How do small business owners manage working capital in an emerging economy? A qualitative inquiry

Abstract

Purpose

The purpose of this study was to examine the actions owner‐managers of small businesses undertake in managing working capital.

Design/methodology/approach

The study adopted an exploratory research design. The point of saturation was achieved after ten owner‐managers were interviewed. Data were analyzed using content analysis technique with the aid of NVivo software. Verbatim texts were used to explain the emergent themes.

Findings

The findings indicate that in the absence of systems, structures and procedures, small business owner‐managers intuitively plan, monitor and control their working capital. The activities undertaken include; reliance on memory and oral agreements, informal planning, assuming inventory limits, unconventional record keeping, cash flow based information management and giving credit to close associates.

Research limitations/implications

A more detailed investigation of the steps in the action sequence ma y advance our understanding of the process. Future studies need to test the effect of personal characteristics on working capital management process.

Practical implications

Owner‐managers of small businesses do not require the same degree of sophistication employed in planning, monitoring and controlling working capital. They require soft skills. Therefore, academicians, practitioners and policy makers need to emphasize knowledge management and cash accounting.

Originality/value

This study examines the process perspective of working capital management, an aspect that has not been adequately highlighted in previous studies.

Citation

Orobia, L.A., Byabashaija, W., Munene, J.C., Sejjaaka, S.K. and Musinguzi, D. (2013), "How do small business owners manage working capital in an emerging economy? A qualitative inquiry", Qualitative Research in Accounting & Management, Vol. 10 No. 2, pp. 127-143. https://doi.org/10.1108/QRAM-02-2012-0008