Cash flow management practices and financial performance of Small and Medium Enterprises in Uganda

Abstract

The study was conducted to explore the relationship between cash flow management practices with regards to cash flow budget, cash flow monitoring, cash flow cycle and Financial Performance of SMEs in Lira City. The study was conducted because of the report which affirms that SMEs are still faced with persistent poor Financial Performance which leads to their failure thus, affecting the economy. The study population was 270 people, and the sample size was 155 people, which was chosen using a simple random sampling. The study used a quantitative correlational and cross-sectional designs, the study suggests an overall response rate of 88.39% (137 SMEs). Key findings of the correlation coefficients revealed that there is a significant and positive correlation between cash flow budget and Financial Performance of SMEs in Lira City (r = 0.481, p < 0.01) and produced an adjusted of 0.226; between cash flow monitoring and Financial Performance of SMEs in Lira City (r= 0.641, p < 0.01) and produced an adjusted 0.407; and further between cash flow cycle control and Financial Performance of SMEs in Lira City (r= 0.499, p < 0.01) and produced an adjusted of 0.243. The study concluded that there is a strong significant correlation between cash flow budget and Financial Performance; cash flow monitoring and Financial Performance and cash flow cycle control and Financial Performance of SMEs in Lira City. The study therefore, recommends that managers in SMEs should highly prioritize financial management practices during organizational strategies. For transparency, accountability and consistency in their financial operation and that in order to enhance efficiency and effectiveness in managing SMEs in Lira city, Lira city authority should formulate policies and regulations which will facilitate implementations of cash flow management practices in SMEs. Further, SMEs should conduct regular examinations to guarantee that all incomes and expenditures are effectively documented for easy follow-up.