However, the growth of SMEs is mainly hindered by management practices that most SMEs are engaged in which are always found to be inefficient and effective thus reducing chances of getting access to working capital (Beijerse, 2000).
The problem of investment readiness by SMEs can largely be attributed to lack of market information and commitment by financial managers to access various sources of finance. According to research, the universal understanding and consciousness of finance options by SMEs is considered to be poor and the major hurdle is poor investment readiness. There are numerous factors that determine investment readiness in SMEs and these include the following:
The major factor has always been business attitude to finance. In every SME, the concept of financial management is very crucial and financial managers have to treat it with seriousness. Financial managers therefore have to change their attitudes towards financing issues and proper accountability of financial activities should be a priority to most SMEs in order to be successful in their investments ventures.
The other determinant of investment readiness is the financial forecasting aspect of management in organizations. Forecasting of finance involves the financial managers predicting the future revenues of the organization using the current available financial information. The use of reliable forecasting techniques boosts the investment opportunities of SMEs because they will be able to know the amount of funds needed in the future to run the activities of the organization. With proper forecasting, the financial managers can get access to obtaining finance from financial institutions because they can borrow debt finance and can convince those financial institutions that they can repay the principal and interest without failure. Also with financial forecasting SMEs can achieve their targets of revenues that will foster investment readiness (Sparrow, 1999).
Other important determinants include the financial decisions that are made by the finance managers. There are four levels of decisions involved and these are;
Financing decision, whereby the financial manager has an obligation of determining the best sources of funds suitable for a business. They are responsible for identifying cheap sources that will not strain the financial capability of the organization in terms of repayment if it is debt financing.
Investment decision, which involves the respective financial managers of SMEs identifying the viable investment opportunities. This will involve coming up with efficient frontiers of portfolios to be invested in. This means that the financial managers have to access the risks involved and the returns expected from a selected investment.
Dividend decision, whereby financial managers identify good dividend policies applicable in the SMEs. For example, if shareholders are entitled to both preference and ordinary shares then investors' confidence are built in them and thus the success of the organization.
Financial decision is the liquidity decision. How firm manages its finances is very crucial to stakeholders including financial institu