specifically design programs and workshops targeted at further enhancing the financial literacy levels of these owner-managers.

Financial literacy plays a major role in the economic development of the world’s economies. This role is more vital in developing countries where poverty exist in pandemic proportions. Improved knowledge on financial issues is key in channeling resources to more productive use and is an important mechanism for enhancing household income and livelihoods (Atieno, 2001). Increasing knowledge on financial issues helps economic units to take advantages of economic opportunities that are available. It also reduce the financial risk and encourage the youth in investing in self-managed ventures. Lack of financial knowledge has been a major challenge to entrepreneurs across the world.

Background to the Study
The development of small businesses is considered as the key condition in promoting equitable and sustainable economic development in Africa. These small businesses are usually more labour intensive and highly linked to the local industries; they contribute to skill development in entrepreneurship and the spread of technology and as a result are very important in ensuring broad based economic growth on equitable basis (Bahar, 2001). The sector has been the source of livelihood to most of the poor households in the developing countries. Small Businesses account for over 60% of GDP and over 70% of total employment in low-income countries, while they contribute over 95% of total employment and about 70% of GDP in middle-income countries (Ayyagari, Beck & Demirguc-Kunt, 2003). In Ghana, 85% of the manufacturing, retailing and artisans’ related employment comes from Small Businesses; they contribute 70% to GDP, constitute 92% of all businesses and make up 80% of the private sector (Abor & Quartey, 2010).

In Ghana, a key strategy the government has adopted for increasing employment and production is to take measures to improve the capacity of the private sector as a means of accelerating the growth of small businesses (Adomako-Ansah, 2012). Small business also referred to as one man business occupy the biggest sector of the employment base and are the bedrock of the local private sector in Ghana. Successive Governments in Ghana have adopted various strategies aimed at improving the financial capacity of Small Business Owners for financial growth, business growth, among others to enable them increase production and hence employment (Adomako-Ansah, 2012).

Government again realizing the socio-economic importance of the Small Business Enterprises, set up National Board for Small Scale Industries (NBSSI) in 1981 as an apex body aiming at building the capacity of individual business owners for the development of Small Scale industries in Ghana. It was established in 1985 by an Act of Parliament of the Third Republic of Ghana (Act 434 of 1981). This was because government viewed the sector as having the potential to contribute substantially to reducing the high unemployment rate and contributing to the growth of the economy of Ghana.

Also the introduction of Ghana Alternative Market (GAX) rules in 2013 by Ghana Stock Exchange with approval from the Securities and Exchange Commission (SEC) aimed at affording small business owners the opportunity for securing long term capital, broaden their investor base and provide liquidity for their businesses. In addition, enterprises may enjoy other incentives including pre initial public offer (IPO) financing, underwriting and access to a revolving fund to support the cost of raising capital and deferment of up-front fees.

Small Businesses account for a significant share of economic activity in Ghana and can play an important role in achieving the Sustainable Development Goals (MDGs). The sector is characterized by low levels of financial education and training of the self-employed. Small Business Owners who are into food manufacturing, retailing, and other processing sectors are viewed as costly and highly risky entities by the key players in the financial sector and as a result, many of the commercial banks refuse to grant them credit. These Small Businesses who could contribute a major role in job creation and sustainable economic development are therefore marginalized. Nevertheless, for any financial institution to bind themselves for the disbursement of loan facility to any organization, they require efficient and reliable information concerning cash inflow to assess the financial sustainability of such enterprise. Mutegi and Phelister (2015) affirm that financial literacy facilitates decision making processes such as payment of bills on time, proper debt management which improves the credit worthiness of potential borrowers to support livelihood, economic growth, sound financial systems and poverty reduction. Furthermore, it provides superior mechanism of one’s financial future, more effective use of financial products and services, and reduced susceptibility to overenthusiastic retailers or fraudulent schemes.

The long-term goal for Small Businesses is to maximize their contribution to the country’s economic and social development with respect to production, income distribution, employment and the closer integration of people in the rural areas with the national economy. Ghana Commercial Bank (GCB) recognizing the socio-economic importance of Small Businesses piloted a financial scheme for retail businesses, food manufacturers and other artisans to ensure the development of strong and viable small business enterprises in the country. Interestingly, Barclays Bank Ghana Ltd embraced the idea and opened a branch in Accra near the Liberation circle to be solely in charge of small business enterprises (Adomako-Ansah, 2012).

To critically see the cash inflow and outflow of the businesses concerned, as well as the production of other financial records are kept and reported accurately, financial knowledge is required to detail out every single transaction undertaken by the businesses during the period. To address these issues, an efficient financial knowledge and skill is essential to business owners of all sizes and type. The financial knowledge will be beneficial on the day-to-day activities of the businesses.

Statement of the Problem
Some studies (OECD 2013; MOFEP 2012 & Programme for International Studies Assessment [PISA], 2012) suggest that improved literacy rates lead to increased financial literacy and eventually financial well-being. Even though there may be some more fundamental reasons for a business failing to start or progress, the lack of financial knowledge and skill and lack of financial records keeping are the most immediate reasons. As a result the growth of small businesses is weakened. The real problem is the ability to use knowledge, records and skills to manage financial resources effectively for a lifetime of financial wellbeing. Lusardi and Mitchell (2011) report that improved knowledge in financial literacy education is very pivotal in the fight against poverty.

Financial literacy and financial records keeping have attracted a wide range of interest from policy makers and scholars over the years and as a consequence, it is defended that the financial literacy and financial records keeping should be seen as public policy objective in order to improve welfare through better decisions making and mitigate the asymmetry between the final consumer and the financial institutions (Huston, 2010).

These concerns were rapidly expanded to include scientific community and nowadays, it is noticed a hugged growth of research based on financial literacy matters, mostly in relation with the financial records keeping and accurate financial literacy levels, which are seen as indicators to sustain the need for financial education (Huston, 2010). Another reason for this recent growth in research is related to the effects of reducing fear associated with exposing business secret if adequate financial records are kept.

In a developing economy like Ghana, Small Business Enterprises play very important roles in the economic development of the country. Small Business Enterprises may include; retailers, artisans, food manufacturers, services and production firms, agro-based organizations among others. In effect, efficient management of these Small Businesses and proper monitoring of day-to-day transactions of the business requires accurate financial knowledge, managerial skills and accurate financial records.

The long-term goal for Small Business Enterprises is to maximize their contribution to the country’s economic and social development with respect to production, income distribution, employment and the closer integration of rural areas with the national economy. However, the system put in place by most Small Business Enterprises does not provide the necessary guidelines and procedures for proper financial records keeping.

Improper financial records keeping by Small Business Enterprises may result in over or under estimation of profit. In spite of the proliferation of such businesses in Ghana, Ghana Revenue Authority (GRA) still report low domestic tax generation from Small Business Enterprises. For this reason flat rate or tax stamp was introduced by VAT authorities in February, 2005, to regulate a realistic tax from the Small Business Enterprises (Abor, & Quartey, 2010).

It is in view of these issues raised by the government and other financial institutions that has called for this research to find out why the owners of the small businesses are not ready to ensure that proper financial records are kept. Also, the major research done so far is mainly focused on firms, leaving a gap for the analysis of the levels of financial literacy among small business owners (Adomako & Danso, 2014).

The link between financial literacy of small business owners, financial records keeping and the performance of enterprises is of immense interest from the policy viewpoint in many nations and investment communities. The performance of Small Business Enterprises may be correlated with financial literacy level. Thus the two vital questions from empirical viewpoint are whether financial literacy of small business owners and performance are in any way related, and if so what is the kind of relationship. Secondly, whether the financial literacy of small business owners influence the real variables in a considerable manner and again if so, what is the kind of correlation?

In many developed economies financial literacy controls the real sectors massively but in the Ghanaian context financial literacy appears rather superfluous in this respect. This is due to the fact that the boundary conditions are less examined in a developing country context. Conversely, over the period of time; governments and other stakeholders’ involvements have attempted to discount such “bull effect” and have made positive contributions in the performance of Small Business Enterprises. This drive is prompting a thorough study to delve into the questions posed above (Abor & Quartey, 2010).

Financial literacy is important for individuals and investors because it will enable them understand and master financial products and services. Atkinso and Messy (2011) suggested that the low level of financial literacy of individuals and investors was one of the causes of the recent financial crises. Lusardi and Mitchell (2011) add that individuals need financial skills to survive in today’s volatile economic environment. This is because less financially literate individuals are less likely to make good financial decisions, less likely to keep financial records to manage customer and vendor account and more likely to have more costly debt. It stands to reason that the performance of an enterprise depend on the financial literacy of the owner.

Considering the importance and contributions of small business enterprises to the national economy and the little attention that scientific community has given to the measurement of financial literacy levels among small business owners in the developing economies, the study is fulfilling the gap by assessing the financial literacy among small business owners in the Tarkwa-Nsuaem Municipality in the Western Region of Ghana. Also whether the results would be correlated with actual performance of the Enterprises, as a measure of the business economic performance.

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Item Type: Ghanaian Topic  |  Size: 71 pages  |  Chapters: 1-5
Format: MS Word  |  Delivery: Within 30Mins.


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