The Review of Related Literature, gives a summary of studies, books, and

other writings that are related to the topic being studied. It helps show what

other researchers have already found out and how their work connects to the

current research. By reading and understanding these sources, the study can

build a strong background and avoid repeating what has already been done.

This chapter also helps point out gaps or problems in past studies that the

current research can try to solve. In this Chapter the researchers show the

relationship of Independent Variable and its indicators, relationship of

Dependent Variables and its indicators and lastly the Relationship between

the Independent Variables and Dependent Variables.

Cash Management Practices

Effective cash management ensures that the financial resources needed to

support the operations of the firm are available on time. When basic cash

management techniques and methods are used, cash turns into an asset that

immediately boosts the bottom line. Effective cash management strategies

are essential to every business's success, regardless of whether it has a lot of

money or is struggling financially. Ojera (2016).

Micro enterprises sometimes have trouble managing their finances, which can

cause financial stress and even disaster. In order to promote and maintain

financial performance, Otieno (2021) and Pandey (2020) emphasize the

significance of appropriate cash management and practices.

Budgeting, cash flow control, and cash balance and transaction accounting

are all aspects of cash management (Williams et al., 2015). An organization's

An organization can secure profitability, maximize liquidity, and enhance and

sustain its continuous business operations by effectively managing these

resources (Odo and Udodi, 2022; Obure, 2016).

Businesses' financial performance and sustainability depend on their cash

management procedures. Oluoch (2016) highlights that effective cash

management, which includes budgeting and the use of cash books, has a

favorable effect on the operation of the company. Microenterprises' financial

performance would improve if they implemented efficient cash flow

management.

Insufficient capital, poor cash flow management, and poor budgeting are

some of the most significant internal issues that Grablowsky and Rowell

(2020) identified as contributing to the failure of MSMEs. Grablowsky's 2015

analysis revealed that MSMEs' cash management strategies were once more

insufficient.

Based on the data collected, cash management strategies significantly

impacted the profitability of micro, small, and medium-sized businesses.

Pandey, D. L. (2019)

All businesses must use cash management procedures since they improve

their financial performance and long-term viability. For improved financial

performance, every business must implement cash management procedures.

Ahmad (2016).

BUDGETING
Therefore, the study by Onyango et al. discovered that cash flow

management and budgeting procedures have a big impact on

microbusinesses' financial success.

Effective cash management techniques, particularly budgeting, assist

businesses in predicting changes in economic time series that manifest as

trends or business cycles and improve financial performance. In 2018,

Nibbering et al.

Because it predicts future expenses and opportunities to prevent a shortage

of resources meant for the company's financial performance and general

growth, cash budgeting is an essential tool for organizations. In 2023,

Onyango, G. O., and Muchira, B. W.

Making sure a business has enough cash on hand to pay its debts and invest

in expansion prospects is the primary goal of cash budgeting. MSMEs can

sustain long-term success and financial performance stability with the support

of a well-managed cash budget. Muchira, B. W., and Onyango, G. O. (2023).

One of the most popular and successful methods for evaluating the financial

performance of businesses and their operations is budgeting (Owino, T. O.

2023). Additionally, according to Eton et al. (2018), budgeting guarantees that

expenses are in line with planned cash flow, improves the ability to forecast

the possibility of obtaining funds, and stabilizes profitability levels.

Onduso (2018) in a study on “the effect of budgets on financial performance

of businesses in Nairobi County” including MSMEs concluded that the

financial performance as measured by the budgeting practices of the business

managerial performance respectively.

Cash Flow Management

Without adequate cash flow management, a firm can become technically

insolvent even though assets are sufficient to manage liabilities. Pandey, D. L.

(2019)

Cash flow is regarded as the net amount of cash and cash equivalent of an

organization’s payments and receipts (Musah & Kong, 2019). Thus,

management needs to understand the concept of cash flow management

since it helps predict how much cash will be available and determine the

amount required to cover operating expenses impacting positively to the

financial performance of the business. (Costa, Pinto, Nunes, & Lemes, 2019;

Güleç & Bektaş, 2019).

According to existing research, financing, investing, and operating activities

are essential components of cash management strategies (Atia et al., 2020).

Cash flow management was also assessed by Ndungu and Oluoch (2016)

using cash flow from financing, investing, operating, and free cash flow.

However, Yeko (2019) used cash management practices—credit

management, account payable management, and account receivable

management—to assess cash flow management.

The degree to which an organization's resources are used to produce income

is measured by its financial performance. (T. O. Owino, 2023). It entails

calculating the company's financial strengths, such as profitability and growth,

and weaknesses, such as sales or liquidity. (Ndirangu, 2017; Che Logoi,

2020).

Additionally, it is seen as an indicator of the company's success and financial

well-being (Matar & Eneizan, 2018). Financial performance is a metric that

aids in the implementation of the company's financial resources, according to

Ichsan et al. (2021). Accordingly, businesses employ resources more

effectively and efficiently the better their financial performance (Owino, T.

O.,2023).

According to Bartolacci and Caputo (2020), financial performance has a big

impact on how business operations are managed and is a crucial component

of the enterprise's total cash management. Effective financial performance in

businesses hence makes resources available for advancing firm operations,

like raising production rates for profitability and developing for sales growth.

(T. O. Owino, 2023).

Sales growth and productivity are the foundations of financial performance,

according to Yeko (2019). However, as measures of financial success,

Fatihudin (2018), Maisharoh and Riyanto (2020), and Ugo and Egbuhuzor

(2022) employed liquidity, capital adequacy, solvency, leverage, and

profitability.
Liquidity

Timing cash receipts and payments effectively is essential for ensuring that

organizations have liquidity while optimizing profitability. According to Ramil

and Yekini (2022), a large number of microbusinesses do not employ cash

flow management because they think it is unnecessary or takes too much

time. Therefore, in the context of microbusinesses, cash flow from financing,

investment, and operating activities was used as a measure of liquidity.

A crucial component of controlling the company's financial performance is

liquidity. Since cash is the company's most liquid asset, it can be used to pay

maturing debts, which increases stability.

Hansen (2018) asserts that cash enhances a business's financial

performance. Because, according to CIMA (2022), cash is the lifeblood of any

entity's financial performance in any firm.

They seem suitable as control mechanisms influencing the financial

performance of businesses since liquidity offers a foundation for assessing

the cash flow for current financial obligations and also structures the decision-

making environment (Bruns & Waterhouse, 1975).

Previous research on the growth and development of small enterprises has

acknowledged the expansion of tiny businesses (Abor and Biekpe, 2016).

According to other research, the biggest barrier to small business growth is

cash management (Aryeetey, Baah-Nuakoh,

Murphy (2016) discovered that it was uncommon for small and micro

businesses in the UK to have superior financial performance. They also

discovered that their cash management procedures were flawed, which was

the cause of their declining sales.

There are few studies that focus solely on the financial performance and cash

management strategies of small and micro-sized businesses, particularly in

Ghana's northern area. Research on Ghana's small and microbusiness cash

management practices, particularly in the northern region, which is dominated

by microscale businesses, has been neglected. It has been shown that poor

cash management practices, particularly when it comes to sales growth, will

result in poor financial performance (Agyei-Mensah 2017).

Cash management practices specifically for sales growth preparations, cash

collection and cash budgeting practices had a positive relationship with

financial performance of every business. (Kamau and Mungai, 2020)

Cash management practices are viewed as managing the enterprise finance

to increase the sales by maximizing profit and reducing payment of borrowed

funds (Oluoch, 2016). Other scholars, Kiai et al. (2020); Nwarogu and

Iormbagah (2017), propound that cash management is how businesses

it.

Profitability

Pandey (2021) found that the firm may gain adequate profits, but may suffer

from shortage of cash because its growing needs may be consuming cash

very first so that management should look to ways of increasing cash inflows

in the firm and minimizing cash outflows reducing operating expenses then

the surplus cash may be managed into an investment portfolio so that the

entity can ensure good financial performance.

Saleemi (2022) found that businesses that have ineffective cash management

practices cannot achieve desired levels of profits and these firms

unfortunately will end up to achieve poor financial performance as one of the

said main objectives of such business.

The researcher went on to explain that it is easier to estimate the profits that

these businesses will generate if cash management practices are

implemented and properly monitored. According to Kakuru (2015), MSMEs

have cash receipts and cash disbursements with a net balance that is either

surplus or deficit at any given time. If cash receipts and disbursements are

synchronized, the management should aim for improved financial

performance, which means investing the excess cash for profitability that will

improve the business's financial performance.

Since it demonstrates the company's financial performance and overall

success, sound cash management procedures are essential for every

enterprise's growth, profitability, and liquidity (Owino, T. O., 2023).

In order to understand how cash management techniques affect the financial

performance of firms, including micro and small enterprises, some studies

employed accounting procedures—more especially, budgeting practices and

cashflow management—as building blocks. Sebastian (2018) also employed

profitability and sales growth as indicators of financial performance (Owino, T.

O., 2023).

Other scholars claim that financial performance can be measured by sales

growth, market expansion, liquidity, and profitability (Tuffour et al., 2020;

Zirabamuzale, 2021). However, as measures of financial performance, sales

growth, profitability, and liquidity have only been employed in a limited number

of research. The study employs these measurements to bridge this gap

because it thinks they are essential for assessing how cash management

procedures impact company performance, especially financial success.

Owino, T. O. (2023).
The relationship between cash management procedures and the financial

success of microbusinesses in Baco, Oriental Mindoro, was investigated by

Aguilar et al. (2024). The study concludes that increasing sales growth,

profitability, and liquidity requires effective planning and cash flow

management. Disciplined cash management increases the likelihood of

financial stability and expansion for microbusinesses.

Khan and Mutahhar Ali (2016) have provided convincing evidence of a

significant correlation between cash management practices and financial

performance. Their well-researched analysis evaluated liquidity using the

quick and current ratios and profitability and sales growth using the gross

profit margin and net profit margin ratios.

Ismail (2016) undertook a study to evaluate that cash management really

affect the financial performance of Pakistani companies. Studies of

businesses audited annual reports from 2006 to 2021 provided the data for

this investigation.

A thorough investigation was conducted by Priya and Nimalathasan (2018) to

determine the impact of level changes on the financial sustainability of Sri

Lankan enterprises. These researchers used cash management techniques to

examine the data, and their findings showed a strong correlation between

financial practices and Sri Lankan enterprises' financial performance and

profitability.

Al Nimer (2015) and Warrad & Al Omari (2015) assert that financial success is

significantly influenced by liquidity and financial management techniques.

In particular, they used cash flow management as an independent variable to

evaluate profitability and budget management as an independent variable to

A study by Alshatti (2015) sought to determine how cash management

strategies affected the growth, profitability, and liquidity of Jordanian

companies. According to the research findings, the implementation of suitable

cash management methods has a favorable effect on the organizations'

financial performance, particularly on their liquidity, growth, and profitability.