The current asset management proved to be one of the key ingredients for the growth and nourishment of small businesses in Ghana. It was found that an effective working capital policy affects a small company’s expected future returns and associated risks. The purpose of the current asset management is to have an effective working capital policy. An effective working capital policy must have the following features in its code: Effective equity and credit policies, controlling working capital, maintaining assets that can be easily converted into cash, efficient working capital management, level of liquidity risk that management is prepared to accept, the industry, within which company operates, what type of products are sold and how to finance working capital? The ability to manage and control current assets – cash, inventory (finished goods and work in progress), receivables (debtors) – was very important.
Inventory or inventory is the least liquid value of current assets. If inventory is managed efficiently, it can very easily be converted into cash. Stocks were wasted due to the fact that most companies could not or did not know how to manage their stock using even the traditional “FIFO-LIFO” method, and paid huge sums because they had too much storage; some of them become obsolete with the consequence of loss of cash.
It must also be said that debt collection is a very difficult task to start in Ghana due to one or more of the following:
i. The fact that the address system was not designed to include citizens in a database to facilitate debt recovery,
ii. The “crunch and charge” practice, where traders with little or no capital decide to “turn over” the funds from the trade credits to other companies, and sometimes the end result is losing all money to the detriment of the creditor, thereby causing the business to bust.
When offering trade credit, companies are exposed to the risk of default, thus tying up financial resources leading to ultimate loss of cash and consequently cash flow. Effective management of debtors is thus an antidote to sound current management practice. SMEs in Ghana usually use trade credit policy as a tactic in their strategies to draw attention to customers. The reasons for offering trade credit include increased sales and marketing. A full 85% of all analyzed data (including individuals) indicated that respondents were and still are practicing financial management.
Also, in many cases, because stock control policies did not exist, cash was unlocked and affected the company’s cash flow. Basic need to run the company day to day, for example, in some cases, staff salaries became difficult to pay with its attendant problems.
Effective regular banking practice is another financial capability identified through case study by observation. For example, a company worked with a cash credit facility and managed to negotiate with the affected bank and make sure the bank had one in the room to collect the daily cash sales. This improved cash flow and helped reduce the interest paid to the bank. In the event that a company cannot do the same, the cash sale must be paid only on the following day.
Through the case study, relevant funding source was found to play an important role in the economic capacity of SMEs in Ghana. An enterprise’s ability to identify the relevant or proper source of funding needed, e.g. Cash credit, short, medium or long term loans with regard to its circumstances or type of business. It is in a very good place to grow its earnings, pay less interest to the bank and can look forward to sustaining growth and for that matter the company for a long time to come. The study found that the companies that fulfill their obligations to the banks were always able to collect money from the bank to expand their business or meet unexpected problems.
It was also found that effective control and monitoring of financial plans is an economic capability. It is one thing to manage finances and another to monitor and control finances. In order for finances to be managed effectively, there must be regular oversight (restrictions as some have described it) and monitor (closely monitor or monitor) the financial plans that the finance (and accounting) is managed in the business. In some cases changes and deviations could be made to streamline the plans. For example, if monitoring and control shows that the reaction in the market will affect the ordering of more goods, this could be delayed or stopped altogether to save cash for the company that can save the company in the long run.
Thus, owner-managed business can be a force to be reckoned with in the business environment when following their implicit strategy and knowledge.