Influence of working capital management on financial performance of small and medium manufacturing enterprises in Nyamira County, Kenya

Abstract

The study's main aim was to establish the influence of working capital management on financial performance of Small and Medium manufacturing Enterprises in Nyamira County in Kenya. The specific objectives were; to analyze the influence of cash management, inventory management and account receivable management on financial performance of Small and Medium Manufacturing Enterprises in Nyamira County. The research employed a survey design comprising of quantitative data collection approach. The target population was 176 SMEs from manufacturing sector. The study applied stratified sampling to obtain a sample of 121 SMEs employed for the study. To achieve the objective of the assessment, questionnaires were used to gather primary data. The study employed a hybrid of descriptive and causal research design. Data was analyzed using and inferential statistics such as Pearson correlation coefficient and multiple linear regression. The findings of the study revealed that SMEs rarely or sometimes prepare cash budgets and that preparing and reviewing cash budgets is frequently based on monthly periods. At the same time, majority of SMEs often have shortage of cash with a few keeping their cash surplus into bank accounts. The findings on receivable management practices of SMEs revealed that revealed that SMEs sometimes sell their products or services on credit and often set up credit policies for the customers. Regression analysis results recorded a coefficient of determination (R2) of 0.715. This means that 71.5% variation of the financial performance of Manufacturing SMEs in Nyamira County is attributed to joint contribution of Receivable management, Inventory management, and Cash management practices. The results also showed that working capital management practices have a positive and statistically significant impact on financial performance of manufacturing SMEs in Nyamira County. The study recommends the management of SMEs to employ good working capital management practices to spur performance. The study further recommends that the government should be able to come up with good working capital management policies to guide the SMEs in their working capital management in order to maximize their returns. This is because proper working management practices are essential for the success of SMEs in Kenya. Future research should investigate generalization of the findings beyond the Kenyan manufacturing sector and the scope may also be extended to other working capital components management including marketable securities.