A Study of Financial Health in Small Business by using Structural Equations Modelling

Abstract

This research aims to investigate the small business finance based on five-hypotheses by using “Structural Equation Modelling (SEM)” as a statistical tool for analysing multifaceted causal links of business performances. Small business is vital component in economies around the world, although they are exposed to great risks such as fluctuating cash flows, financing difficulties, and other economic vulnerabilities that pose threat to their financial health. The primary objectives of this study are to analyse factors within a small business that affect its financial viability, choice of and access to financing, and the extent and role of financial literacy and cash flow management; and to assess the influence of macroeconomic factors on business performance. Subsequently, adopting SEM, this study examines not only the direct associations among these factors but also the intermediary effects on financial health. The data for this study is going to be gathered from 300 small business owners in diverse industries through the administration of a survey which is going to measure aspects such as, financial literacy, cash flow management, and financing. Understanding the detailed mechanisms that underlay the link between financial literacy and financial health and other factors of interest will be made possible by the results of SEM analysis and these findings will be useful to the businesspeople, the government and the financial institutions. In this context, the purpose of the study is to provide ideas useful to improve the financial stability and sustainability to achieve the tactical and strategic growth of small businesses.