Working capital management and the financial performance of small and medium enterprises

Abstract

The study sought to establish the relationship between Working capital management and the financial performance of small and medium enterprises in Wakiso – district, Bweyogere Trading Centre. The study applied both qualitative and quantitative data analysis that was used in the questionnaires.. The data was being collected from both primary and secondary sources. Using a descriptive research design, a total of 93 respondents were considered out of the entire population in Bweyogerere Trading Centre. The data was processed and analyzed using descriptive statistics and correlation analysis. The study found out in cash management that the SMEs in this area hardly understood the cash management accounting systems specifically such as the cash budget, reconciliations of the cash book with the bank and also did not bank the money at the end of the because the money was probably used in their homes. They also lacked the innovation of investing back their excess cash into the business. Under stock management, they never counted stock at the end of the day, barely had any physical guard against theft and fire and bought new stock whenever the old stock was completed. In account payables, there was the highest possibility that majority of these SMEs did not utilize the payables as a source of finance. This was because they had very few suppliers in their line of business. They also hardly negotiated terms with their suppliers. Based on these findings, the study concluded that the poor financial performance was dependent on the weak WCM practices adopted by these SMES. It was therefore recommended for the government to establish SACCO‟s sensitizing them on importance of the accounting systems and how they are applied. Further it was necessary for the SMEs to establish credit control systems, policies and procedures so as they could gain from the source of finance of their suppliers through their negotiated terms.