Liquidity Management And Performance In Sme’s; A Case Of Mbale Municipality

ABSTRACT The purpose of the study was intended to establish the relationship between cash

Management and performance of small-scale businesses in Mbale Municipality. The objectives

of the study were to examine the effect of cash management on sales volume of small-scale

businesses in Mbale Municipality, to establish the effect of cash management on profitability ol

small-scale businesses and to examine the effect afc~tsh management no the ILu:dity of smal!

scale businesses in Mbale Municipality. The study also reviewed some related literature in line

with the study objectives.

A case study design was adopted because it pro’videcl an in-ciepth study ol inc problem ~iUiin

limited time scale. The study adopted random sampling with the aim of giving all business

owners an equal chance of being chosen to participate in the study. Data collected from the field

was edited, coded and categorized into themes. Thereafter. it was entered irto the computer

programme known as Statistical Package for Social Scientists (SPSS).

The study found out that majority of the respondents (52.3%) agreed that they were not bank inn

their daily cash from sales, an indicator of poor cash management. however on cash planning

29.6% of the respondents agreed that their cash inflows and outflows were always predetermined

indicator of good cash management practice. on sales volume, majority of the respondents

disagreed that they always made high volumes of sales, on the customer base, most of them

disagreed that the customer was not big as such. on profitability, majority of the respondents

disagreed that their profit margin was not always high.

On liquidity, 65.9% of the respondents never paid their bills on time. an indicator of liquidity

problems. On establishing the relation ship between cash management and prrfl :n core of’

scale businesses, Pearson product correlation was used, it was revealed that R~O.853, P=O.0u5,

adjusted R20.728. This implies that there is a strong relationship between casb managenwol

and business performance other factors as well do affect it.

In conclusion, the study indicates that poor cash management that is through mishandling of cash

from sales, easy access to cash by everybody affects both liquidity and profitability levels.

However, proper cash management practices through cash planning, safeguarding will reduce on

costs and idle cash hence improving performance of small scale businesses.

there fore the recommendation of the researcher on cash management and sales is that much

emphasis should be on safeguarding of cash from saies through daily b,uikin~ al cash from sa!~s~

proper record of sales to debtors, which reduces on bad debts.

SSB and any other business should exercise proper cash management practices, through cash

planning, safeguarding, in order to reduce operational costs and getting rid at’ excessive cash in

business, if they are to achieve the time objective of profitability and liquidity.

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TABLE OF CONTENTS

Cover Page

Title Page I

Declaration

Dedication iv

Approval

Acknowledgement

Table of contents

List of tables

List of figures

List of abbreviations \ i~

Abstract xiv

CHAPTER ONE: GENERAL INTRODUCTION

1.0 Introduction

1 .1 Background of the study

1 .2 Problem Statement

1.3 Purpose of the study

1.4 Objectives of the study

1.5 Research questions 5

1.6 Scope of the study 6

1.7 Significance ofthe Study 6

1.8 Definition of Key Terms 7

1.8 Conceptual Framework 8

Figure 1.1: Conceptual Framework

CHAPTER TWO: LITERATURE REVIEW

2.0 Introduction 1 0

2.1 Effect of Cash Management and Sales Volume of Small Scale Businesses 10

2.2 Effect of cash management and Profitability of Small Scale Businesses 13

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2.3 Effect of Cash Management and Liquidity of Small Scale Businesses I 4

2.4 Summary of Literature

CHAPTER THREE: METHODOLOGY

3.0 Introduction 9

3.1 Research design 19

3.2 Study Population 20

3.3 Sample Procedure 20

3.3.1 Sample size 20

3.4 Sources of data 21

3.4.1 Primary Data

3.5 Data collection instruments 2

3.6 Data Analysis and Management 2 1

3.7 Quality Control Method 22

3.8 Ethical Consideration 23

3.9 Limitations 24

CHAPTER FOUR: PRESENTATION AND DISCUSSIONS OF FIN1)~.N~2S

4.0 Introduction :5

4.1 Bio Data of the Respondents 25

4.1.1 Gender of the respondents 25

4.1.2 Age bracket in years 26

4.1.3 Highest level of education 27

4.1.4 Number of years in business 2~

4.2 Cash Management Safeguarding

4,2.1 Banking of Cash Sales

4.2.2 Cash at hand is kept in a safe 29

4.2.3 Safety of Daily Cash Sales 30

4.2.4 Use of Security Guards while Making Bulky Deposits and Withdrawals 31

4.2.5 Counting of Cash from Daily Sales 32

4.3 Cash Management Policies 52

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4.3.1 Excess cash is always invested 33

4.3.2 Predetermining of Cash Inflows and Outflows 34

4.3.3 Regular collection of debts from customers 35

4.3.4 Delay of Payments to Suppliers to Increase Availability of Cash in Business 36

4.3.5 Credit Period Offered to Customers 36

4.3.6 Recording of all Expenses 37

4.4 Cash Management and Sales Volume of Small-Scale Businesses

4.4.2 Making of High Profit Margin 39

4.4.3 Opening and Closing Stock of Business 40

4.4.4 Customer Base 4

4.4.5 Existence of a Variety of Products for Sale 42

4.5 Cash Management and Profitability of Small-Scale Businesses 43

4.5.1 Administrative Costs incurred

4.5.2 Realizing of a High Net Profit Figure 45

4.5.3 Costs Incurred in Collecting Cash from debtors 46

4.5.4 Whether Cash Inflows are more than Cash Outflows 47

4.6 Cash Management and Liquidity of Small-Scale Businesses 4$

4.6.1 Current Assets and Current Liabilities 4$

4.6.2 Payment of Bills on Time 49

4.6.3 Supply on Credit 50

4,6,4 Payment of Purchases in Cash

4.6.5 Availability of cash at hand to invest in new ventures

4.7 Relationship between Cash Management and Performance of Small Scaie Business .53

1. Investment of excess cash 53

2. Businesses make high profit margin and Current assets always exceed current liabilities

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.0 Introduction

5.1 Summary 56

5.2 Conclusion

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5.3 Recommendations .62

5.4 Areas for further research 63

References

APPENDIX I: Questionnaire

APPENDIX II: Introductory I etter

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