Influence Of Working Capital Management Practices On Financial Performance Of Small And Medium Enterprises In Machakos Sub-County, Kenya

ABSTRACT

Working capital can be considered as source of existence for all types of organizations,

whether profit or non-profit organizations, therefore, it is a vital component for any profit

making organizations for it influences operational level and sales volume. The purpose of

this study was to assess the influence of Working Capital Management Practices on

Financial Performance of SMEs in Machakos Sub-County, Kenya. This study was based

on these objectives: assessment of the influence of cash management practices on

financial performance, determination of the influence of receivables management

practices on financial performance and the analysis of the extent to which inventory

management practices influences financial performance of SMEs. The study adopted a

cross-sectional survey research design which allowed the collection of primary

quantitative data through structured questionnaires and interview methods. The target

population was 159 Owners / Managers of SMEs trading in Machakos Sub-County.

Random sampling technique was used to obtain a sample of 22 SMEs trading in

Machakos Sub-County. The data was analyzed using both descriptive and inferential

statistics. The findings of the study revealed that; working capital management practices

were low amongst the SMEs, since majority had not adopted formal Working Capital

Management Practices and there Financial Performance was on a low average. The study

further revealed that SMEs financial performance was positively related to efficient cash

management, efficient receivable management and efficient inventory management at

0.01 significance level. The coefficient of determination (R2) indicated that 0.507 or

50.7% of the variables in F.P could be explained by the changes ECM, ERM and EIM.

This study concluded that WCMPs have an influence on the F.P of SMEs; therefore,

there is need for SMEs owners / managers to embrace EWCMPs as a strategy to improve

their F.P in order to survive in the turbulent business environment. This study

corroborates extant literature findings that established a positive relationship between

WCMP and F.P