The characteristics of SMEs which are reflective of their small size cause several problems to these enterprises. According to research by KPMG the three characteristics of small size, managerial skills and insufficient information cause several problems for SMEs such as formulation of strategies, organisational structure, operations, marketing, accounting system and financial management. According to the report problems in financial management include inadequate financial information which causes bad investment decisions to be made, lack of information regarding alternative investment options, complexity in borrowing procedures and challenges in obtaining finances (KPMG 2006).
According to Wetzel & Jonsson (1989) the investment decisions made by owners in a small firm were a common factor among small companies which failed. The poor investment decisions may be due to lack of information, experience and expertise in financial management. Inability to manage finances properly results in financial chaos which causes major problems and threats to SMEs (Wienrauch, Mann, Robinson and Pharr 1991). The inappropriate implementation of ERP software which also includes components of financial management also causes severe problems for SMEs (Spathis & Constantinides, 2003). The risk of improper implementation is based on several factors such as high costs of implementation, conflicts with systems already working in organisations, growth of a firm without any changes in the system and untrained or under trained workforce. The company may also face problems of experienced workers leaving the organisation if they are unable to adapt to a new system incorporated in business operations. The management faces a challenge of opting for experienced workers or new systems of financial management at the cost of these workers (Stair and Reynolds 2008).
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