In this study the researcher investigated cash management and

In this study, the researcher investigated cash management and business success in some selected companies in Mogadishu, Somalia, this chapter consisted of background, the problem statement, objectives, significance, scope, assumptions, and the lastly definition of the terms.

1.1- BACKGROUND

Cash Management originally means the management of liquidity in order to meet their day -to day commitment (Collins & Jarvis, 2000). In the past five decades until 1970s there were many companies that do not put enough focus on managing the liquidity of the firm.

The result of that poor focus on cash management often means that the financial assets are uncontrolled. Instead of being controlled, it could be used to invest for example in material. According to ancient studies they found that small businesses have a poor cash management attention (Denver, 2005). In 1970s managers began efficient and effective liquidity management for the survival of the business, especially smaller businesses (Sardakis et al, 2007).

It is a matter of life and death for smaller companies because they can survive for a long time without a profit but fails when they cannot meet a payment.

Liquidity means the level of cash and near cash assets held, together with cash in and outflows of the assets (Ekanem, 2010).This concept has become more and more used in Africa in 2000s. Managing the liquidity is not something new in this country but cash management is a modern way of doing that Cash management do not focus on getting the most profit margin on sales or reduce the cost in order to save money (Solomon, 2009).

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This is about earning extra money “between the lines”, by being smart and efficient with the payment routines. Knowing where to invest the money and to know which accounts to use in order to earn extra money through interests.

Business success is the process of improving some measure of firms’ daily operations. Businesssuccess can be achieved either by boosting the top line or revenue of the business with greater productsales or serviceincome, or by increasing the bottom line or profitability of the operation by minimizing costs, and managing liquidity (Chris, 1975).

Businesses in mature market economies, particularly the United Kingdom and the United States, received very little attention from business success until the late 1960s when their contributions to these economies were recognized, mainly in terms of their employment generation potential; rapidly growing firms were found to contribute unreasonably to employment generation (Stone, 1998). Studies undertaken during this period revealed that the survival and growth of these businesses was dependent on certain factors or conditions (e.g. access to capital or excess competition). This led to the development of numerous supportive initiatives (stone, 1998). Also recent studies posited that early until mid-1990s Africa’s business growth and success became more and more depending on excess and pure competition (Deckon 2011).

Somalia has been an unsolved puzzle for the international community for a long period of time (Osman, 2006). A number of non- governmental organizations (NGOs) argue that external involvement has only achieved being keeping business growth. The growths of remittances become the only source that Somali people turn into independent of international foreign aid (Osman, 2006). In early 2000s Dahabshiil (one of the large remittance companies in Somalia) became the most successful remittance service in whole east African community (Osman, 2006). Cash management is concerned with the managing of cash inflows into and out of the firm, cash

flows within the firm, cash balances held by the firm at the point of time by financing deficit or investing surplus cash. (Pandey, 1999)

Cash management has traditionally being an exercise in creating controlled environment focused first and almost exclusively on the protection of cash and profits. Cash management has become a critical part of the business operations today. The last 10 years, Cash management is an important for any new or growing business. Cash is the lifeblood of a business therefore, managing it efficiently is essential for success (Shulman 1985). All the disciplines that a small company must master to grow and succeed, none may be more important than cash management. While a strong cash management system can ensure that a company maintains adequate cash levels to meet its operating and investment requirements, an inadequate cash management system can lead to a company’s failure to meet its financial Commitments.

All too often, poor cash management systems have led small business managers to liquidate or reorganize under the Bankruptcy Code; most small business managers claim that cash management is their leading concern. Often walking tight trope between growth and illiquidity, small business managers face different cash management challenges (Tennent 1998). Cash managers should practice effective cash management through different aspects which include: cash budgeting, optimal cash balance, long term cash forecasting, reports for control monitoring collections and receivables, options for investing surplus funds and strategies for investing surplus funds.(Chandra, 2004).

The competitive environment in most countries and for most firms (irrespective of size and sector) have changed as production has become more technology-driven and knowledge-based, and competition has globalized and developed into more innovation-based caused business growth and success (Mytelka 2000; Szirmai, Naude & Goedhuys 2011). Business success has

no standard definition, According to Larry (2008) business success is achieving goals that has been set by the organization through its own objectives.

According to Wong (2012), Business success is directly proportional to the amount of wealth your company has managed to create for society. Adam Smith defined wealth as “the annual produce of the land and labor of the society.” As a society’s productivity increases through advances in technology and process, the total utility to humanity of its labor increases. To the degree that your company contributes to this process, you have succeeded. Since Chinese live in a communist society, this contribution to social productivity generally results in public gain.

1.2 STATEMENT OF THE PROBLEM

Cash management is generally acknowledged as the single most pressing concern of SMEs. Cash flow is the lifeblood of all growing businesses and is the primary indicator of business health. The effect of cash flow is real, immediate and, if mismanaged, totally unforgiving. Cash needs to be monitored, protected, controlled and put to work (Marie, 2001).

However, there is a research report done on Somali Business Review magazine that shows among the problems that affect Small & Medium Enterprises in Somalia leading to their failure were negative cash flows and poor record keeping, Somali Business Magazine (2001). Since the central government of Somalia collapsed 1991 till now the business fields became free market approach. This kind of market approach enabled Somali societies to inaugurate their own businesses. Likewise, lack of effective government and job opportunities enabled Somali community to establish their own business. Although business operations need fundamental knowledge to achieve its’ target, majority of Somali businesses runners seem to be uneducated. (Osman,2006). This leaves the gap for the researcher to in investigate cash management and business successes in some selected in Mogadishu, Somalia.

1.3 PURPOSE OF THE STUDY

1. In this study, the researchers attempted to investigate Cash Management and business success in some selected companies in Mogadishu.

1.4 RESEARCH OBJECTIVE

2. To examine level of cash management in some selected companies in Mogadishu, Somalia.

3. To determine level of business success in some selected companies in Mogadishu, Somalia.

4. To establish the relationship between cash management and the business success in some selected companies in Mogadishu, Somalia.

1.5 RESEARCH QUESTION

5. How effective is cash management in some selected companies in Mogadishu, Somalia?

6. How is business success in some selected companies in Mogadishu, Somalia?

7. Is there a significant relationship between cash management and business success in

some selected companies in Mogadishu, Somalia?

1.6 HYPOTHESIS

1. H0: There is no significant relationship between cash management and business success

in some selected companies in Mogadishu, Somalia.

1.7 SCOPE OF THE STUDY

In this study, the researchers investigated Cash Management and business success in Somali financial business Institutions. Based on The due date of the study, it started on October, 2014 and supposed to end the same January 2015.