Exploring financial sustainability of SMEs during periods of production growth: A simulation study

Leila Schwab, Stefan Gold, Gerald Reiner

Publikation: Wissenschaftliche FachzeitschriftOriginalbeitrag in FachzeitschriftBegutachtung

Abstract

The purpose of this pa\per is to understand the impact of financial key performance indicators (KPIs)—namely customer accounts receivable flow time and credit limit allowed by financial partners—on the financial sustainability of small and medium sized enterprises (SMEs) during business growth trajectories from an operations management perspective. This study explores the impact of a financing scheme on company performance during business growth, since new banking constraints for credit risk reduction have been introduced (such as BASEL III regulations). Based on qualitative and quantitative data from a longitudinal empirical case study of a Swiss family-owned SME during a phase of intense growth, we have built a simulation model by combining agent-based with system dynamics modelling that comprehensively represents the growing firm, its decision-making, and enables the impact evaluation of relevant financial KPIs on financial sustainability. Our analysis shows that the baseline scenario entails 80% risk of bankruptcy for high-growth SMEs; featuring 30 days customer accounts receivable flow time target and a credit limit allowed by the financial partner of 25% of last period turnover. However, if customer accounts receivable flow time is reduced to ten days, and credit limit increased to 65% of last turnover, the risk of bankruptcy drops to 30%. Our findings point to the detrimental unanticipated side effects of macro-level banking regulation on micro-level firm performance, and hence have implications for policy-making. Moreover, our study guides managers and financial service providers in anticipating risky situations, and in taking corrective actions by effectively managing financial KPIs.
OriginalspracheEnglisch
Seiten (von - bis)8 - 18
FachzeitschriftInternational Journal of Production Economics
Jahrgang212
DOIs
PublikationsstatusVeröffentlicht - 2019

Österreichische Systematik der Wissenschaftszweige (ÖFOS)

  • 102009 Computersimulation
  • 502052 Betriebswirtschaftslehre
  • 502012 Industriebetriebslehre
  • 211 not use (Altbestand)
  • 502017 Logistik
  • 502032 Qualitätsmanagement

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