Financial management practices and firm performance among micro and small enterprises in Busia town,Kenya

Abstract

Micro and Small Enterprises refer to those enterprises that employ less than 50 employees. Micro enterprises employ 0-9 employees, while small enterprises employ 10 – 49 employees and they account for 75 per cent of the total employment and 30 per cent of the Kenya’s gross domestic product. However, two thirds of micro and small enterprises fail within the first few months of operation. Majority of micro and small enterprises are characterized by low growth rate and transition to medium and large enterprises. Access to expansion capital has been adversely cited as a major cause of the low levels of growth. This study seeks to assess how financial management practices affects performance of micro and small enterprises in Busia Town, Kenya. Specific objectives of the study was: to establish the effects of working capital management, Cash Flow Management, asset management and financial reporting on performance of micro and small enterprises. Descriptive research design was adopted to guide the research. The target population for the study was 712 small scale traders in Busia Town from which a sample of 88 respondents was selected using the simple random sampling technique. Data was collected using a questionnaire designed and administered to the business owner managers by the researcher. The data collected was coded and cleaned before analysis. Analysis of data on the other hand was done using both descriptive and inferential statistics. Descriptive statistics such as mean mode, frequency counts and percentages was used to summarize responses. Relationship between variables as well as statistical inferences was done using a multiple regression analysis. Regression model was used in determining relationship between variables. The study is expected to shed light on how micro and small traders in Busia Town manage their finances and whether and how this enhance or hinder business performance. Keywords: Firm Performance, Financial Management Practices, MSEs.