rural banking

WORKING CAPITAL MANAGEMENT AND FINANCIAL PERFORMANCE OF SMALL BUSINESS ENTERPRISES IN UGANDA: A CASE STUDY OF BEST CUTS UGANDA LTD LOCATED IN KAMPALA DISTRICT

DECLARATION

I, Ojara Herbert do hereby declare that the research project is entirely my original work, except where acknowledged and that it has not been submitted before to any other university or institution of higher learning for the award of a degree.

Signed Date..

APPROVAL

This report by Ojara Herbert has been under my supervision and is now ready for submission Signed................... Date

DEDICATION

This research is dedicated to my dear father Mzee Hajusu Juma Wilberforce whose total investment in my education I adore and appreciate, my beloved mother Kharono Juliet who has always been there for me in all difficult times to support and encourage me, my Dear Brother Lumonya Patrick for the financial support, my dear friend Odong Justin for being so close to support me, my employer madam Nyaburu Catherine, my beloved sisters Stella and Sarah, Brother Hajusu Sam and all my friends and course mates with whom we shared the great skills of learning.

ACKNOWLEDGEMENT

The greatest of thanks go to the almighty God who has enabled me to achieve whatever I have in this world because without him, I would not have reached this level.

I am so grateful to my supervisor Mr. Nuwagaba Geoffrey who whole heartedly contributed a lot towards the success of this research project. You have always professionally guided me and given your precious time to correct me whenever I go astray. Without your supervision and guidance, this research work would not have been easy to accomplish. May the almighty God bless richly!

Special thanks go to my friend Mr. Odong Justin for all the financial support and putting a difference to my life through the care and brotherly love you offered to me. Sincerely you contributed so much towards the accomplishment of this course and may God continue to bless you and your family.

Dad, the words to describe your importance and contribution to what I am. You have been such a caring father. You gave your best to make me and my other siblings what we are now and pray that the almighty God may give you life so that you live to see the fruits of your effort!

Finally, Mum I sometimes fail to get words enough to express how valuable you are to me and the entire family. Sincerely without you it would not have been easy for us to get to where we are and what we are. You have determined our destiny and its my prayer that God may allow you to see us when we are what you wished we be!

TABLE OF CONTENTS

PageiDECLARATION

iiAPPROVAL

iiiDEDICATION

ivACKNOWLEDGEMENT

vTABLE OF CONTENTS

viiiLIST OF TABLES

ixABSTRACT

1CHAPTER ONE

1INTRODUCTION

11.0 Background of the study

21.1 Statement of the Problem

31.2 Purpose of the Study

31.3 Objectives of the Study

31.4 Research Questions

41.5 Scope of the Study

41.5.1 Content scope

41.5.2 Geographical scope

41.5.3 Time scope

41.6 Significance of the Study

5CHAPTER TWO

5LITERATURE REVIEW

52.0 Introduction

52.1 Working Capital Management

72.2 Financial Performance

112.3 The relationship between funds management and Financial Performance

132.4 Conclusion

14CHAPTER THREE

14METHODOLOGY

143.0 Introduction

143.1 Research Design

143.2 Study population

153.4 Sample Design

153.4.1 Sampling method

153.4.2 Sample size

153.5 Sources of Data

163.6 Data collection methods and instruments

163.6.1 Questionnaire

163.7 Data Processing and Analysis

163.7.1 Data processing

163.7.2 Data analysis

163.8 Challenges/ limitations during the study

18CHAPTER FOUR

18DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS

184.0 Introduction

184.1 Demographic Characteristics of Respondents

204.2 Working Capital Management practices in Best cuts Uganda ltd.

234.3 The levels of financial performance of Best Cuts (U) Ltd.

284.4 The relationship between Working Capital Management and Financial Performance of Best cuts Uganda ltd

29CHAPTER FIVE

29SUMMARY CONCLUSION AND RECOMMENDATIONS

295.0 Introduction

295.1 Summary of the findings

305.2 Conclusion

305.3 Recommendations

315.4 Areas for further research

32REFERENCES

35APPENDIX 1: QUESTIONNAIRE FOR STAFF MEMBERS

40APPENDIX 2: TIME FRAME

41APPENDIX 3: BUDGET ESTIMATES

LIST OF TABLES

Page

15Table 1: Sample Size Distribution

18Table 2: Age

19Table 3: Gender of Respondents

19Table 4: Level of education

20Table 5: Period spent working in the enterprise

20Table 6: Funds recorded by one person

21Table 7: Daily money received by the Enterprise is banked on that same day

22Table 8: All money received by the Enterprise is recorded in the books of accounts

23Table 9: Purchase order is first issued for all goods bought

23Table 10: Capital of Enterprise increased in the year 2010

24Table 11: Loans borrowed by the Enterprise in the year 2010

25Table 12: Sales made by the Enterprise in the year 2010

25Table 13: The number of shareholders increased in the year 2010

26Table 14: Rate Retained earnings in the year 2010

27Table 15: The Enterprise is the main supplier to most of the supermarkets in Kampala

28Table 16: Relationship between Working Capital Management and Financial Performance

ABSTRACT

The purpose of the study was to establish the extent to which working capital management practices by small and medium enterprises would impact on the financial performance of Best cuts Uganda ltd basing on the following objectives; to identify the various working capital management practices in Best cuts Uganda ltd, to find out the levels of financial performance of Best Cuts (U) Ltd, and to examine the relationship between working capital management and financial performance of Best cuts Uganda ltd.

The research involved a cross sectional study using both qualitative and quantitative research centered on working capital management practices. Simple random sampling techniques was used, and a sample of 30 respondents from Best Cuts Uganda Ltd who among others were the employees from different departments, management and clients who were chosen for the study. Data was collected by questionnaires. the study was analyzed using statistical techniques and qualitative and qualitative techniques such as regression and correlation analysis with help of Ms Excel and Ms Word to clearly come up with the relationship between working capital management and financial performance.

Findings revealed that all funds in Best Cuts Uganda Ltd are recorded by one person, Daily incomes and expenses are recorded in the cashbook, recorded in the textbook, Daily money received by the Best Cuts Uganda Ltd is not banked on that same day, Purchase order is not first issued for all goods bought. Daily recording of funds affect growth for Enterprise, the days when enterprise makes more money some funds are withdrawn from the enterprise and this reduces the growth of the business. Besides that there is a strong positive relationship between Working Capital Management and Financial Performance CHAPTER ONEINTRODUCTION

1.0 Background of the study

Small and medium enterprises play a vital role in the development of the industrial and business sector. Besides being one of the vehicles of economic progress, these have been found to be one of the most effective means of avoiding the ever increasing unemployment which is common and acute in developing countries like Uganda Broadbent and Cullen (2003).

Small and medium enterprises are not easy to define but in simple terms this is a private company or one persons business having less than or slightly higher than 10-20 employees or annual sales turnover of between Uganda shillings 1,000,000-50,000,000 Broadbent and Cullen (2003).In Uganda today, the foundation to development has to been laid on several pillar keys, one of which is the establishment and management of small and medium enterprises. Approximately 80% of all businesses in Uganda are small and medium scale and almost represent 50% of the employment in the country. Consequently, therefore, the Ugandan government is looking to the private sector generally and the small and medium enterprises in particular to take the lead in future industrialization and has given them the necessary, though not all support to take off Ssekatawa (2010).

This is evidenced in government promoted schemes like the Private sector foundation Uganda (PSFU), which is Ugandas umbrella private sector body that offers financial support in form of sharing grants to micro, small and medium enterprises to enable them obtain technical or financial expertise for purposes of becoming more productive and competitive. It achieves this through its development scheme Business Uganda Development scheme- enterprise Development Support.

The Budget speech (2011) highlight that real industrialization and development for a poor Uganda must be through acquisition of indigenous capacities by adopting policies geared towards promotion of small-scale enterprises. The 2011-2012 Budget proposals also highlighted the need to support small-scale businesses. This is evidenced by the 9 billion Uganda shillings that were proposed for the Jua Kali artisans to develop appropriate industrial sites.

Best cuts (U) Limited is an Agro-Business Farm that is registered under the Small Business Enterprises (SMEs). Its owned by Ugandans whose philosophy is to provide high quality products, be consistent, efficient, and offer personalized services to customers. The farm concentrates in production, purchase and supply of broilers to both local and international markets. To ensure this quality, the company produces its own feed for the broilers and also works with well organized out growers who understand its quality needs .

The farms offices are located in Bweyogerere, Buto zone with farm extension in Bunyiri-Mukono. The farms objective is to be a leading broiler processing and marketing company in Uganda by 2013 given the competitive edge of quality and efficiency it has developed with the motivated staff.

1.1 Statement of the Problem

The success of any business depends on how it manages its resources and most businesses crave for success and growth. These resources include working capital in form of cash and other current Assets, among others.

Financial performance levels exhibited in most small and medium enterprises especially Best Cuts (U) Ltd is not satisfactory. Despite the endeavor to maintain a good working capital by management, there continues to exist a declining level of working capital in form of inadequate cash inflow which cannot sustain daily cash needs of the farm. This in turn has led to inefficient client satisfaction in a way that a low level of working capital in form of cash receivables makes it difficult to meet short term debt obligations as well as operating expenses. Poor working capital particularly limited liquidity in the long run causes poor financial performance for the business as it cannot easily pay off creditors. Therefore, it is upon this inefficiency that the researcher seeks to establish the causes of insufficient cash inflow for Best cuts Uganda ltd.

1.2 Purpose of the Study

The study sought to establish the extent to which working capital management practices by small and medium enterprises would impact on the financial performance of Best cuts Uganda ltd. The study would subsequently provide recommendations for improving the financial performance in the small and medium enterprises.

1.3 Objectives of the Study

To identify the various working capital management practices in Best cuts Uganda ltd.

To find out the levels of financial performance of Best Cuts (U) Ltd.

To examine the relationship between working capital management and financial performance of Best cuts Uganda ltd.

1.4 Research Questions

What are the various working capital management practices in Best cuts Uganda ltd.

What are the levels of financial performance of Best Cuts (U) Ltd.

What is the relationship between working capital management and financial performance of Best cuts Uganda ltd.

1.5 Scope of the Study

1.5.1 Content scope

The study focused on working capital management as the independent variable and financial performance as the dependent variable.

1.5.2 Geographical scope

The study was based in Best cuts Uganda ltd located in Bweyogerere Kampala District. This has been chosen because of its convenience for the researcher and also the willingness of staff to provide data to help in the research. Best cuts ltd was chosen because its also among the small business enterprises in Uganda therefore it depicts a clear picture of such businesses in the country.

1.5.3 Time scope

The study covered the effect of working capital management on the financial performance of Best cuts Uganda ltd for period between 2007- 2010. This period has been chosen because it is when the firm has had serious cash flow problems.1.6 Significance of the Study

The study findings will help the management through improving on its working capital management to improve on its decision making on areas of financial performance, prompt settlement of claims and further investment.

The study findings will be useful to future researchers to widen their understanding in matters of working capital management as a tool for career development.

The study findings will be useful to students companies and other interested parties who may need to understand more about working capital management.

The study findings will be used by Government to promote investment in small and medium business enterprises in Uganda.

CHAPTER TWOLITERATURE REVIEW

2.0 Introduction

This chapter discusses the already existing literature about funds management and profitability. This literature was obtained from textbooks, and publication, periodicals research reports, the company financial documents and Internet among others.

2.1 Working Capital Management

Samuels, (2006), argues that funds management is the planning, controlling and the effective utilization of funds. Money can be earned not only through manufacture and distribution but also through the management of all its assets that it employees. The best funds management policy is through funds budgets. A company can decide on the funds that it will have available for short-term investment at a particular time depending on the nature of business and season. If a business is seasonal or trade is cyclical, funds budgets will show when the surplus funds that will be available and what length of time will elapse before they are required. Some companies will borrow money in case of deficit spending to satisfy their seasonal needs.

Kakuru, (2000) argues that every organization must establish funds management policies or guidelines to ensure that it has optimal funds balance at any time when it requires it. This can be achieved by implementing the following funds management policies. The organization must ensure that it speeds up funds inflows through efficient credit policy. For example timely preparation and delivering of customer invoices, making customers to pay their outstanding by allowing funds discounts. This will enable the firm to keep in a liquid position and carry on its operations efficiently.

Firms hold funds for primary reasons but although the first two of these are generally satisfied by holding actual funds (a checking account balance, the last two requirements may be meet, instead by holding highly liquid marketable securities. The main reasons can be explained according to Bodil (1995) as below.

Funds inflows and out flows are somewhat unpredictable with the degree of predictability varying among firms and industries. Therefore firms need to hold some funds (or more often marketable securities) in reserve for random, un fore seen fluctuations in inflows and outflows. These safely stock of funds are called the precautionary balance and the less predictable the firms funds flows the larger the necessary funds balance.

Funds balance may also be held to enable the firm to take advantage of any bargain purchases that might arise, these funds are defined as speculative balances. For example reduction in the price of raw materials, any profitable short-term investment that may happen, the firm should maintain such balance to take advantage of the investment opportunities that may arise Campsey (2005).

Lending institutions such as banks, makes money by lending out funds that have been deposited with it. So the larger its deposits, the better the bank profit position. If a bank is providing services to a customer, it generally requires the customer to leave a minimum balance on deposit to help offset the cost of providing the service Campsey (2008).

Funds balances are necessary in business operations because payments must be made in funds and the receipts are deposited in the funds account. These funds balances are associated with routine payments and collections are known as transaction balances Knott (2008).

Although a carefully prepared funds budget is a necessary starting point for managing the firms funds, there are other elements of a good funds management programs. The primary funds management activities are performed jointly by the firm and its main bank, but the financial manager is responsible for the effectiveness of the funds management programs. The most commonly funds management techniques Knott (2008).

One way, in which a firm can keep its funds on hand longer, would simply be by delay payments, but this would lead to such obvious difficulties as being labeled a dead beat. Firms have always lengthened the collection period for their cheques so as to delay funds out flows. Payables Centralization permits the financial manager to evaluate the payment coming, one for the entire firm and to schedule funds transfers to meet the needs of the company wide basis. Centralizing disbursements also permits more efficient monitoring of payables and float balances Van (2000).

When a firm is actively trying to use floats, it will often arrange with its bank to have the use of an overdraft system. In such a system, the firm writes cheques in excess of its actual balance and its bank automatically extends loans to cover funds shortage. The overdraft is sometime interest free so the firm can use it to carry out its operations, which can yield a return in the long run Sanford et al (2001).2.2 Financial Performance

A customer is the most important visitor on business premises, he is not dependent on business. Business is dependent on him. He is not an interruption in business work. He is the purpose of it. He is not an outsider in business. He is part of it. Business men are not doing him a favor by serving him. He is doing them a favor by giving them an opportunity to do so Alm (2000).

He further argued that the profit motive is not only fundamental to our ability to reward shareholders and pay employees; it's fundamental to excellent journalism. Far from corrupting the craft, profits enhance it. Expansion drives diversity and diversity protects and strengthens our craft. Nevertheless Money is only used for two things. One, its to make you comfortable, and the more comfortable you are the more creative you will become. And the other purpose is it enables you to extend the service you provide far beyond your own presence.

The country is now universally recognised as a nation on the move and takes its place amongst the successful economies in the region. The future potential is enormous but the country's destiny is in our hands. The time has come to move from small increments to bold, large initiatives. The time has come to stretch the envelope and set goals which were earlier not seen to be possible. The time has come for performance to be measured and for allocated funds of the government to reach the people for whom they were intended Matovu and Ritva (2001).

The theories discussed so far all recognize that the attitudes and abilities of the business owner have an important impact on small firm growth and will be reflected in strategic choices and the ways in which he or she operates the business. The following section will draw from a variety of theoretical and empirical sources on small firm growth for the purpose of developing expected theoretical relationships between particular sets of variables, or factors of growth, and business growth Matovu and Ritva (2001).

It has been proposed in the literature that women may have fewer opportunities to develop relevant experiences, may have fewer networks to get assistance and may have greater difficulty in assembling resources Sexton and Robinson (1989). There is some evidence that banks may impose more stringent requirements on women business owners in regard to collateral for loans, and therefore limit their ability to grow Riding and Swift, (1990). Women may also be more family oriented and be less keen in pursuing economic goals related to expansion of the firm (Brush, 2002). Cooper et al., (2004) found that being female had a negative impact on the growth of small ventures but had no impact on the survival of the firm.

Younger individuals may be more willing to assume risks and grow their business. Following Davidson's argument, a younger individual may have a higher need for additional income. The burden of supporting a family and meeting mortgage payments generally declines with age. An older individual who continues to be the owner- manager of a small firm is more likely to have reached his/her initial aspirations. However, while younger individuals have more motivation to expand their business they also may have fewer financial resources and fewer networks. The limited empirical evidence suggests that the owner-manager's age tends to be negatively related to growth Boswell (2003).

Evidence from Borjas, (2006) suggests that immigrants are more likely to become self-employed and that they are more likely to create higher incomes from this activity than will native entrepreneurs. The explanation for this differential is that immigrants create enclaves by concentrating in specific geographic areas, which in turn create and expand opportunities for small entrepreneurial ventures, in particular for immigrants of the same national background as the residents of the enclave. However, it is suggested that there may be limits to the growth of entrepreneurial ventures owned by immigrants as enclaves are in poor locations and offer limited access to the general market. It is also suggested that immigrants may have fewer contacts and more difficulty in obtaining insurance, credit from suppliers and access to prosperous customers. No study has linked immigration status to business growth. However, there is some empirical evidence that suggests that being part of a racial minority is linked to lower probabilities of both survival and growth Cooper et al (2004).

The effect of education has been widely studied. Education is presumably related to knowledge and skills, motivation, self-confidence, problem solving ability, commitment and discipline. Higher education is expected to increase the ability of the entrepreneur to cope with problems and seize opportunities that are important to the growth of the firm. Empirical evidence on the effects of education on firm performance is mixed. In ten out of seventeen empirical studies surveyed, Cooper et al. (2002), found a positive relationship between prior level of education and firm performance. Cooper et al. (2004) found that having a Bachelor's degree has a positive impact on both survival and growth of small ventures.

According to the small business literature, there is a distinct difference between the small business owner and the entrepreneur. Birch (2007) distinguishes between "income substituters" and "entrepreneurs", the former substituting paid-employment income with business income, the latter being committed to the growth of their business. Similarly, Hay (1994) makes the distinction between "value builders" and "life-stylers." The latter seek long-term stability instead of growth, and use the business as a means of generating income sufficient to support a certain "life-style." Canadian evidence supports this finding. In an Ontario survey of small business start-ups, half of new firm owners intended that their business would simply generate enough income to make a living for themselves (Blatt, 2003). Therefore, for entrepreneurial ventures the willingness of the owner-manager to grow is as important as his ability to foster and manage growth.

Entrepreneurial intensity refers to the willingness of the individual to assume risk and be pro-active as an indicator of commitment to growth McCelland (2001). The level of active risk taking by the owner-manager may also determine how willing he/she is to tap the various resources necessary for developing the firm. Active risk taking is demonstrated by the owner-manager's willingness to accept personal financial risk. Perren (2000), in sixteen case studies of micro-enterprises, found that active risk taking was a key factor that conditioned the owner-manager's willingness to tap the physical, material, financial and intangible resources necessary for firm growth beyond the micro-enterprise phase.

It is likely that individuals who hold a concurrent paid-employment job may have neither the time nor the motivation to invest in the growth of their business. It is likely that some of these individuals are complementing their paid-employment income with some independent business income, in order to support a certain lifestyle Riding et al (2008).

Management know-how embodied in the entrepreneur may be an important factor in the growth of the firm. Management know-how may result from having had parents who were entrepreneurs themselves, or from previous paid-employment experience in a similar business, or by previous management experience of the owner. Furthermore, management know-how may be acquired through the owner-manager having access to professional advisors or a network of contacts such as suppliers, customers, business associations, etc., or from involvement of partners Matovu and Ritva (2001).

A number of studies have shown that entrepreneurs are more likely to be from families in which the parents owned a business. It is assumed that young individuals develop knowledge of what is involved in running a business Dushenseau and Gardner (1988), and that they are more likely to perceive entrepreneurship as a viable career choice. There is indeed some empirical evidence to suggest that coming from an entrepreneurial family background increases the likelihood of survival Cooper et al., 2004, Papadaki et al., (2000). However, there is little evidence on the impact of family background on the growth prospects of an entrepreneurial venture. Though one study has found no relationship between entrepreneurial background and growth of a small venture (Cooper et al (2004), we will test whether coming from a family of entrepreneurs has a positive impact on business growth.

2.3 The relationship between funds management and Financial Performance

Shaw, (2006), explains that if an organization properly manages its funds and maintains a positive balance especially on bank accounts in form of funds deposits, it may increase on the profitability position through the interest earned. Having positive funds balance enables a firm to take advantage of funds discounts from suppliers, purchases input and enables the company to carry on further investment in profitable ventures.

Wilkes (2006) and Samuels (2006), share the same view as Shaw (2006), on the relationship between funds management and the profitability of a firm. Wilkes (2006), argues that if a firm does not manage its funds properly it can easily go into liquidation as a result of failing to pay the out standing liabilities (suppliers, wages) and meeting the day to day operation . This has an adverse impact on the profitability of an organization. He adds that, a firm which keeps too much funds fore goes a return if it invested in other profitable ventures. Funds can be lent out even for a short period of time and interest is earned. Hence impacting on the profitability position of and organization. The organization must establish and install funds management programs to ensure that there is a balance between benefits and costs. However, these programs may be expensive to operate for example use of remote collection and disbursement centers, involve additional costs and banks involved will require the firm to maintain adequate deposit balance or pay sufficient fees to justify the services. All these costs impact on the profitability position of the firm most especially small scale and medium enterprises.

Campsey, (2005) explains that while there are good reasons for holding adequate funds balances, there is an important reason for not holding excess funds balance. Since funds is a non-earning asset, excessive funds balances simply lower the total asset turnover there by reducing both the firms rate of return on equity and value of its stock. Therefore firms are interested in establishing procedures for increasing the efficiency of their funds management and the higher the level of short-term interest, the greater the opportunity cost associated with holding excess funds. This implies that holding excess funds means that returns are foregone hence adversely impacting on the profitability position of the firm.

Khazi (2002), points out the relationship between funds management and profitability by giving the effect of excess and shortage of funds. Holding excess funds means that there is an opportunity cost in form of a return foregone because of holding it. On the other hand funds shortage will disrupt the firms operation for instance failure to acquire inventory for sale, inputs and meeting customers orders. Such situation requires that an organization must design an appropriate funds management policy to ensure that the best is derived from every single coin held at any period of time.

Management of small scale and medium businesses should establish and strengthen the internal controls over funds and other financial resources to reduce on mismanagement and misappropriations. The internal controls to be established among others may include; segregation of duties, approval and authorization, physical controls, accuracy and arithmetic, supervision of lower employees, and daily banking of funds received to reduce on theft and mismanagement of funds resources Wilkes (2006).

He further noted that small scale businesses should Introduce motivation incentives for examples increased salaries, wage and other non-monetary rewards like presents or gifts to all employees with good performance records. This will reduce on cases of embezzlement and theft of business funds and develop a heart of commitment hence efficient management of funds.

Management of small scale and medium businesses should employ competent staffs that have experience and skill in funds management. Employees must be trained to acquire the skills to manage businesses funds. The management should acquire funds from financial institutions so as to supplement its capital base to expand the scale of operation, since lack of capital is one of the major causes of low performance Knott (2008).

Management of small-scale and medium businesses must always prepare funds budgets and books of account such as; funds book, income statement and the balance sheet in order to ascertain their financial performance and design ways of making improvements Kakuru (2000).

2.4 Conclusion

Organizations should hold funds to keep the liquidity level balanced so as to maximize profitability. However, care must be taken to avoid excess funds because of its effect such as theft, misappropriation and misallocation and still fore going a return that could have been earned through investing the funds resources else where in profitable ventures.

CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter elaborates the entire design of the study and how it was carried out. It also explains how the study was conducted, the area of the study, sample size and sampling technique. It also indicates how the data was collected and analyzed as well as the limitations encountered during the study.

3.1 Research Design

The research involved a cross sectional study using both qualitative and quantitative research centered around working capital management practices. The techniques were designed in a way that would best suit quick collection of relevant data. The data was systematically collected and presented to give exploratory analysis to particular phenomena with emphasis to cover the extent of the problem.3.2 Study population

The study was carried out among the staff and customers of Best cuts Uganda ltd who were drawn from production, marketing, stores and accounts department. Management was also targeted for the study research.

Both simple random and purposive sampling techniques were used to select the required respondents so as to minimize bias. Judgmental sampling was used to choose the respondents to form a sample that represents the study population.

3.4 Sample Design

3.4.1 Sampling method

The researcher used simple random sampling techniques when selecting the respondents for the study. The respondents involved among others employees, management and clients.

3.4.2 Sample size

The study encompassed a representation of a sample of 30 respondents from Best Cuts Uganda Ltd who among others were the employees from different departments, management and clients who were chosen for the study. This sample size was taken with consideration of time constraints, convenience and funds among others. A special caution was taken to ensure gender equality to avoid or minimize biased results.

Table 1: Sample Size Distribution

DepartmentNo of Respondents

Production15

Marketing and distribution7

Accounts2

management2

clients4

Total30

Source: Primary Data

3.5 Sources of Data

There were mainly two major sources of data namely;

Primary data which was got from selected respondents by use of self administered questionnaires, interviews and observations.

Secondary data was the other source of data which was got from related literature like accounting records of Best cuts Uganda ltd, published text books and internet.

3.6 Data collection methods and instruments

Data was collected by the use of questionnaires, as described hereunder;

3.6.1 Questionnaire

This was the dominant primary data collection method in the study. Here comprehensive self administered questionnaires were the main instrument in the study. These were designed to gather information and explore the key variables addressed to staff and management. Both open and closed ended questionnaires were used to let the respondents give their own opinion about the research problem.

3.7 Data Processing and Analysis

3.7.1 Data processingUpon collecting data, several methods were used to process and analyze the data. All the data collected was checked for results on completion of the procedure, the questionnaires were handed over to the researcher. This was compiled, sorted, edited, classified and coded

To improve on its accuracy and relevancy. It was tabulated to reveal the frequencies and percentage scores of different study attributes. This was then analyzed by calculating the financial ratios to reveal the financial performance of Best cuts Uganda ltd.

3.7.2 Data analysis

To ease the interpretation of data, the study was analyzed using statistical techniques and qualitative techniques such as regression and correlation analysis with help of Ms Excel and Ms Word to clearly come up with the relationship between working capital management and financial performance.

3.8 Challenges/ limitations during the study

Misrepresentation of the research. That is thinking that one is a spy.

Huge costs like printing were incurred. Inadequate literature on past studies conducted on working capital management and financial performance of SMEs. Time constraint, finishing in time and private programmes. CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS

4.0 Introduction

This chapter involves data presentation, analysis, and interpretations the findings of the study with reference to working capital management and financial performance. This was done mainly through questionnaire to the selected respondents. 4.1 Demographic Characteristics of Respondents

Findings on the demographic characteristics of respondents were considered and responses noted there on as evidenced in tables below

Table 2: Age Response Frequency Percentage

Below 20 yrs310

20yrs-24yrs723

25yrs-29yrs1447

30yrs and above620

Total 30100

Source: Primary DataFrom the table above 10% of the respondents were below 20years of age, 23% were between 20 to 24years of age, 47% were between 25 to 29years, and 20% were 30years and above. This implies that respondents were mature enough to answer questions in the questionnaire.

Table 3: Gender of Respondents Response Frequency Percentage

Male 1757

Female 1343

Total 30100

Source: Primary Data

From the table above, 57% of the respondents were male, and 43% were female. This implies that there was no gender bias in the study.

Table 4: Level of education Response Frequency Percentage

Certificate 1240

Diploma 1033

Degree 827

Total 30100

Source: Primary Data From the table above 40% of the respondents were certificate holders, 33% were diploma holders, and 27% degree holders. This implies that respondents had the capacity to answer questions in the questionnaire.

Table 5: Period spent working in the enterprise

Response Frequency Percentage

Less than 3years 930

3-5years 1137

Above 5years 1033

Total 30100

Source: Primary DataFrom the table above 30% of the respondents had spent less than 3years in the enterprise, 37% had spent 3 to 5years, and 33% had spent above 5years. This implies that respondents have experience with the enterprise.

4.2 Working Capital Management practices in Best cuts Uganda ltd.

Findings on the various working capital management practices in Best cuts Uganda ltd were considered and can be evidenced in tables below. Table 6: Funds recorded by one personResponse Frequency Percentage

Yes 1860

No 1240

Not sure 00

Total 30100

Source: Primary DataFrom the table above 60% of the respondents all funds in Enterprise are recorded by one person, 40% disagreed, and 7% were not sure. This implies that all funds in Enterprise are recorded by one person

On the question regarding the people responsible for recording funds in the enterprise revealed that the owners of the business, some noted for friends of owners of the business and others noted for relatives and shop attendants.

A question on where daily income and expenses are recorded revealed that daily incomes and expenses are recorded in the cashbook, others noted for note book. Besides that some respondents said that daily incomes and expenses are recorded in the textbook.

Table 7: Daily money received by the Enterprise is banked on that same day Response Frequency Percentage

Strongly Agree 27

Agree 827

Not sure 00

Disagree 1653

Strongly Disagree 413

Total 30100

Source: Primary Data From the table above, 7% of the respondents strongly agreed that Daily money received by the Enterprise is banked on that same day, 27% agreed, 53% disagreed, and 13% strongly disagreed. This implies that Daily money received by the Enterprise is not banked on that same day

Table 8: All money received by the Enterprise is recorded in the books of accountsResponse Frequency Percentage

Strongly Agree 27

Agree 1653

Not sure 413

Disagree 723


Total 30100

Source: Primary DataFrom the table above, 7% of the respondents strongly agreed that Daily money received by the Enterprise is banked on that same day, 53% agreed, 13% were not sure, 23% disagreed, and 3% strongly disagreed. This implies that Daily money received by the Enterprise is not banked on that same day

On the question regarding how many people have access to the safe were money is kept for this Enterprise was considered and respondents said that about 3 people have access to the safe were money is kept, others noted for one person and majority noted for two people who have access to the safe wee money is kept.

Table 9: Purchase order is first issued for all goods bought


Strongly Agree 27

Agree 517

Not sure 13

Disagree 1757


Total 30100

Source: Primary Data From the table above, 7% of the respondents strongly agreed that Purchase order is first issued for all goods bought, 17% agreed, 3% were not sure, 57% disagreed, and 16% strongly disagreed. This implies that Purchase order is not first issued for all goods bought

4.3 The levels of financial performance of Best Cuts (U) Ltd.

Findings on the levels of financial performance of Best Cuts (U) Ltd were considered and can be evidenced in tables below.

Table 10: Capital of Enterprise increased in the year 2010Response Frequency Percentage

Yes 1963

No 1137

Not sure 00

Total 30100

Source: Primary Data From the table above 63% of the respondents noted that Capital of Enterprise increased in the year 2010, and 37% disagreed. This implies that Capital of Enterprise increased in the year 2010 for some business and did not increase for others.

Table 11: Loans borrowed by the Enterprise in the year 2010Response Frequency Percentage

Strongly Agree 27

Agree 27

Not sure 310

Disagree 930


Total 30100

Source: Primary Data. From the table above, 7% of the respondents strongly agreed that there was more loans borrowed by the Enterprise in the year 2009, 7% agreed, 10% were not sure, 30% disagreed, and 46% strongly disagreed. This implies that there was no more loans borrowed by the Enterprise in the year 2009. The question 13 on the level of technology used in the Enterprise was considered and respondents said that the technology is too low and they constituted the majority. Others noted for moderate and few noted for high technology.

Table 12: Sales made by the Enterprise in the year 2010Response Frequency Percentage

Yes 1653

No 1240

Not sure 27

Total 30100

Source: Primary Data From the table above 53% of the respondents noted that more sales made by the Enterprise in the year 2009, 40% disagreed, and 7% were not sure. This implies that there were more sales made by the Enterprise in the year 2009

Table 13: The number of shareholders increased in the year 2010Response Frequency Percentage

Strongly Agree 00

Agree 310

Not sure 413

Disagree 1137


Total 30100

Source: Primary Data From the table above 10% of the respondents agreed that the number of shareholders increased in the year 2010, 10% were not sure, 37% disagreed, and 40% strongly disagreed. This indicates that the number of shareholders did not increase in the year 2010.

Table 14: Rate Retained earnings in the year 2010Response Frequency Percentage

Very low 13

Low 930

Moderate 1757

High310

Very high00

Total 30100

Source: Primary DataFrom the table above 3% of the respondents noted that Retained earnings in the year 2010 were very low, 30% noted for low retained earnings, 57% noted for moderate, and 10% noted for high retained earnings. This indicates that retained earnings in the year 2010 were moderate.

Survey question 17 on the rate of the number of customers of the enterprises compared to similar enterprises in Kampala respondents said that they had more customers and majority said they had fewer customers.

Table 15: The Enterprise is the main supplier to most of the supermarkets in Kampala


Strongly Agree 13

Agree 13

Not sure 413

Disagree 1033


Total 30100

Source: Primary DataFrom the table above 3% of the respondents strongly agreed that the Enterprise is the main supplier to most of the supermarket in Kampala, 3% agreed, 13% were not sure, 33% disagreed, and 47% strongly disagreed. This indicates that the Enterprise is not the main supplier to most of the supermarkets in Kampala.

4.4 The relationship between Working Capital Management and Financial Performance of Best cuts Uganda ltdFindings on the relationship between working capital management and financial performance of Best cuts Uganda ltd were considered and can be evidenced in tables below.

Table 16: Relationship between Working Capital Management and Financial Performance

From the table above, results showed that there is a strong positive relationship between Working Capital Management and Financial Performance at Pearson correlation coefficient r=0.752 implying that working capital management affects financial performance by 75.2% and 24.8% by other factors. CHAPTER FIVE

SUMMARY CONCLUSION AND RECOMMENDATIONS

5.0 Introduction

This chapter presents summary conclusion and recommendations in relation to the study objectives

5.1 Summary of the findings

5.1.1 Working Capital Management

Findings revealed that all funds in Best Cuts Uganda Ltd are recorded by one person the people responsible for recording funds in the Best Cuts Uganda Ltd revealed that the owners of the business, some noted for friends of owners of the business and others noted for relatives and shop attendants. Daily incomes and expenses are recorded in the cashbook, others noted for note book. Besides that some respondents said that daily incomes and expenses are recorded in the textbook, Daily money received by the Best Cuts Uganda Ltd is not banked on that same day, and Daily money received by Best Cuts Uganda Ltd is not banked on that same day

Nevertheless, about 3 people have access to the safe were money is kept, others noted for one person and majority noted for two people who have access to the safe were money is kept, Purchase order is not first issued for all goods bought, the owners are responsible verifying receipts and they constituted the majority. Other respondents noted for relatives of the owners of Best Cuts Uganda Ltd.5.1.2 Financial PerformanceFindings revealed that Capital of Best Cuts Uganda Ltd did not increase in the year 2010, there was less loans borrowed by the Best Cuts Uganda Ltd in the year 2010, the technology is too low and they constituted the majority. Others noted for moderate and few noted for high technology. Besides that there were more sales made by the Best Cuts Uganda Ltd in the year 2010, the number of shareholders did not increase in the year 2010, retained earnings in the year 2010 were moderate. Nevertheless, respondents said that they had more customers and majority said they had fewer customers, and the Enterprise is not the main supplier to most of the retail shops in Kampala.

5.1.3 Working capital management and Financial Performance

Findings revealed that there is a strong positive relationship between Working Capital Management and Financial Performance at Pearson correlation coefficient r=0.752 implying that working capital management affects financial performance by 75.2% and 24.8% by other factors.5.2 Conclusion

Findings revealed that all funds in Best Cuts Uganda Ltd are recorded by one person, Daily incomes and expenses are recorded in the cashbook, recorded in the textbook, Daily money received by the Best Cuts Uganda Ltd is not banked on that same day, Purchase order is not first issued for all goods bought. Capital of Enterprise increased in the year 2010, the technology is too low, there were no more sales made by the Enterprise in the year 2010, the number of shareholders did not increase in the year 2010, retained earnings in the year 2010 were very low, daily recording of funds affect growth for Enterprise, the days when enterprise makes more money some funds are withdrawn from the enterprise and this reduces the growth of the business. Besides that there is a strong positive relationship between Working Capital Management and Financial Performance 5.3 Recommendations

Best Cuts Uganda Ltd need to ensure that all funds in Enterprise recorded by two people in case of one person not being available this would help to reduce on the fraud that might occur in the enterprise.

Daily incomes and expenses need to be recorded in a cash book or accounting packages like pastel or quick books so that small scale enterprise can detect fraud in the system.

Best Cuts Uganda Ltd need to ensure that Daily money received by the Enterprise is banked on that same day, to reduce on unnecessarily withdrawal of money from the enterprise.

Best Cuts Uganda Ltd need to first issue out Purchase order for all goods bought. This would help in the accountability and also stimulate auditing of their books of accounts

Best Cuts Uganda Ltd need to make a lot of advertisement of their products and services so as to capture the available market this would increase on their revenue collected.

Much effort and a lot of control need to be emphasized on the funds management to improve on the growth of the enterprise.

5.4 Areas for further research

Further research need to be carried out on the effect of total quality management on the financial performance of small business enterprise.

REFERENCES

Alm, J. (2000). What is an optimal tax system?, in Tax Policy in The Real World, ed. by Slemrod, J. Cambridge.

Birch, R. (2007). Making innovation fly, Ivey Business Quarterly, Vol. 61 No. 1, p. 59. QFD, creativity and productivity 69Blatt, R.G. (2003). Quality Function Deployment: Linking a Company with its Customers, ASQC Quality Press, Milwaukee, WI.

Bodil, J. (1995). A Social Learning Theory, Prentice-Hall, Englewood Cliffs, NJ.

Borjas, H. (2006), Leadership and Performance beyond Expectations, Free Press, New York, NY.

Boswell, R. (2003). Alternative ways of assessing model fit, in Bollen, K.A. and Scott Long, J. (Eds), Testing Structural Equations Models, Sage Publications, Newbury Park, CA, pp. 36-62.

Brealey, N., Cohen, T., and Bailey, E. (2005). Latent Variables Models, Lawrence Erlbaum Associates, Hillsdale, NJ.

Broadbent, M., and Cullen, J. (2003): Managing Financial Resources.

Brush, T. (2002) Principles of Micro-Economics, Second Edition. Foreman and Company Publishers.Campsey, B.J (2005).). Financial and Managerial Accounting, Sixth Edition. South Western College Publishing Company Ohio, U.S.A.

Campsey, T. (2005). Excellent book on the limitations of black and white thinking.

Cooper et al., (2004). Internal Auditing in a Just-in-Time Environment, The Institute of Internal Auditors, Altamonte Springs, FL.

Cooper, T.M., Conti, R., Coon, H., Lazenby, J. and Herron, M. (2002). Assessing the work environment for creativity, Academy of Management Journal, Vol. 39, pp. 1154-84. Hall, B. (2006), Small and medium scale enterprises, a frame for intervention. Small enterprises; unit private sector development of the world Bank.

Kakuru, J. (2000), Financial Management First Edition Business Publisher Kampala Uganda

Khazi, R. (2002). Financial Management, Eighth Edition. Prentice Inc, U.S.AKnott, G. (2008). Financial Management, Third Edition. Macmillan Press Ltd, Britain.

Lave, S. (1997) Introductory Economics, Seventh Edition. D. C. Heath and Company, Canada

Matovu, J., and Ritva Reinikka (2001). A quest for revenue and tax incidence. In Ritva Reinikka and Paul Collier, eds., Ugandas Recovery: The Role of Farms, Firms and Government. Washington, DC: World Bank.

McCelland, D. (2001). Casas Bahia: fulfilling a dream, Michigan Business School Case Study, Michigan Business School, Ann Arbor, MI, December, p. 4. VOL. 10 NO. 1 jinfo jPAGE 11

Perren, T. M (2000). A model of creativity and innovation in organisations, in Staw, B.M. and Cummings, L.L. (Eds), Research in Organisational Behavior, Vol. 10, JAI Press, Greenwich,CT, pp. 123-67.

Riding, N., and Swift, H. (1990). Leader behaviours and the work environment for creativity: perceived leader support, The Leadership Quarterly, Vol. 14, pp. 5-32.

Samuels, K. (2006). Organisation factors and individual performance: A longitudinal study, Journal of Applied Psychology, Vol. 53, pp. 87-92.Sanford Marsh, H.W., Balla, J.R. and McDonald, R.P. (2001). Goodness-of-fit indices in confirmatory factor analysis: the effect of sample size, Psychological Bulletin, Vol. 103 No. 3, pp. 391-410.

Sexton, N., and Robinson, C. (1989). Self-leadership: toward an expanded theory of self-influence processes in organisations, Academy of Management Review, Vol. 11, pp. 585-600.

Shaw, B. (2006). Are markable book about human behaviour and a worldwide best seller.

Ssekatawa, S. (2010). Managing partner at momentum capital and backbone business investment services, shell Uganda

Stanley, K. (1997), Management of Finance Company, Sixth Edition. International Thomson Business Press, London

Van Horne, J. C. (2000). Financial Management and Policy, Eleventh Edition. Prentice Hall Lin A Simon and Schuster Company, U.S.A.

Warren, C. (1999) Financial Managerial Accounting, Sixth Edition. Western College publishing, U.S.A

Wasaka, A. (2008). Performance of shell Uganda. Kampala Uganda

Wilkes, K. (2006) and Samuels, J. (2006). The impact of telecoms on economic growth in developing countries, Vodafone Policy Paper Series, No. 2, March.

APPENDIX 1: QUESTIONNAIRE FOR STAFF MEMBERSDear respondents

This questionnaire is intended purely for academic purposes. It is for study under the topic Working Capital Management and financial performance of Small business Enterprises. The findings of the study will be highly treated with confidentially and can be availed on request.

Please kindly answer those questions either in the space provided or tick the right choice. Thank you for your cooperation.Section A: Personal Data

(Tick as Appropriate)

1. Your Age

Below 20 yrs 20yrs-24yrs 25yrs-29yrs 30yrs and above

2. Gender

Male

Female

3. Highest Level of education

Certificate Diploma Degree PHD Others (specify)

4. For how long have you been working in this Enterprise?

Less than 3yrs

3-5 yrs

above 5 yrs

Section B: Working Capital Management

5. Are all funds in this Enterprise recorded by one person?

Yes No not sure

If no, who are those responsible for recording funds in the enterprise?

6. Were do you record daily income and expenses

7. Daily money received by this Enterprise is banked on that same day

Strongly agree AgreeNot sure disagreeStrongly disagree

8. All money received by this Enterprise is recorded in the books of accounts


9. How many people have access to the safe were money is kept for this Enterprise.

10. Purchase order is first issued for all goods bought


11. Who is responsible for verifying receipts for the Enterprise?

Section C: Financial Performance 12. Did Capital of this Enterprise increase in the year 2010?

Yes No not sure

13. There was more loans borrowed by this Enterprise in the year 2010Strongly agree AgreeNot sure DisagreeStrongly disagree

14. What is the level of technology used in this Enterprise?

15. Were more sales made by this Enterprise in the year 2010Yes No Not Sure 16. The number of shareholders increased in the year 2010Strongly agree AgreeNot sure disagreeStrongly disagree

17. How do you rate Retained earnings in the year 2010Very low Low Moderate High Very high

18. How do you rate the number of customers of this enterprises compared to similar enterprises in Kampala

19. This Enterprise is the main supplier to most of the super market in Kampala


Section D: Relationship between Working Capital Management and financial performance of Best Cuts Uganda Ltd20. Daily recording of funds affects financial performance for this Enterprise.


21. How do Current income and expenses recorded in a cash book affect financial performance of this Enterprise?

.

22. Is financial performance of this enterprise hindered by management of funds? Explain your answer

.

23. How does money recorded in the books of accounts spent by this Enterprise?

.

24. How is accountability to people who access the money safe done in this enterprise?

.

25. How does Purchase order issued for all goods bought affect financial performance this Enterprise? .

26. How do receipts verified by owners of the Enterprise reconciled by the expenditures incurred?.

APPENDIX 2: TIME FRAME

MonthYearActivity

March April 2011Proposal writing and presentation

May 2011Data collection

June 2011Data processing

Data analysis and presentation

Printing draft copy

July 2011Printing final copy and presentation.

APPENDIX 3: BUDGET ESTIMATES

ITEMQUANTITYRATE (Ug. Shs)AMOUNT (Ug.shs)

Proposal writing

Stationery2 reams8,000 16,000

Typing1 copy @ 5 pages500 @ page 2,500

Printing1 copy @ 5 pages500 @ page 2,500

Photocopying 200 copies @ 5 pages 50 @ page 50,000

Sub total 71,000

Dissertation

Printing report4 copies @ 55 pages500 @ page 110,000

Binding report4 copies2,000 8,000

2 drafts of report@ 55 pages500 @ page 27,500

Transport21 days3,000 per day 63,000

Lunch21 days5,000 per day 105,000

Access to private libraries12 days7,000 per day 84,000

Miscellaneous 5,000

Sub total 402,500

Grand total 473,500

PAGE 4

rural banking

Documents