Financial management practices, sources of finance and business performance of 3D printing SMES in South Africa

Abstract

As the 3D printing industry continues to gain momentum in South Africa's SME sector, issues about their financing and financial management need to be investigated. This is due to the capital-intensive nature of the business as well as the financing challenges encountered by 3D printing SMEs. This study aims to contribute to research on financial management practices and sources of finance as predictors of performance for 3D printing small and medium enterprises (SMEs) in terms of profitability and increase in client base. The study adopted the interpretivist research paradigm, exploratory research design, inductive research approach and qualitative research method to achieve the objectives of the study. A total of 20 3D printing firms participated in the study. Employees and managers were purposefully selected to participate in the study. The participants comprised finance managers, senior managers and managers of the 20 3D printing firms that participated in the study. Structured interviews served as the instrument for data collection based on the objectives of the study. Data gathered from interviews were transcribed and analysed using thematic analysis. The study reveals that effective working capital management practices boost the profitability of 3D printing SMEs, particularly through adopting no-credit policies and hiring competent finance officers. These practices also help expand the client base by ensuring timely delivery of products and services, with customer relationship management being a strategic approach. Regarding sources of finance, it was revealed that equity financing significantly impacts the profitability of 3D printing SMEs by avoiding debt and interest payments. Debt financing offers growth opportunities but has limited impact due to repayment challenges. Family and friends offer flexible repayment terms, but lack sufficient funds for high-cost operations. Furthermore, equity financing helps 3D printing SMEs capitalize on growth opportunities and attract customers. It offers investors' expertise and industry connections. Debt financing is limited, while family and friends’ funds improve customer service. Own savings provide financial stability for growth opportunities. The study reveals that liquidity management practices significantly boost the profitability of 3D printing firms by ensuring sufficient cash flow to meet financial obligations, managing financial risks, and ensuring timely product delivery, thereby enhancing customer satisfaction and contributing to growth in the customer base. The study also found that 3D printing SMEs face the following challenges in managing working capital, liquidity and sourcing finance: limited access to financing, volatile input costs, limited skills and expertise, marketing and sales challenges and also equipment and maintenance upgrade challenges. Based on the study results, it is recommended that due to the challenge of limited financing for 3D printing firms in South Africa, governments and financial institutions should develop specialised financing programmes tailored to the needs of 3D printing SMEs. Secondly, due to the challenge of limited skills and expertise in 3D printing SMEs in South Africa, policy initiatives should foster collaboration between 3D printing SMEs, educational institutions, and industry associations. Finally, 3D printing SMEs should prioritise cash flow management and develop robust systems to monitor and control working capital components, including inventory, receivables, and payables.