Effect of financial management practices on performance of selected small and medium enterprises in Limuru town, Kenya

Abstract

The study sought to determine the effect of financial management practices on performance of selected Small and Medium Enterprises (SMEs) in Limuru Town, Kenya. SME performance is affected by financial constraints, financial illiteracy, working capital management, ownership structure, regulatory framework and macroeconomic factors. In Kenya, empirical evidence on effect of financial management practices and performance of SMEs is limited especially in the context of cosmopolitan towns like Limuru in Kenya. The study explored various objectives; first, the effect of firms financing on performance of SMEs in Limuru Town, Kenya. Second, the effect of working capital management on performance of SMEs in Limuru Town, Kenya. Third, the effect of ownership structure on performance of SMEs in Limuru Town, Kenya. The study employed descriptive research design. The target population was 388 registered SMEs in the retail business in Limuru Town. Purposive sampling technique was used to sample 39 respondents. Data was collected using questionnaires. Data was analyzed through descriptive statistic (means and standard deviation), correlation analysis and multiple regression analysis. The study found that firms financing and ownership structure have a fairly strong positive correlation with performance, while cash management does not have a positive correlation with performance. With a P value of 0.000, which is less than the significant level of 0.05. The model was found to be a good fit. Consequently, financial management practices were found to be good measures of performance the SMEs studied. The study concluded that SMEs need to outsource more avenues of financing and improve on innovations and research, networks and partnerships with all stakeholders especially financial institutions.