Purpose: This study examines the impact of financial literacy on the financial performance of Small and Medium-sized Enterprises (SMEs) in Accra, Ghana, with a specific focus on testing the mediating role of financial management practices.

Methodology/Design: A quantitative, cross sectional research design was employed. Data were collected from 278 SME owners and managers in Accra using a structured questionnaire, exceeding the minimum sample size requirement of 200 for Structural Equation Modeling (SEM). The study utilized SEM with AMOS software to test the hypothesized relationships, and bootstrapping with 5,000 resamples was employed to assess the mediating effect of financial management practices.

Findings/Results: The measurement and structural models demonstrated acceptable fit. Financial literacy had a positive and significant direct effect on SME financial performance (β = 0.24, p < 0.001). Financial literacy also demonstrated a strong positive effect on financial management practices (β = 0.62, p < 0.001), which in turn significantly enhanced financial performance (β = 0.53, p < 0.001). Most importantly, financial management practices partially mediated the relationship between financial literacy and SME financial performance, with the indirect effect accounting for approximately 58% of the total effect.

Implications: SME owners should prioritize translating financial knowledge into structured practices such as formal accounting, budgeting, and cash flow management. Policymakers should redesign interventions to integrate financial literacy training with technical assistance for implementing financial management practices.