Financial literacy and performance of SME’s in Uganda

Abstract

This study discussed the relationship between financial literacy and performances of Small and Medium Enterprises. The study established how investment decisions, savings, and financial accounting affect the performance of SME’s in terms of profitability, revenue, assets base of the business. There is greater population of people who start up SME’s in Uganda and are still financially challenged and so end up making uninformed and ineffective decisions with regards to their resources. The study adopted a case study. A sample size of 65 respondents was used. The study used both qualitative and quantitative research approaches for data collection and therefore data was collected using questionnaire and interview guide. Data was analyzed using SPSS and findings were presented in a tabular format showing frequencies and percentages. The findings revealed a positive and significant effect of Investment decisions on business performance with Adjusted R Square value of 0.479 (47.9%). A positive and significant effect of savings on business performance with Adjusted R square value of 0.67 (67%) was also revealed. The study further revealed a positive and significant effect of financial accounting and business performance with Adjusted R Square value of 0.122 (12.2%). The findings conclude that employees have the adequate knowledge of basic investment concepts, have also improved access to external resources for instance through securities for investments and that better investment decisions in capital expenditure result in to improved efficient productivity. It was also revealed that SMEs that always put money aside in order to consume or invest at a later date are at a better advantage and that Savings have created capital formation and it further leads to technical innovation and progress which has also led to fuller utilization of available scarce resources in an efficient way. The study also showed that some SME that have proper financial records and book keeping, prepare of financial statements available for public consumption and that all revenues and expenses are accounted for and reported on the income statement achieve significantly improved performance Finally the study recommended that the SMEs should redesign there financial reporting systems aimed at reducing cost, improving speed, and providing services consistently throughout the organization. It was also recommended that steps should be taken to strengthen the leadership of SMEs through training, coaching and mentoring. This will ensure improved quality of financial reports.