Investigating the Effect of Strategic Planning on the Financial Performance of SMEs in Namibia

Abstract

Small and Medium Enterprises (SMEs) are hypothesised to play a critical part and serve as a crucial source of income and employment creation in many economies. SMEs contribute about 12% of the Namibian Gross Domestic Product (GDP) and provide employment or income to about 160 000 Namibian citizens. Namibia has witnessed remarkable growth in the number of SMEs in recent decades, with over 28 000 formally registered SMEs. However, most SMEs in Namibia experience difficulties, some of which may threaten their existence. Numerous external and internal factors impact business performance: failure to develop strategic plans, lack of finance, poor financial management, and lack of suitable management skills. The literature argues that financial performance challenges faced by SMEs can be mitigated with a clear and well-articulated strategic plan. This study set out to investigate the effect of strategic planning on the financial performance of SMEs. The results confirm that strategic planning has a positive effect on the financial performance of SMEs. However, many SMEs indicated that they had never done strategic planning. The study also found that Issue-based strategic planning is a commonly used strategic planning model. Policy implications indicate that although strategic planning is found to enhance SMEs' financial performance, the majority of them lack an optimal mix of strategic planning elements. The study recommends using strategic planning to set clear financial performance targets and for relevant stakeholders to introduce policies that help equip SME owners/managers with the optimal mix of business management skills.