Working Capital Management Practices and Growth Of Selected Small and Medium Enterprises in Nakawa Division Kampala Uganda
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Date
2024-09
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Abstract
The purpose of the study was to establish the effect of working capital management practices onthe growth of Selected SMEs in Nakawa Division and the specific objectives were to determinethe effect of cash, debtors, creditors and inventory management practices on growth of SMEs in
Nakawa Division, Uganda. Hypotheses were tested at 0.05 significance level. The study wasanchored on Resource Based Theory and Trade off Theory of Liquidity. The population of the study was 217 small and medium enterprises in Nakawa Division.
The study adopted descriptive and correlation research design. The target population comprised of
a total of 841 SMEs operating in Nakawa Division, Uganda. Proportionate stratified random sampling was used to select a sample of 89 SMEs. Purposive sampling technique was used to pick respondents from the 89 SMEs. Questionnaires were used as the suitable data collection tool which was analyzed using statistical software. The study found that cash management practices hadix positive and statistically significant effect on the growth of SMEs (p= 0.000); debtors management practices had a positive and statistically significant effect on the growth of SMEs (p=0.000).Additionally, creditors management practices had a positive but statistically insignificant effect on the growth of SMEs (p=0.196) whereas inventory management practices had a positive butstatistically insignificant effect on the growth of SMEs (p= 0.263). From correlation analysis, thestudy found a positive relationship between cash management practices and growth (r = 0.790, p= 0.000) at 5% level of significance. Debtors management practices had a positive relationshipwith growth (r = 0.771, p = 0.000); creditors management practices had a positive relationshipwith growth of SMEs (r = 0.267, p = 0.019) whereas inventory management practices had apositive relationship with growth (r = 0.551, p = 0.000) at level of significance. The studyrecommends that SMEs in Nakawa Division should formulate cash management policy to guidethe effective maintenance of liquidity at optimal levels and ensure proper implementation of cashbudgeting and planning framework. SMEs should also review the credit policy to ensure effectivecredit administration decisions. In addition, there should be a clear policy that spells out effectiveaccount payables management practices that ensures optimal credit purchases as well as stipulatecreditors’ settlement criteria. Moreover, management of SMEs in Nakawa Division shouldformulate inventory management policy which focuses on ensuring that optimal stock levels aremaintained to avoid overstocking and under stocking of certain products.