Working capital management practices and performance of small and medium enterprises in western Uganda

Abstract

Managing working capital involves making decisions on the investment of available cash, maintaining a certain level of inventories, managing account receivables and account payables. Whereas working capital management is important because of its influence on profitability of SMEs, working capital management practices are not given due attention in Uganda by the owner managers of SMEs.  Small and medium Enterprises (SMEs) are the drivers of Ugandan economy; they are the engine of growth for the economic development, innovation, spur economic prosperity and wealth creation of Uganda.  Small and medium Enterprises (SMEs) are seen as a driving force for the promotion of an economy and they contribute immensely to the economic development of any country. Despite the significant contribution of small and medium enterprises to the Ugandan economy, the potentials of the SMEs have not been exploited fully and this is a concern of all stakeholders in the economy. Therefore, the purpose of the study was to establish the relationship between Working Capital management practices and performance of SMEs in Uganda a view to establishing a coherent model directed at improving performance.  The study also examined factors for efficient Working Capital management practices for SMEs in Uganda. The study adopted a positivist quantitative paradigm with cross sectional and correlational designs. The findings in respect of the main purpose of this study indicated that in Working Capital management practices accounted for 33.8% percent of the variance in performance of SMEs. The results also indicated that Cash Management Practices influence highly since it predicts over 22% of the variance in SMEs performance. The study accepted the hypothesis that Working Capital management practices are positively related with SMEs performance. The present study supported a multi-theoretic approach in explaining performance of SMEs in Uganda. The study supports the pecking order theory in explaining the financing of SMEs together with resource-based view as the theories that help in explaining performance of SMEs. The study confirmed efficient Working Capital management practices positively influence and affect performance of SMEs in Uganda. It was recommended that SMEs should consider Working Capital management practices as an integral part in achieving SMEs performance. They need to give priority to Cash Management since it was found to have a big influence on SMEs performance. Since cash is a component of working capital, then, SMEs owners need to separate business transactions from their personal transactions so as to have financial discipline which would ensure sustainable working capital thus meeting short term needs SMEs.