This study examines the financial management practices of micro and small enterprises (MSEs) in Tamil Nadu, highlighting their critical role in India's economic growth through job creation and resource utilization. It finds that many MSE owners lack formal financial training, leading to ineffective financial management strategies that hinder their success. The research aims to improve financial practices by providing recommendations tailored to the challenges faced by these businesses.

1. 1

2. International Journal of
HRM and Organizational Behavior ISSN 2454 - 5015
2
Volume 10, Issue 1, Feb/2022
A STUDY ON FINANCIAL MANAGEMENT PRACTICES OF
MICRO ,SMALL AND MEDIUM ENTER PRISESI TAMILNADU
R.BANUPRIYA1andDr.D.VENKADESH2,
1Ph.D.ResearchScholarand2AssistantProfessorandResearchAdvisor,
1&2P.GandResearchDepartmentofCommerce,
A.V.V.MSriPushpamCollege(Autonomous),Poondi–613503,ThanjavurDt.
Abstract
In India's economic growth, micro and small businesses play an important role. They contribute to the
creation of new jobs, a rise in national income, and a more creative and competitive use of locally
available raw materials and human resources through their creation of new and innovative products and
services. All available support has been given to micro and small businesses by the government because
of their critical role in economic growth. Due to these huge obstacles, though, the movement isn't
gaining the momentum it needs to. As a result, the purpose of this research is to examine the financial
management methods used by micro and small businesses in Tamil Nadu and to make
recommendations for how to improve them. As a result, these businesses will be able to thrive and
prosper, which is crucial to the overall growth and development of the economy.
KeyWords:Financial Management in Micro, Small, and Medium-Sized Enterprises
1. Introduction
Small and medium-sized businesses (SMEs) play a critical role in the country's economic growth. By
utilizing locally accessible resources, they help to increase employment and revenue while requiring less
capital. They leverage locally accessible human resources to generate new and innovative uses for
domestically available resources. Government of India in 2006 passed the Micro, Small and Medium
Enterprises Development Act, which aims to help promote and grow small businesses in the country's
economic growth. An enterprise that manufactures or produces goods but does not invest more than
twenty-five lakh rupees in plant and machinery is classified as a micro enterprise under the MSMED Act
2006, while those that do but do not invest more than five crore rupees are classified as small
enterprises, while those that invest more than five crore rupees but do not exceed 10 crore rupees are
classified as medium enterprises. But in the case of enterprises engaged in providing or rendering of
services, the investment in equipment does not exceed ten lakh rupees is termed as micro enterprises,
exceeds ten lakh rupees but does not exceed two crore rupees is termed as small enterprises and
exceeds two crore rupees but does not exceed five crore rupees is termed as medium enterprises.
StatementoftheProblem
One of the most important aspects of business management, especially in the micro and small
enterprise sector, is financial management. A financial plan includes determining the company's
financial needs, identifying the most acceptable sources of financing, mobilizing the necessary amount
of money at the correct moment, and effectively evaluating investment bids.
Profits should be put to good use and working capital should be managed properly. Effective financial
management is critical to the smooth operation of micro and small businesses. Tamil Nadu's SMEs,
however, do not use financial management methods that are up to the standards expected. Micro and
small businesses in Tamil Nadu face particular difficulties when it comes to financial management. Many
of these companies' promoters lack the financial expertise to effectively handle their financial affairs, or

3. International Journal of
HRM and Organizational Behavior ISSN 2454 - 5015
3
Volume 10, Issue 1, Feb/2022
they have failed to employ qualified and experienced financial managers to do so. The owners of these
businesses, who lack the required expertise and education in current financial management tools and
approaches, manage their own financial affairs. In today's fast-paced business world, a lack of financial
management knowledge and competence can have a negative impact on a company's profitability. It is
also possible for these businesses to fail if they make financial decisions that have a negative impact on
their finances. As a result, the purpose of this research is to examine the financial management methods
used by micro and small businesses in Tamil Nadu and to make recommendations for how to improve
them. As a result, these businesses will be able to thrive and prosper, which is crucial to the overall
growth and development of the economy.
2. Objectivesof theStudy
1. To examine the current financial management methods of micro and small businesses in Tamil
Nadu.
To examine the various funding options available to Tamil Nadu's micro and small businesses.
To give recommendations for improving the financial management practices of micro and small
entrepreneurial operations in the state of Tamil Nadu.
Table-1DistributionofMicroEnterprises AccordingtoNatureofBusinessandSourceofFund
(TestofSignificanceusingt– Test)
NS:Notsignificantat 5percentlevel
One way of determining whether or not the various sources of funding used by the units involved in
producing or providing various services differ significantly was to perform an ANOVA test. Findings from
a statistical analysis of variance (ANOVA) provided in Table-1 show that there is no statistically
significant difference in the use of both owned and borrowed funds among the micro
companiesthatproduceorprovidedifferenttypesofservices.
Table-2PreparationofFinancialPlan

4. International Journal of
HRM and Organizational Behavior ISSN 2454 - 5015
4
Volume 10, Issue 1, Feb/2022
Preparation of a financial plan is critical to identifying the future use of the funds available. Table-2
shows that 83.4 percent of the units have no financial plan in place. There are just three of the
remaining 26 units that are preparing a long-term financial plan, 10 of which have medium-term plans,
and 13 of which have short-term plans.
Table-3WorkingCapitalRequirement
Source:PrimaryData
The money needed to keep a business running on a daily basis is known as working capital. Out of 157
sample businesses, 25.5% require working capital up to Rs.25000, 31.2% use working capital between
Rs.25001 and Rs.50000, 12.1% need working capital between Rs.50001 and Rs.100000, and 31.2%
require working capital over Rs100,000. This data shows that micro businesses have a wide range of
working capital needs.
Table4ProportionofCreditPurchases
Source:PrimaryData
Table 4 presents a study of the micro firms' detailed purchases, which shows that out of 157, 97 units
(61.8%) do not buy items on credit. Another 60 units (or 12.7%) acquire up to 20% of their raw material
requirements on credit, another 31 units (19.7%) purchase 21% to 40%, and the final nine units (or 9%)
purchase more than 40% on credit. The statistical analysis of the data
presented in the following table shows that the credit purchase varies from a minimum of 10 percent to
a maximum of 75 per cent of their material requirement with mean of 28.83 per cent andstandard

5. International Journal of
HRM and Organizational Behavior ISSN 2454 - 5015
5
Volume 10, Issue 1, Feb/2022
deviation of 14.27. The skewness factor of the distribution is 1.741, which is positiveindicating that
majority of the units are having lesser proportion credit purchase of their rawmaterialrequirement.
Table5DescriptiveStatisticsoftheProportionofCreditPurchases
To test whether there is any significant variation in the share of credit purchases among manufacturing
and service firms t – test has been employed. The t-test results in Table 4.6 show that there is no
statistically significant difference in the share of credit purchases between manufacturing and service
companies (t = 1.048, P > 0.05). The ANOVA test was used again to see if there is a significant difference
in the percentage of credit purchases among micro companies involved in various forms of product or
service production. From the test result shown in Table 4.7, it is obvious that there is no statistically
significant difference exist among the micro companies engaged in producing various sort of products or
services (F = 2.044, P s>0.05) with respect to the proportion of credit purchases.
Table 4.6 Distribution of Micro Enterprises According to Nature of Business andProportion of
CreditPurchases(TestofSignificanceUsingt–Test)
Table 4.7 Distribution of Micro Enterprises According to Nature of Product/Service andProportion
Credit Purchases(Testof SignificanceusingANOVA)
4. MajorFindings
Production and service firms, as well as microbusinesses offering a wide range of goods and services, all
use owned and borrowed cash in the same way. This is true for all three.
The vast majority of micro-enterprises do not use any project appraisal tools before investing in
initiatives. The payback period approach is used by 26 units, the average rate of return method is used

6. International Journal of
HRM and Organizational Behavior ISSN 2454 - 5015
6
Volume 10, Issue 1, Feb/2022
by 65 units, the net present value method is used by 12 units, the internal rate of return method is used
by one unit, and the profitability index method is used by two units.
With regards to budgeting, 131 micro-enterprises haven't put out a detailed financial strategy. More
than a dozen of the remaining 26 units are preparing short-term and medium-term plans, while only
three are preparing long-term plans.
In terms of the need for working capital 25.5 percent of micro firms require working capital up to
Rs.25000, 31.2 percent require working capital from Rs.25001 to Rs.50000, 12.1 percent require working
capital from Rs.50001 to Rs.100000, and 31.2 percent of the enterprises need working capital above
Rs.100000.
It is financed by 43.9 percent of the businesses, 24.2 percent by borrowed funds and 31.8 per cent by
both owned and borrowed funds, respectively.
More than half of the companies estimate the amount of working capital based on their past
experiences, while only 10.8% of the companies do so formally and only 36.9% of the companies don't
make a formal estimate.
60% of businesses buy raw materials as and when they need them, with 26.8% of businesses doing so
weekly, 10.8% of businesses doing so monthly, and one company doing so whenever it is available.
When choosing how often to purchase raw materials, none of the micro businesses are employing
economic order quantity.
In inventory management, 19.7% of companies employ a perpetual inventory system, while the other
80.3% do not use any formal technique of inventory management at all.
61.8% of companies do not make any credit purchases, which is a low percentage when compared to
overall purchases. The remaining companies' average credit buy percentage is 28.83 percent, with a
minimum of 10% and a maximum of 75%.
No statistically significant difference exists between manufacturing and service firms and between
different types of businesses based on product or service type when it comes to credit sales, according
to the test of significance.
5. Conclusion
Small and micro businesses play an important role in the economic growth of Tamil Nadu. By utilizing
local resources, they are able to create a large number of jobs with a minimal amount of cash. They
serve as a proving ground for aspiring business owners with fresh ideas. Finances are critical to the
success of these businesses.
management. In addition to practical expertise, financial management requires a thorough
understanding of theoretical concepts. However, many micro and small business owners lack formal
expertise in financial management and are unable to appoint qualified financial managers because of
their limited financial resources. The financial management procedures of micro and small firms in Tamil
Nadu have been evaluated in this study. A total of 160 micro and small businesses (MSEs) from the
districts of Thanjavur and Trichy were randomly selected for the study. These sample units were
surveyed using a predetermined interview schedule. With the use of statistical tools, these data were
analyzed in accordance with the study's objectives. Most micro businesses in Tamil Nadu don't follow

7. International Journal of
HRM and Organizational Behavior ISSN 2454 - 5015
7
Volume 10, Issue 1, Feb/2022
good financial management procedures, according to the study's findings. They use firefighting-style
financial management techniques that they've picked up on the job. In order to improve their financial
management practices, small-business owners and entrepreneurs must be properly trained in financial
planning and project appraisal, inventory management and receivables/cash-management, budgeting,
as well as profit and loss management. Improved and better financial management techniques of these
businesses could lead to their success and help the nation grow.
6.References
[1] "Firm Growth and Barriers to Growth among Small Firms in India" by Alex Coad and
JaganaddhaPawanTamwada, Small Business Economics, March 2015 (Springer).
[2] "On the Growth of Micro and Small Firms: Evidence from Sweden," Almas Heshmati, 2015, in Small
Business Economics, Vol.17, No.3, November, pp. 315-324. [2] (Springer).
[3] New Delhi-based Deep and Deep Publications published Financing Small Scale Industries by A K Arora
in 1992.An Overview of Small and Medium Enterprises by David Rajan and Madhavan B, AMET Journal
of Management, Vol.II, No.1, July-December 2011, page 4
[4] Nagaraj G H and Shivalingappa P, 2012, "Effect of Globalization on Small Scale Sectors in India,"
Southern Economist, April 1, 2012.
[5] "Micro, Small and Medium Enterprises Financing in India - Issues & Concerns" by Prasad C S, Cab
Calling, July-September, 2016. [6].