Impact of financial management practices on the performance of small and medium enterprises (SMEs) in Uganda: case study of Wandegeya business centre, Kampala

Abstract

The study assessed the impact of financial management practices on the performance of SMEs in Uganda case study of SMEs in Wandegeya business Centre. The study employed a cross-sectional research design where primary data collected for a sample of 103 SMEs used. Data analysis was done in STATA version 15 at univariate and bivariate where chi-square tests were performed to check the impact of financial management practices on performance of SMEs.

A total of 103 SMEs in Wandegeya business Centre participated in the study. Majority of the respondents were operated by managers (37%) and Accountants (36%). Majority of the respondents were females (56%), aged 20 to 29 years (68%), had at least attained secondary education (74%) and were married (50%). Most of the SMEs were operating on small scale (66%), had been operating for at least a year (88%), were employing at least one person (99%) and generated 10 to 100 million UGX annual turnover (73%). Nearly 60% of the respondents reported their having performed better as compared to last year’s performance. With regard to financial management practices, majority of the SMEs had poor cash management (67%) and poor financial reporting (72%) practices after generalizing their practice with regard to cash management and financial reporting. Combining SMEs` practice in cash management and financial reporting most (82%) of the SMEs were doing poorly in that they did not have both good cash management and financial reporting practices. 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 reporting practices of the enterprise and also combined practice on both aspects where majority of the SMEs with good cash management (93%), financial reporting (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 (2019) whereas those with poor practices majority reported having not performed well.

The study recommends SMEs owners/operators to properly manage their cash and accurately report the financial records regularly in order to improve on the performance of their enterprises and in 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 a business.