Unraveling the Effects of the Financial Crisis on the Going Concern of Sri Lankan SMEs: A Qualitative Inquiry

Abstract

Small and medium-sized enterprises (SMEs) play a pivotal role in the growth, employment, and social stability of national economies. The objective of this research is to explore the impact of the financial crisis on business continuity by taking Sri Lankan SMEs as a case. Past literature does not adequately address how severely SMEs are affected, how they are still surviving, or potential techniques for overcoming the difficulties. To achieve this objective, the purposive sampling method was utilized to select a sample of twelve SME owners, representing the Sri Lankan SME landscape, with at least five years of operational history from the years 2018 to 2022. In-depth interviews were conducted to identify and analyze the effects of the financial crisis on the going concern of SMEs. The findings revealed that the financial crisis had affected SMEs in varying degrees. Numerous SMEs have grappled with escalating costs, insufficient working capital, and the threat of bankruptcy. Moreover, it’s evident that the financial crisis significantly affected SMEs, marking the onset of Sri Lanka's recovery journey. Despite these challenges, the study also uncovers a positive aspect for SMEs in Sri Lanka. The crisis has spurred domestic production due to currency fluctuations and import restrictions. The paper explored how the increased availability of financial resources, amidst macroeconomic restrictions, could influence these dynamics. In summary, this study sheds light on the specific repercussions of the financial crisis on SMEs in Sri Lanka. By implementing the recommended strategies, SMEs cannot only navigate the challenges posed by the financial crisis but also capitalize on new opportunities for growth, development and advancement. The insights gleaned from this study hold great value for policymakers, SME owners, banks, financial institutions and other stakeholders in crafting effective strategies and support systems to sustain and bolster the SME sector during financial tumult.