ASSESSING THE CORRELATION BETWEEN FINANCIAL MANAGEMENT AND THE PERFORMANCE OF INFANT BUSINESS IN CAMEROON

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Countries worldwide, regardless of their developmental status, are grappling with challenges in financial management and undergoing significant transformations. Financial professionals working within state entities are keen on enhancing budgeting processes, adapting to changes in financial reporting, bolstering risk management practices, and fortifying governance frameworks while combating corruption and fraudulent activities. Moreover, there is a considerable focus on  financial management across various governments, aiming to foster economic growth and ensure fiscal sustainability. To achieve efficient fiscal management, novel methodologies and models must be devised. Furthermore, financial management involves utilizing financial estimates to impact the financial well-being of organizations. It empowers organizations to strategize, project future financial outcomes concerning capital, assets, and essential resources to maximize investment returns. However, financial planning, the initial stage of financial management, entails managing overall cash flows to secure necessary funds, forecasting inflows and outflows, and exercising financial control over current and future financial and business events. Additionally, infant business financial planning aims to foresee future financial performance and determine the optimal allocation of financial resources to meet short-term and long-term objectives. Similarly, financial management within an infant business guides the pursuit of strategic goals, typically established following the identification of vision and objectives. It also entails deciding on procurement of raw materials, production of goods, and efficient marketing strategies. On the other hand, the outcomes of financial management profoundly influence the allocation of human and material resources essential for business operations. Also, financial management is a factor of adopted practices that increase the financial performance of an organization (Alshatti, 2015). The practices ranges from internal control measures through creating systems and operational procedures that enable an organization attain its 5 mandate and objectives (Lerno, 2016). 

Nevertheless, Elliott and Yan (2018) highlight the enhancement of the financial system's role in driving economic growth across diverse sectors. By implementing sound financial management practices and enforcing policies across all sectors, the national government has propelled the country to become the world's second-largest economy. The government's commitment to ethical business conduct has fostered a thriving business environment, yielding significant returns on investments. Transparent and accountable transactions have curtailed corruption, ensuring proper allocation and utilization of government resources. McKinney (2019) emphasizes the necessity of strengthening financial management and governance through the formulation of policies and regulations to facilitate effective financial management practices. Therefore, a survey will be conducted in order to assess the correlation between financial management and the performance of infant business in Cameroon

1.2 Statement of the Problem

Persistent poor business performance has long confounded observers, particularly in developing nations like Cameroon, where small/infant businesses play a significant role in the economy. Studies from developed countries, such as Nguyen (2021), attribute inefficient financial management practices as a major factor contributing to the underperformance of businesses. Hence, improving financial management practices such as working capital management, financing, investment strategies, and financial reporting could serve as a viable solution to the performance challenges faced by business in western Cameroon. However, these theories have proven inadequate in explaining business performance, necessitating the application of resource-based view and knowledge-based theory, which highlight the importance of financial and knowledge resources in understanding financial management practices and addressing SMEs' performance issues.

In Cameroon, studies conducted by Tushabomwe-Kazooba (2018) and Lois and Annette (2018) have revealed that infant businesss are not meeting expectations in terms of performance, raising concerns about their contribution to the Cameroonian economy. While previous studies have shown a relationship between working capital management and SME profitability, these studies predominantly originate from developed nations and often focus narrowly on working capital management without considering the broader impact of various financial management practices. Exceptions include studies by Almeida (2020), Degryse et al. (2019), Alfo (2016), and Orobia et al. (2018) in Cameroon. However, Orobia et al. (2020) primarily examined how business owners handle working capital, employing action theory, and did not establish a clear link between working capital management and SME performance. Moreover, these studies have encountered unresolved contradictions and theoretical limitations specific to infant business, underscoring the need for new research in developing country contexts like Cameroon to explore the relationship between financial management and business performance. Thus, it is in the light of these that the study seeks to assess the correlation between financial management and the performance of infant business in Cameroon.

1.3  Objectives of the Study

The main purpose of this study is to assess the correlation between financial management and the performance of infant business in Cameroon. Specifically, the study will;

Find out the financial management practices required to enhance infant businesses in Cameroon

Ascertain  the role of financial management on growth of infant businesses in Cameroon

Assess the factors that influence the adoption of effective Financial management among infant businesses in Cameroon

 1.4 Research Questions

The following questions have been prepared for the study:

What financial management practices are necessary to enhance infant businesses in Cameroon?

What role does financial management play in the growth of infant businesses in Cameroon?

What factors influence the adoption of effective financial management among infant businesses in Cameroon?

1.5 Research Hypothesis

Ho: There is no significant correlation between financial management and the performance of infant business in Cameroon.

Ha: There is a significant correlation between financial management and the performance of infant business in Cameroon.

1.6 Significance of the Study

For infant businesses operating in resource-constrained environments, effective financial management is crucial for optimizing the allocation of limited resources such as capital, labor, and materials. However, the findings of the study will provide insights into best practices for resource allocation, helping these businesses operate more efficiently. Additionally, Furthermore, subsequent researchers will use it as a literature review. This means that other students who may decide to conduct studies in this area will have the opportunity to use this study as available literature that can be subjected to critical review. Invariably, the result of the study contributes immensely to the body of academic knowledge with regard to the correlation between financial management and the performance of infant business in Cameroon.

1.6 Scope of the study

The scope of this study is to assess the correlation between financial management and the performance of infant business in Cameroon. Empirically, this study will find out the financial management practices required to enhance infant businesses, ascertain  the role of financial management on growth of infant businesses and assess the factors that influence the adoption of effective financial management among infant businesses in Cameroon.

Geographically, the study will be delimited to business owners in Buea, Cameroon

1.7 Limitation of the study

In the course of carrying out this study, the researcher experienced some constraints, which included time constraints, financial constraints, language barriers, and the attitude of the respondents. In addition, there was the element of researcher bias. Here, the researcher possessed some biases that may have been reflected in the way the data was collected, the type of people interviewed or sampled, and how the data gathered was interpreted thereafter. The potential for all this to influence the findings and conclusions could not be downplayed. 

More so, the findings of this study are limited to the sample population in the study area, hence they may not be suitable for use in comparison to other schools, local governments, states, and other countries in the world.

 1.8 Definition of Terms

Entrepreneurship: refers to the process of identifying, creating, and pursuing opportunities to generate value through innovative ideas, products, or services.

Financial Management: the process of planning, organizing, directing, and controlling the financial activities of an organization or individual. 

Performance: how well a business is doing in terms of achieving its financial objectives and goals

Infant business: a newly established or early-stage venture that is in its initial stages of development. These businesses are often characterized by limited resources, low market presence, and a high level of uncertainty regarding their future success.