The relationship between financial management practices and financial performance of small and medium enterprises (SMEs) in Uganda: a case study of Kasubi Business Centre, Kampala

Abstract

The study assessed the effect of financial management practices on the financial performance of SMEs in Uganda taking a case study of SMEs in Kasubi Town. The study employ a cross- sectional research design where primary data collected for a sampled of 100 SMEs used. Data analysis was done in STATA version 15 at univariate and bivariate where chi-square tests were performed to check the effect of financial management practices on financial performance of SMEs. A total of 100 SMEs in Kasubi business Centre participated in the study. Majority of the respondent (40%) were operated by owner of the business, 28% as manager and 22% accountants. Majority (57%) of the respondents were females, aged 30 to 39 years (30%). Slightly higher proportion (40%) of the respondents had attained primary education and half (50%) of the respondents were married. Majority (71%) of the SMEs that participated in the study were small size enterprises, mostly operating in restaurants and hotels (24%), had been operating for at least a year (88%), were employing at least one person (98%) and generated 10 to 100 million UGX annual turnover (73%). Nearly 60 respondents reported their having performing better as compared to last year performance. With regard to financial management practices, majority of the SMEs had poor working capital management (70%) and poor financial decisions (74%) practices after generalizing their practice with regard to working capital management and financial decision. Combining SMEs practices in working capital management and financial decision. At bivariate analysis for the dependency of business performance on financial management practices, chi-square results revealed that performance of SMEs significantly depended on cash management, financial decisions practices of the enterprise and also combined practice on both aspects where majority of the SMEs with good working capital management (93%), financial decision decision(82%( practices and a combination of two practices (94%) were performing better in that they expanded or increase on their sales in the current years as compared to last year (2021) where as those with poor practices majority reported having not performed well. The study recommends SMEs owners/operators to properly mange their cash and accurately report financial records regularly in order to improve on the performance of their enterprises and necessary seek for advanced training in financial management practices because the cost involved in business failure as a result of poor financial management practices outweigh the cost of properly managing finances for business