European Journals of Business Management

Influence of Financial Management Practices on the Performance of Micro and Small Enterprises in Kenya

Charles Waweru
Jomo Kenyatta University of Agriculture and Technology Department of Entrepreneurship and Procurement (EPD)
KENYA    

Dr. Karanja Ngugi
Kenyatta University Department of Accounting and Finance
KENYA

CITATION: Waweru, C. & Ngugi, K. (2014). Influence of Financial Management Practices on the Performance of Micro and Small Enterprises in Kenya. European Journal of Business Management, 1 (11), 141-161.

ABSTRACT

Micro and Small Enterprises (MSEs) are seen as a driving force for the promotion of an economy and they contribute immensely to the economic development of any country. Lack of knowledge of financial management combined with the uncertainty of the business environment often leads MSEs to serious problems regarding financial performances. The main objective of this study was to explore the influence of financial management practices on the performance of Micro and Small Enterprises in Kenya. The study was guided by the following objectives: financial innovations, investing activities, risk management practices and working capital management. Since the MSE population is quite high, the target population for this study was estimated at over 10000 management staff from selected MSEs in Nairobi. Simple random sampling technique was employed to select the sample of 95 respondents. Primary data was collected using a self-administered questionnaire. The questionnaire was semi-structured, having both open-ended and closed-ended questions. Data was presented in tables, charts and graphs. Content analysis was used to analyze qualitative data. A multivariate regression model was applied to determine the relative importance of each of the four variables with respect to performance of MSEs. The study found out that financial innovations influence the performance of Micro and Small Enterprises in Kenya to a very great extent. The study established that the reason for innovation in an organization is to make profit. The study found out that Investing can be described as the redirection of resources from being consumed today to creating benefits in the future and that Development of an effective business support system is also a key condition for the success of investment capacity building Further respondents strongly agreed that investing requires business support agencies which have a demonstrated capability of penetrating the MSE sector. This study concludes that financial innovations influence the performance of Micro and Small Enterprises in Kenya to a very great extent and that the reason for innovation in an organization is to make profit. Further the study concludes that Risk has become part of a strategic component of the modern organization’s survival and development. Finally the study concludes that there’s a statistical significant between working capital and firm performance and that there is need for a tradeoff between receivables and holding inventory if the firm is to attain the required profits.The study recommends the owner/managers of small and medium sized enterprises should embrace financial innovations in order to generate long term stability and for the firm to have competences. The study also recommends that it is essential for small and medium sized enterprises to invest so that investments can grow to fight against inflation and future uncertainties and that the owner/managers should develop an effective business support system is also a key condition for the success of investment capacity building. This study has analyzed the influence of financial management practices on the performance of Micro and Small Enterprises in Kenya. There is need to find out the challenges facing Micro and Small Enterprises in Kenya.


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