THE IMPACT OF FINANCIAL DECISIONS ON THE GROWTH OF SMALL AND MEDIUM ENTERPRISES: A CASE OF NAKAWA DIVISION

ACRONYMS

SMEs:                       Small and Medium Enterprises

UCA:                       Uganda Co-operative Societies

MSC:                        Microfinance Support Center

IRS:                         Investment Readiness Study

SPSS:                        Statistical Package Social Scientists       

ABSTRACT

This study was conducted to find out the impact of financial decisions on the growth of Small and Medium Enterprises in Nakawa division. The study was set to address the following specific objectives: to examine the major financial decisions made by small and medium enterprises in Nakawa division, to determine the relationship between financial decisions and the competitive level of SMEs; and also to analyze the alignment between SMEs’ strategies and financial decisions. The researcher used a descriptive and analytical research design to establish a relationship between the two variables and to exhaust all areas in the research. A sample size of 30 Small and Medium Enterprises from Nakawa Division was used and sampled. Questionnaires and interviews were used to collect data which were processed by tabulation, and also narrations inform of description were accounted for easy understanding of the findings. The findings indicated that majority of respondents were in agreement that financial decision making is very important for the growth of their businesses. The overall evaluation of the study found out a positive alignment between SMEs strategies and financial decisions in Nakawa division. The study concludes that financial decisions are very paramount for the growth of Small and Medium Enterprises. The study recommended that among other things, there is need to revise the lending policies, terms and conditions for loans, so that they favor the Small and Medium Enterprises. In addition, the interest rates on loans need to be reduced.

CHAPTER ONE

1.0 Introduction

This chapter gives the background of the study, statement of the problem, purpose of the study, objectives, research questions, scope of the study, significance of the study. 

1.1 Background of the Study

Storey (1994), argue that the difference between small and large firms is not only a matter of size, consequently specific models are required to study SME. There are several characteristics that differentiate small from large firms. First of all, management and ownership unification leads to an owner-firm intertwinement (Ang, 1992), both at economical and emotional levels. Second, the form of private equity affects the diversification possibilities and risk position of the owners. Only a firm with a single owner-manager is free of agency costs of equity. In family firms, the inclusion of new generations is another source of agency problems. On the other hand, information asymmetry problems between small firms and external funds providers are especially strong, because of the informality and scarce information available. Last, these firms have shorter life expectancy, given that the firm may cease to exist if just one person (the owner) leaves, and the lack of firm succession planning.

The effect of financial decisions on business competitiveness is a topic that researcher have not yet studied in depth. Despite its importance and the need to adapt financial strategies to an organization’s characteristics, few studies have focused on analyzing decision-making and its impact on small enterprises’ competitiveness. A business’s financial environment is a main factor for the organization’s success, especially small businesses forced by financial limitation to be highly efficient in allocating their scarce resources in order to ensure survival and generate profits.

According to a number of studies (Ibarra, 1995; Van Aukenss and Howard, 1993) the main causes of business failure are the lack of financial planning, limited access to funding, lack of capital, unplanned growth, low strategic and financial projection, excessive fixed-asset investment and capital mismanagement. 

Growth of small and medium enterprises(SMEs) involves increased level of output, increased number of employee performance, increased level of creativity and innovation, industrial restructuring and wealth generation in both developing and developed economies Uganda Investment Report (UIA, 2008). According to Matly and Westhead (2005), healthy and growing SMEs are perceived to be crucial for sustainable competitive and economic development at local, regional and national levels.

In Uganda, SME’s are enterprises employing more than 5 but mot exceeding a maximum of 50employees, with the value of assets, including land, building and working capital of less than Ugx 50 million (US$ 30,000) and annual income turnover of between Ugshs10-50 million (US$ 6,000-30,000) (Kasekende and Opondo, 2003).

Small and medium enterprises in Nakawa division which are independently owned and operated by a few individuals. They can be defined in terms of sales volume and number of employees in the business indicated by structural development, profitability and employment levels. They mainly engage in buying produce, market vending, catering and confectionery, shop keeping, second hand clothing, health/herbal services, secretarial services, telephone services, handicraft, transport and many others Uganda Bureau of Statistics report (UBOS, 2004).

1.2 Statement of the problem.

The importance of financial decisions in business is evident, since many of the factors that contribute to failure can be managed properly with strategies and financial decisions that drive growth and the organization’s objectives. The main causes of business failure are the lack of financial planning, limited access to funding, lack of capital, unplanned growth, low strategic and financial projection, excessive fixed-asset investment and capital mismanagement. Many of these causes of failure are challenges that can be successfully managed with financial strategies developed and implemented by the organization (Lopez, 2012). 

One of the main features of small businesses is that they do not have useful financial information to make decisions. The information generated is utilized to pay taxes but does not reflect the real situation of the organization. In addition, small businesses do not have specialized personnel with expertise for planning, administration and financial decision-making, and the owner has to make decisions without a solid foundation. Because small-business owners concentrate mainly on obtaining resources for operating expenses, it is difficult to develop financial plans: there is no knowledge of how to implement them, daily problems overwhelm entrepreneur decision-making and the urgency is to solve basic problems in order to generate income (Mallette, 2006). However, this does not imply that financial decisions should not be based on financial planning.

65 percent of small businesses shut down in less than two years, while twenty-five percent survive during this period with a very low probability of development (Lopez, 2012). Although small businesses do not struggle only in the financial area, it represents a central problem that affects their development. Therefore, this study sought to examine the impact of financial decisions on the growth of small and medium enterprises.

1.3 Purpose of the study.

To examine the impact of financial decisions on the growth of small and medium enterprises in Nakawa division.

1.4 Objectives of the study.

1. To analyze the major financial decisions made by SMEs.
2. To determine the relationship between financial decisions and the competitive level of SMEs;
3. To analyze the alignment between SMEs’ strategies and financial decisions

1.5 Research Questions

1. What are the major financial decisions made by SMEs?
2. What is the relationship between financial decisions and the competitiveness level of SMEs?
3. How can the alignment between SMEs’ strategies and financial decisions be analyzed?

1.6 Scope of the study.

1.6.1 Content scope

The study was limited to the impact of financial decisions on the growth of small and medium enterprises. It covered the concept of financial decisions as the independent variable and the growth of SMEs as the dependent variable.

1.6.2 Geographical scope.

The study was carried out from Nakawa town in Kampala District of Uganda. This area was considered because it was within the researchers’ area of location, that was between the location of the town councils and the area of residence of the researcher thus being convenient in terms of data collection.

1.6.3 Time scope.

The study covered a period of three months starting from March to July, 2017. This period was suggested because it was long enough to enable the researcher analyze the impact of financial decisions on the growth of Small and Medium Enterprises.

1.7 Significance of the study

• The research findings if published will provide necessary guide lines to government and financial institutions hence leading to the improvement in service delivery
• The study can also help small and medium enterprises to learn how to improve their mode of making good, reliable and success-oriented financial decisions.
• It will enable the society in findings or starting jobs themselves thus reducing unemployment.
• The study will enable the researcher obtain a bachelor’s degree in Kyambogo university.
• The study will help other researchers carrying out the research on other related problems as references.

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction.

The chapter presented previously conducted research and scholarly work under the same area of investigation.

2.1 Definition of key variables

2.1.1 Financial Decisions. 

This refers to the various choices made by traders on whether to operate on cash basis or credit using assets and liabilities. SMEs’ that make funding decisions have higher competitiveness than businesses that only make working-capital and/or investment decisions.

One area that has received little attention in the establishment of strategies, especially in the study of micro, small and medium-sized enterprises, is that of financial decisions, even though it is a determinant of business competitiveness. Financial analysis and planning, which represent basic features that support organizational strategy, are nonetheless virtually non-existent in micro and small enterprises, which impose a constraint on the kind of financial decisions businesspeople can take. Financial strategies are goals, patterns or alternatives designed to improve and optimize financial management in order to achieve corporate results (Lopez, 2006).

Jog and Srivastava (2014) conducted a study that looked at financial decision-making processes that Canadian companies followed, as well as techniques they used to make decisions on capital budget, financing costs and sources, and dividends. Their results show that investment decisions are closely related to funding opportunities, and that the method used for the capital budget is the internal rate of return and the net present value. They also found that most Canadian companies determine an optimal debt and equity ratio. With regard to dividends decisions, present and future earnings represent the most relevant factors enterprises consider when deciding on dividend policy.

Another group of studies analyzed firms’ use of certain financial analysis techniques. Lazaridis (2002) investigated the way in which companies generate information to calculate cash flow, finding a large number of companies using subjective methods to forecast cash flows and just a few companies adopting sophisticated techniques. He studied long-term funding decisions in large corporations and found that most companies do not maintain an objective in their debt and equity structure, preferring a financial hierarchy. They also showed that the main issues in financing decisions are those related to maintaining financial flexibility and ensuring survival in the long term. Zopounidis and Doumpos (2002) examined a technique called “Multi-criteria decision Aid” (MCDA) that helps with financial decision-making, by evaluating aspects such as corporate performance, investment, financial problems and credit; the authors showed the advantages of this technique in financial decision-making.

Likewise, there has been research focused on the analysis of financial decisions and their impact on creating value for investors. Escalera and Herrera (2006) studied the relationship between financial decision-making and economic value creation in Mexican companies. They found that companies that use supplier financing are more likely to create economic value as long as they do not have collection problems, and that investment decisions must take inventory into account. 

It is evident that most studies have focused on the analysis of the techniques used to make financial decisions rather than on the decisions themselves and their impact on competitiveness. This shows that corporate finance research has not taken into account small businesses’ financial decisions. Likewise, researchers have not focused their attention on the study of organizational alignment strategies and financial decisions, to determine the consistency of entrepreneurs’ decision-making about capital management and the strategic objectives to follow in order to compete in the market.

2.1.2 Growth of Small and Medium Enterprises.

In Uganda, SME’s are enterprises employing not more than maximum of 50employees, with the value of assets, including land, building and working capital of less than Ug.shs 50 million (US$ 30,000) and annual income turnover of between Ug.shs10-50 million (US$ 6,000-30,000) (Kasekende and Opondo, 2003. SMEs are also said to be responsible for driving innovation and competition in many economic sectors. International organizations such as the World Bank and the International Finance Corporations (2002), define SMEs as enterprises that require small amounts of capital to establish, small number of employees or in most cases personally handled by the owner, and referred to as micro-businesses hence to them, they are “mini businesses” or “Bop businesses”

Ronstadt (2000) defined Growth of SMEs as a company’s increase in its product sales, market share, brand recognition, customer loyalty, opening of new branches through expansions and acquisitions, an optimal capital structure and increased profitability and return on investments.

Balunywa (2008) looks at business growth as the ability of an organization to meet required standards in its operations, increase its market share, improve its facilities, increase its profitability and ensure return on investments to its shareholders, and also witness total waste reduction through optimal capacity utilization and operational efficiency

2.1.2.1 Indicators of growth in SME’s

The indictors of business growth include the following; increased sales and revenues which should be experienced by the enterprise in the goods or services such a company offers. For example, a company should be able to see a difference in production output of one month from another and also increased output should be corresponding with increasing demand for such products which results into increasing sales and revenues, month by month, translating into year by year increases in production and sales (Ronstadt, 2000).

• Business expansion

This is where a company expands its activities and not only occupies a large position of the physical existing markets but also the biggest part of the consumers’ minds with what is being offered by that company. Increasing market share may take the form of increasing sales by being able to sell at lower prices than the competitors, increasing the range of products and product lines, increasing distribution channels and sales outlets, boosting various marketing drives such as vigorous advertising in all media available to essentially p lace an organization’s products in the minds of the consumers among other significant activities (Balunywa, 2008).

• Sales volume increase

Sales volume refers to the amount or number of units that are sold of a particular product or service. Profits depend on growing sales and managing costs, which include variable and fixed costs. Variable costs depend on sales volumes because they involve direct raw materials and labor costs. Small and large businesses incur fixed costs, even if they have no sales. Fixed costs are constant at certain levels of production and sales. Outside of these levels, fixed costs may vary with sales volumes. Sales are the lifeblood of any successful business. An increase in sales, all other things equal, usually translates into higher profitability (Byaruhanga, 2012). Sales volume refers to the number or quantity of products sold and can be expressed in either shillings or percentage terms.

• Increased profitability

A financially stable enterprise applies optimal use of both debt and owner’s equity and a company which is no longer struggling with financial problems as most companies do is seen to be setting off from its starting feet to greater business horizons thus looked at as a growing company. Such a company will never lack funding since financial Institutions will start looking at it as a potential client and they are ready to lend it money as need may be. Such growth should be reflected in profitable enterprises, and conversion into medium or large enterprises. In addition, SMEs growth can be measured in terms of profits. Profit making organizations look at the rate of return on the resources of the firm (Pandey, 1996)

If the level of profits of the firm is high, then the company can retain some of the profits for reinvestment (Benjamin, 2016). These are referred to as retained earnings which are undistributed portions of the company that are regarded as a source of owned capital. These profits are converted into reserves and used for the financing requirements of the company. This process of re-investing a portion of the profits of the company is called pouching back of profits or internal financing (Kakuru, 2001). Rural people do not make enough profits that can be ploughed back for re/investment thus creating a barrier in financing their business.

• Increase in the market share

Growth of an SME can also be measured basing on the increase in the market share. According to Kotler (2000), the company’s growth is determined by the increase in rate of growth of its market share. The increase in the market share is reflected in the increased sales volume and establishment of distributional channels for the goods and services to the target segment

2.2 Major financial decisions made by SMEs.

 Financial decision making strategy consists of three interrelated kinds of decisions: investment, funding and working-capital decisions (Ross, Westerfield & Jordan, 2000).

2.2.1 Investment.

 Investment decisions relate to the allocation of capital to carry out investment opportunities that are valuable (bring value) to the company, taking into account the magnitude, opportunity and risk of the future cash flows of investment. The Centre for Innovation and Enterprise and Ernst & Young were commissioned by the federal government to ‘evaluate and establish a set of ‘investment-ready’ criteria for different equity investor types, as they apply to SMEs at different stages of their life cycle and to different types of SMEs’.

The Investment Readiness Study (IRS) involved a survey of a cross section of equity investor groups, based on a generic set of investment criteria involving investor parameters, market, personal, organisational and financial factors. Some important issues were confirmed:

That SME owner-managers lack an understanding of external equity as an alternative financing source; That investment-readiness was a complex issue involving subjective evaluation by the equity investor and a ‘mind set’ change process by the owner-manager; and That most SMEs do not possess the attributes to meet the requirements of venture capital investors and BAs.

Following consultation with investor groups the IRS confirmed an equity gap of between $0.5 million and $2.5 million for SMEs.

Equity investments for amounts of less than $0.5 million were seen as the province of BAs who are limited by their available funds and exposure to a few investments. The formal venture capital market tended to limit SME injections to amounts of $2 million to $2.5 million because smaller investments were generally not cost-effective given the high risks involved and the high costs of evaluating and monitoring small investments.

The purpose of the IRS was to provide SMEs with the information they need to become ‘investment-ready’ by identifying what venture capital investors would be looking for in an equity investment opportunity. The investment decision of the venture capitalist incorporates three major components:

Investment parameters these represent the established investment guidelines and focus of the investor, which may include, for example, a focus on large manufacturers or management buyouts over $5 million. Growth opportunity this represents the evaluation of the external factors impacting on the investment potential such as market opportunity, product innovativeness and competitiveness, external influences and the capital growth return potential. Internal capabilities these represent the capabilities of management and the internal operations and controls present in the business to achieve the identified growth potential.

2.2.2 Funding. 

Funding decisions concern the specific mix of long-term debt and capital that the company uses to finance its operations, i.e., optimal capital structure. Chittenden et al (1996) state that issuing external equity may be particularly costly for SME, because of the relatively fixed costs of initial public offerings, the small firm effect on the cost of equity, and the potential loss of control by the original owner-managers. The long-term debt is included possibly beginning with loans from the owners, family and friends. New equity comes last, through original owners or relatives in first place, and finally through new partners.

Berger and Udell (2008) explain the small firm’s financial structure using a financial growth cyclein which financial needs and options change as the business grows, gains further experience, and become less informational opaque. Firms face higher information asymmetries during the infant stage (first two years), when the main sources of funds are the entrepreneur, her friends and relatives, trade credit, and angel investors. Credit from financial institutions, first short-term and later long-term, becomes available when the firm reaches size and age large enough to count with historical accounting records, that should show a certain level of tangible assets. If the firm continues to grow, it may gain access to the capital markets. 

Access to financial institutions can be granted in the earlier stages through personal guarantees by the owners. This sequence can be seen as a dynamic view of the pecking order, where the strength of information asymmetries decreases as the firm gains experience. Fama and French (2002) point that under the pecking order hypotheses, firms have no incentive to issue debt if they still have internal funds to finance their investments. These behaviors do not apply to all firms, including the small ones. Moreover, it assumes that firms will use debt if some attractive investment opportunities remain. A special case among SME, those that do not use debt even if they pass up attractive investments as a consequence, is left unexplained.

2.2.3 Working capital decisions

Working-capital decisions include the management of short-term assets and liabilities in a way that ensures the adequacy of resources for company operation. Both variables are proposed by Romano et al (2000), for family firms. Here we extend this to small firms in general, as well as relate previous debt experiences with changes in uncertainty aversion and information asymmetries. The following variables are an original contribution of this paper:

Professionalization of management, particularly in the field of economic sciences, which we expect to be related with the diversification of financing sources. There are numerous updates about short-term assets and liabilities that are often unknown to SME, just because of lack of information, or perhaps absence of interest. Small businesses have lower levels of long-term debt to total assets than large businesses have. It seems that small firms find it easier to access short-term debt such as trade credit, bank overdraft and bank bills than long-term debt.

Personal costs of bankruptcy are a consequence of the usual owner-firm intertwinement present in SME. These costs include the socio-economic and emotional consequences that the firm’s bankruptcy implies for the owner, even with limited liability. We consider them as a result of the lack of diversification of the owner’s human capital, and the emotional bond that the owner has with the firm, especially in a family business. For partnerships with no limited liability, or the case of Sole Proprietorship, the legal consequences are larger, and can lead to bankruptcy at the personal level.

2.3 The relationship between financial decisions and the competitiveness level of SMEs;

Each major financial decision will be analyzed to understand its impact on the growth of SMEs 

2.3.1 Investment and growth of SMEs.

Proprietors with good investment decisions have always proved to be prosperous and at a fast growth rate. SMEs and investment-readiness

Two major research studies were commissioned by the Commonwealth government, Financing Growth (1995) and Investment Readiness Study (1997) to quantify the equity gaps for SMEs. 

The National Investment Council was asked to investigate the ‘capital needs of SMEs aspiring to significant growth and whose equity is not listed on the main board of the Australian Stock Exchange (ASX)’.

From interviews with more than 60 industry participants, it was found that:

The ‘vast majority of SMEs (had) no aspirations for significant growth’. Probably only about 10% of small firms ‘aspire, plan and achieve growth (to) provide the essential dynamism of the SME sector’. Also most growth firms seeking equity were not ‘investment-ready’, that is, they failed to meet fundamental requirements to be attractive to external investors.

Despite the difficulties small firms have in obtaining investment capital, there was no shortage of capital in Australia. However, there were major difficulties in the efficiency of the market’s allocation processes and the ability to deal with the risk, uncertainty, high cost and regulatory impediments incurred when investing in small business. While high search, information and transaction costs, and risks and uncertainty, were inherent characteristics of the small firm capital market that constrained the flow of capital to small firms.

Corporation Act prospectus requirements and other regulations acted as major constraints and impediments in the already difficult search process that emerging growth firms have to undertake in order to obtain equity. And there was virtually no information on the current and potential role of Australian private investors in small business.

A gap existed in the supply of equity finance in Australia for amounts between approximately $0.5 and $2 million. This was above the typical upper threshold of most potential business angels (BAs) and below the typical minimum investment threshold of many venture capital firms. Little was known about the magnitude and significance of this gap and the extent to which amounts of less than $0.5 million were actually serviced by BAs.

2.3.2 Funding and growth of SMEs

The financing of small and medium enterprises (SMEs) has been a topic of keen interest in recent years because of the key role that SMEs play in economic development and their potentially important contribution to economic diversification and employment (Ayyagari et al.,2007; Beck et al., 2005a). In developing economies including Sub-Saharan Africa, SMEs are typically more credit-constrained than large firms, severely affecting their possibilities to grow (Beck et al, 2005b; Beck and Demirguc-Kunt, 2006; Beck et al, 2006; Ayyagari et al, 2008; Beck et al, 2008a; Ayyagari et al, 2012). As regards extending financing to SMEs, banks have an important role to play in Sub-Saharan Africa due to their dominance in the financial systems and the limitations of informal finance, especially as regards serving the higher end of the SME market (Ayyagari et al, 2012). 

The evidence suggests that competition, especially as introduced by innovators, is important to encourage banks to venture into the SME space and to move them out of their comfort zone in countries like Uganda where high interest rates on Government securities area disincentive to intensify lending to SMEs. Providing a conducive lending environment and encouraging competition through allowing banks to innovate, for instance through agency or mobile banking, seems to be an important role to play for Government. Equally important is to ensure that a trader also uses personal savings that may reduce the person’s level of credit (Ayyagari et al, 2012). 

Nevertheless, while a conducive legal and regulatory framework is necessary to support SME, a responsible trader needs to finance business using grants and donations if any to grow rapidly. Among the main factors impacting bank financing for SMEs are inter alia the macroeconomic environment, the legal and regulatory framework, the state of the financial sector infrastructure, bank-internal limitations in terms of capacity and technology, and SME specific factors, particularly the SME landscape in terms of number, size, and focus of operation, as well as the opaqueness of information (Beck et al, 2006).

2.3.3 Working capital and growth of SMEs

There is no pool of available finance instead, funds are arranged only when needed for specific purposes. Working capital is a major decision that the proprietor must find then manage to ensure that there are no times when the business is at stand if the business is to grow steadly. There is no steady average cost of capital if the proposed working capital is not in cash. The cost is as varied as the types of financing  because financing is inevitably arranged only when needed  It would be risky to the firm’s liquidity if investment decisions were made independent of financing considerations considering its assets and liabilities. Each project is vital to the SME, impacting on its operations, liquidity, profits, capital structure and future. Unlike the large company there is no diversification afforded by a portfolio of projects and different types of operations.

The SME needs to maintain a liquidity priority rather than the traditional profit or value maximisation. It is ‘characterised by infrequent dealings in the money market, limited access to external funds … the lack of predictable continuous resources and backup finance.

These considerations provide an apparent rationale for a marginal approach to SME capital budgeting. Rather than a separation of investment and financing decisions, the basis of decisions needs to be a marginal analysis of individual project returns and financing costs. Short-run solvency calls for investments to finance themselves, and the major constraint on project acceptance may be the specific form of available finance, rather than project profitability.

In a model without working capital, Bougheas et al. (2009) show that, for a given liquidity, an increase in production will require an increase in the working capital. A higher production is associated with a higher production cost which, for a given (insufficient) amount of liquidity, implies that these SMEs will need to take more trade credit. So trade credit works as an alternative mean to finance production. Also Cu~nat (2007) argues that fast growing SMEs may finance themselves with trade credit when other types of finance are not sufficiently available. 

2.4 Analyzing the alignment between SMEs strategies and financial decisions.

About capital management and the strategic objectives to follow in order to compete in the market, the cause for such limited use of DCF tools over such a long time period probably rests with the nature of the small firm itself. Several important reasons exist, among them the following:

As previously stated, for many owners of small firms the business is an extension of their lives. As a consequence, non-financial variables may play a significant part in their decisions for instance, the desire to be viewed as a respected part of the community may be more important to the owner than the present value of a decision.

The frequent capital rationing and liquidity problems of the SME impact directly on the decision-making process within the firm, where survival becomes the top priority. And the greater uncertainty of cash flows within the SME makes long-term forecasts and planning unappealing and even viewed as a waste of time. The owner simply has no confidence in his or her ability to reasonably predict cash flows beyond two or three years. Thus, calculating the cash flows for the entire life of a project is viewed as an effort in futility.

Because the value of a closely held firm is not as observable as a publicly held firm, where the market value of the firm’s securities are actively traded in the marketplace, the owner of the SME may consider the market-value rule of maximising NPVs to be irrelevant. In this environment, estimating the firm’s WACC is also difficult. If computing the large firm’s WACC is difficult at best, the measurement for the SME becomes virtually impossible. While the smaller size of projects of an SME may make NPV computations not feasible in a practical sense. Much of the time and costs required to analyse a capital investment are fixed; thus, the firm incurs a diseconomy of scale in evaluation costs.

Management talent within an SME is a scarce resource. Also, the training of the owner-managers is frequently of a technical nature, as opposed to a business or finance orientation. The perspective of these owners is influenced greatly by their backgrounds. On the other hand, it would be hoped that the advice of an accountant–adviser would be sought when making important financial decisions.

The foregoing characteristics of the SME and, equally important, the owners, have a significant impact on the decision-making process within the small firm, whether or not we agree with the logic. The result is a short-term mind set, prompted somewhat by necessity and partly by choice. Nevertheless, given the nature of the environment, what could we recommend to the owner-managers of the SME? That is, could there be a better process for making investment decisions for the SME?

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction

This chapter discusses the research design and the methodology of the study; it highlights a full description of the research design, data type and sources, area and population of the study, simple size and selection, data collection tools/methods, data presentation and analysis, data collection procedure, validity and reliability of data and limitation of the study.

3.2 Research Design

A cross-sectional survey design which was analytical and descriptive in nature was used because it was flexible in both quantitative and qualitative data collection. The research exploited both qualitative and quantitative approaches. Qualitative approach includes use of interviews, while quantitative approaches involves use of descriptive statistics that was generated inform of frequency tables, graphs, and Charts. Qualitative and quantitative approaches are adopted to enable the researcher get and analyze information concerning respondents’ opinions about study variables.

3.3 Target Population

The design consisted of manufacturing SMEs, restaurants, retail shops and boutiques. Different respondents constituting business proprietors, employees and officials of the financial institutions that are operating in Nakawa division constituted the study population because it is not easy to reach the entire division.

3.4 Sample Size and Selection

The sample size was 30 respondents. The study used purposive sampling method. This involves a deliberate selection of particular units of the population for constituting a representative sample. Using purposive sampling technique, the study chooses the sample based on who was appropriate for the study. The study also used simple random method to reduce on the biasness of the purposive data and mainly used on clients.

The sample size was determined using Krejcie and Morgan (1970) because of its simplicity in determining the sample size not forgetting the time factor.

3.5 Data type and sources

3.5.1 Data type

The study collected both qualitative and quantitative data.

Qualitative data is data that can’t actually be measured. It includes virtually any information that can be captured that is not numerical in nature. While quantitative data is any kind of data can be measured numerically.

3.5.2 Data sources

Data was collected from both primary and secondary source.

Primary sources provide data directly from the field by administering questionnaires and interview guide. Secondary source provides data from published journals, reports, text books, internet, and company records and from library.

3.6 Data collection tools/methods

The study involved the following instruments;

3.6.1 Questionnaires

This research instrument used included structured questionnaires with pre-coded answers administered to the respondents. The instruments were pre-tested and discussed with the supervisors to ensure their reliability and validity.

3.6.2 Interview method

An interview is a conversation where questions are asked and answers are given. Interview refers to one-on-one conversation with one person acting in the role of the interviewer and the other in the role of the interviewee. An interview guide was drafted with a set of questions that the researcher asked during an interview and this was open ended in nature. The method was used to collect data from clients of the company. Interview guide was used by the study since the method helped in the collection of more data as it allowed the interaction of both the researcher and the respondents.

3.7 Data presentation and analysis

3.7.1 Data Analysis

After collecting and cleaning the data it was entered in a computer using Statistical Package for Social Scientists (SPSS). The quantitative data was analyzed using descriptive statistics, which includes frequencies and percentages. The qualitative data is analyzed in the content analysis and the analyzed data is presented using tables and figures in form a report.

3.7.2 Data presentation

Presentation of data involves use of tables, pie-charts and graphs that is generated from the questions relevant to the study variables. Interpretation and discussion of the results was done as the researcher explains the strength of the study variables basing on the frequencies and percentages, charts and graphs.

3.8 Data collection procedure

Before data collection, the researcher ensures the approval of the research instruments especially the questionnaires; obtained the introductory letter from the university; introduces herself to the authorities, sought participants’ consent and make appointments when to meet them for data collection, and the data collected is analyzed.

3.9 Reliability and Validity

Validity refers to the degree to which a test measures what it is supposed to measure and consequently permits appropriate interpretation of scores. As suggested by (Kathari, 2003), content and construct validity is determined by expert judgment. The researcher thus used help of the supervisor who examined and confirmed content validity by checking the items’ content coverage, relevance, clarify of questionnaire, persistency and ambiguity.

The reliability of research instruments was ensured by the researcher throughout the study, discussing them with the supervisor when seeking expert opinion, taking great care in the choice of section, order and proper structure of questions. The researcher developed instruments that are easy to understand.

3.10 Limitations of the study

1. There was delay in answering of questionnaires by the respondents. However, the researcher tried to be patient and requested them for help to answer the questionnaires.
2. There was denial of access to some offices in the company. However, the researcher tried to explain to them the purpose of the study and accepted her to enter.
3.  Low responsiveness, most respondents were caught up with their activities therefore found little time to answer the questionnaires. However, the researcher had to give them the questionnaires so that they could at their convenient time.

CHAPTER FOUR

DATA ANLYSIS, INTERPRETATION AND PRESENTANTION OF FINDINGS

4.0 Introduction

This Chapter is about presentation and discussion of the findings. This presentation and discussion of the findings were done in relation to the study objectives. The general objective was to examine the impact of financial decisions on the growth of SMEs. The specific objectives included; to analyze the major financial decisions made by SMEs, to determine the relationship between financial decisions and the competitive level of SMEs and to analyze the alignment between SMEs’ strategies and financial decisions.

4.1 Demographic Characteristics of Respondents

The respondent’s basic information was looked at in terms of gender, group (age), number of years working with the SME and level of education. This helped the researcher to obtain the required information.

Figure 4.1: Respondents gender

From figure 4.1, 43% of the respondents were males while 57% of them were females. This implies that the data obtained was gender unbiased because the employees of small and medium enterprises are more of females than males.

4.1.2 Respondents’ age group

The respondents were categorized into various age groups as illustrated below; 

Figure 4.2: Respondents’ age group

From figure 4.2, 7 respondents (23%) were below 25 years of age, 15 respondents were between 26-30 years, 5 respondents (17%) were between 31-35 years and 3 respondents (10%) were above 36 years of age. Majority of the respondents were therefore aged between 26-30 years which is a very active and productive age bracket.

4.1.3   Level of Education

The response about the education level of the respondents was presented below: 

Figure 4.3: Respondents’ level of education

The findings in the figure above show that 17% have primary education qualification, 23% have secondary educationqualification,33% of the respondents are diploma holders, 20% are degree holders, and only7% have other qualification. This implies that data for the study was obtained from all levels of academic qualification respondents.

4.1.4 Ownership of the SME

The response about ownership of the SMEs can be summarized as shown below 

Table 4.0: Description of respondents by ownership of business

Source: Primary data

Table 4.0 shows that majority of the respondents 21(70%) were business owners as compared to 9(30%) who were employees. This implies that the respondents were valid and reliable since the owners of the business had key information regarding their business and contribution of credit facilities towards the growth of SMEs as compared to having real information about these dynamics

4.1.5 Line category of business

Businesses were categorized into 5 categories as illustrated below

Table 4.1: Description of respondents according to the line category of business dealt in

Source: Primary data

Table 4.1 shows that 8(27%) of the respondents were running retail shops, 7(23%) were running hair salons, 5(17%) were operating restaurant business, 4(13%) were dealing in food or beverage processing business while 6(20%) were having furniture workshops. Majority respondents 8(27%) were therefore running retail shops as compared to food or beverage processing business 4(13%).

4.1.6 Duration the employees have been in the firm

The respondents were asked for how long they have been working in the firm. However, the responses to the question were tabulated as indicated below:

Table 4.2: Shows duration the employees have worked with the SMEs

The findings in the table above show that 60% of employees have worked in the SME for a period of 5-7 years which therefore is an indication of low labour turnover, 23% have worked for the period between 3-4 years 10% have been working for over 7 years and only 6% have been in the firm for a period between1-2 years. This implies that the data was obtained from respondents who had gotten experience in working with SMEs and were also more familiar with different operations of SMEs.

4.2 Major Financial decisions made by SMEs 

According to the conceptual framework in chapter 1, the independent variable was financial decisions conceptualized as investment, funding and working-capital decisions.

Table 4.3: Responses on financial decisions made by Nakawa traders 

Evaluation of Investment

Table 4.3 shows that, 10% of the respondents strongly disagreed that they started with a very small amount of capital 6% disagreed, 3% were not sure, 20% agreed while 60% strongly agreed. This implies that the majority of the respondents 18 (60%) strongly agree that they started with a very small amount of capital. From table shows that 13% of the respondents strongly disagreed, 17% disagreed, 0% was not sure, 33% agreed and 37% strongly agreed that invest in a business that brings quick returns. It means that majority of the respondents, 11 (37%) strongly agreed that they do businesses that bring quick returns.

From table shows that, 10% of the respondents strongly disagreed, 17%disagreed, 17% were not sure, 23% agreed while 33% strongly agreed that the size of business depends on investment decisions they make. In all, majority of the respondents (56%) agreed that the size of business depends on investment decisions they make.

From table 4.3 shows that, 33% strongly disagreed, 17% disagreed, 6% were not sure, 33% agreed yet 13% strongly agreed that they attend meetings about better Investment decisions. The implication from this is, 15 respondents (50%) disagreed attend meetings about better Investment decisions

From table shows that, 3% strongly disagreed, 7% disagreed, none of the respondents were not sure, 60% agreed while 30% strongly agreed that they are always briefed about the several investment decisions before they enter into business. A clear implication is that, 18 respondents (60%) agreed that, they are always briefed about the several investment decisions before they enter into business

Evaluation of funding

From table 4.3shows that, 3% strongly disagreed, 7% disagreed, none of the respondents was not sure, 33% agreed while 57% strongly agreed that they always use credit to fund their businesses. A clear implication is that majority of the respondents (57%) strongly agreed that, they always use credit to fund their business.  

From table shows that, 3% strongly disagreed, 7% disagreed, 3% of the respondents were not sure, 37% agreed while 50% strongly agreed that the loan size they get is enough. A clear implication is that, majority of the respondents (50%) strongly agreed that, the loan size they get is enough.

From table shows that 3% strongly disagreed, 17% disagreed, 17% of the respondents are not sure, 23% agreed while 33% strongly agreed that they have the qualifications to be given a loan. A clear implication is that, majority of the respondents (33%) strongly agreed that, they have the qualifications to be given a loan.         

 From table shows that, 13% strongly disagreed, 17% disagreed, 10% of the respondents were not sure, 30% agreed while 30% strongly agreed that they are always briefed about the bank loan terms and conditions before they get a loan. This implies that, majority of the respondents both agree and strongly agree that, they are always briefed about the bank loan terms and conditions before they get a loan.

Evaluation of working capital

From table 4.3 shows that, 27% strongly disagreed, 7% disagreed, 7% of the respondents are not sure, 33% agreed while 27% strongly agreed that they do bookkeeping to sustain their businesses. A clear implication is that, majority of the respondents (33%) agree that, they do bookkeeping to sustain their business from table shows that, 10% strongly disagreed, 10% disagreed, 7% of the respondents are not sure, 27% agreed while 47% strongly agreed that they are aware of the outcomes of poor working capital decisions. A clear implication is that, majority of the respondents (47%) strongly agreed that, they are aware of the outcomes of poor working capital decisions

From table 4.3 shows that, 17% of the respondents strongly disagree, 10% disagree, 7% are not sure, 33 agreed while 33% strongly agreed that they have means of saving their returns. In all, 10 (33%) respondents agreed as well as strongly agreed that they have means of saving their returns.

4.3 Relationship between financial decisions and growth of SMEs 

The study sought to establish the relationship between financial decisions and growth of SMEs. Respondents indicated their level of agreement on statements posed to them using a likert scale. Results were obtained and are presented below;

Table 4.4: Responses on the relationship between financial decisions and the competitive level of SMES in Nakawa

From table 4.4 shows that, 3% of the respondents strongly disagree, 7% disagree, 3% are not sure, 50% agree while 37% strongly agree that their business continues to expand. This implies that majority of the respondents (15 respondents) agree that their business continue to expand. It also shows that 10% strongly disagree that sales volumes of my business are always increasing, 20% disagree, 7 % are not sure, 40% agree while 30% strongly agree that sales volumes of my business are always increasing. From the above information, it implies that, 12 respondents (40%) which is the majority of the respondents agree that sales volumes of my business are always increasing.

From table 4.4shows that, none of the respondents strongly disagree, 7% disagree, 3% are not sure, 40% agree whereas 33% strongly agree that the profit levels of their business are always increasing. It means that, majority of the respondents (40%) agree that the profit levels of their business are always increasing. It shows that, 10% strongly disagree, 17% disagree, 7% are not sure, 27% agree while 40% strongly agree that they have been able to open more branches for this business. In all, 12out of the 30 respondents agree that they have been able to open more branches for their business

Table shows that, 17% strongly disagree, 17% disagree, 7% are not sure, 23% agree while 33% strongly agree that there is always excess of income over expenditure in their businesses. From this information, it means that majority of the respondents (33%) strongly agree that there is always excess of income over expenditure in their businesses. shows that, 17% of the respondents strongly disagree that they have acquired more assets in their businesses, 20% disagree, none of them is not sure, 33% agree whereas 30 strongly agree that they have acquired more assets in their business. It therefore implies that, majority of the respondents agree that, they have acquired more assets in their businesses.

Table shows that, 7% of the respondents strongly disagree, 3% disagree, none of the respondents is not sure, 50% agree while 40% strongly agree that they have added more working capital to their SMEs. This means that, 50% of the respondents agree that they have added more working capital to their businesses. Table illustrates that 17% of the respondents strongly disagree that they can compete favorably with people in the same business, 10% disagree, no one is not sure, 10% agree while 40% strongly agree. This implies that the latter are the majority

Table 4.4shows that, 10% of the respondents strongly disagree, 20% disagree, none of them is not sure, 27% agree while 37% strongly agree that they take and make simple records in their business. It implies that, 37% of all the respondents can make simple records of their businesses. Table also shows that, 10% strongly disagree, 10% disagree, 0% are not sure, 33% agree while 47% strongly agree that they employ now more people in the business compared to when they started it. All in all, 47% of the respondents strongly agree that they employ now more people in the business compared to when they started it.

Finding of the study support the literature of Kotler 2000, according to Kotler (2000), “the company’s growth will be determined by the increase in rate of growth of its market share”. The study also proved growth of SMEs in relation to increase in market share among other factors

4.5 An evaluation on the alignment between SMEs strategies and financial decisions.

The study also sought to evaluate the alignment between SME strategies and financial decisions. Respondents were required to indicate their level of agreement on statements posed to them using a likert scale. Results were obtained and are presented below;

Table 4.5: Responses on the alignment between SMES strategies and financial decisions

From table 4.5 shows that, 10% of the respondents strongly disagree, 17% disagree, 0% are not sure, 40% agree while 33% strongly agree that financial decisions have assisted them to expand their business. This means that majority of the respondents (40%) agree that financial decisions have assisted them to expand their business. Table 4.5 shows that, 13% of the respondents strongly disagree, 13% disagree, 7% are not sure, while those who agree and those who strongly agree are 33% that funding has been influential in increasing the sales volume of their business. This in all implies that, majority of the respondents both agree and strongly agree that funding has been influential in increasing the sales volume of their business.

Table shows that, 17% strongly disagree, 10% disagree, 7% are not sure, 27% agree yet 40% strongly agree that bookkeeping has assisted them to increase the profitability of their business. All in all, 40% (majority) strongly agree that bookkeeping has assisted them to increase the profitability of their business. It also shows that 10% of the respondents strongly disagree, 20% disagree, 3% are not sure, 33% agree while 33% also strongly agree that savings have helped them to establish new branches. From the above information, it means that, majority of the respondents both agree and strongly agree that savings have helped them to establish new branches.

Table shows that, 7% of the respondents both disagree and strongly disagree, none of the respondents is not sure, 33% agree while 53% strongly agree that trade credit have helped them to increase the profitability of their business. It therefore implies that majority of the respondents (53%) strongly agree that trade credit has helped them to increase the profitability of their business. Table shows that, 17% of the respondents strongly disagree, 17% disagree, 7% are not sure, 33% agree while 43% strongly agree that trade credit has helped them to operate even if they do not have enough money. This clearly implies that majority of the respondents (43%) strongly agree that trade credit has helped them to operate even if they do not have enough money.

Table shows that, 3% of the respondents strongly disagree, 7% disagree, 3% are not sure, 40% agree while 47% strongly agree that bank loans are important in their business growth. This clearly implies that majority of the respondents (47%) strongly agree that bank loans are important in their business growth.

The findings on the relationship between credit financing and growth of SMEs agree with the study of Professor Karlan (2003), of Yale University which stated that, micro financing begets the general tendency of a small business initially supported on credit to gain profits with time and generate micro savings. In his latest study, the famous two time Pulitzer Prize winner, Nicholas Dona bet Krist of also stated that there is no evidence of any negative influence of micro financing but countless examples of people now looking at the bigger picture and saving for better things have surfaced.

Table 4.6: Correlations

*. Correlation is significant at the 0.05 level (2-tailed).

From the above findings, it shows that there is a strong relationship between financial decisions and the growth of Small and Medium Enterprises. At Pearson correlation coefficient r =0.669

The results as depicted from the table above (r =0.669, P=0.035) suggest a positive and significant effect of financial decisions on the growth of Small and Medium Enterprises in Nakawa division. The positive relationship means that when better financial decisions are made, Small and Medium Enterprises also grow.

CHAPTER FIVE

DISCUSSION OF FINDINGS, SUMMARY, CONCLUSION AND RECOMMENDATION

5.0 Introduction

This is the last chapter of the study. It presents the discussion, summary of findings in line with the study objectives, and the researcher derives conclusions and makes recommendations.

5.1 Discussion of findings

5.1.1 The major financial decisions made by SMEs

Most business people agreed that they make investment decisions that enlighten them on how much capital they are to begin with and the way the business brings in quick returns. Traders in Nakawa said that there are government strategies of educating people how to start business even without too much investment. This they get from public lectures, leaders of different capacities and fellow successful business men and women. Apart from that they strong decide on how to fund their businesses and below is a brief description of how they fund their businesses.

The findings show that majority fund their businesses with loans because they qualify to get them and later pay back as the business continues to operate. However people usually acquire loans to finance new business or buying new assets which the researcher thinks s not a better idea for small and medium business. The researcher is in line with Vera & Onji (2010) who reveal that banks are the main external capital providers for SMEs sector in both developed and developing countries. They argue that in spite of the fact bank financing is more expensive in comparison with other sources of finance; it helps SMEs accomplish better performance results. Rahmat & Maulana (2006) also point out that loans from banks and other lending institutions also have the capacity to finance SME operations and projects.

This is however not used by the majority in Nakawa though a good percentage practices leasing. The findings correspond with the content in literature review, where according to Cruickshank (2000) leasing is increasingly becoming a popular means of finance mostly in manufacturing sector, which uses plant and machinery and equipment. Similarly, according to Oxford Economics (2011), an operating lease is thus essentially a rental contract for the temporary use of an asset which has made leasing more attractive to most SMEs because it frees up cash that would otherwise be tied up in fixed assets and would not be available to finance working capital

Results from the study show that quite many SMEs in Nakawa receive trade credit from their supplies by negotiating the option to pay later instead of immediate payment. This finding is consistent with Broom et al.(1983) who pointed out that trade credit is among the most preferred type of credit service because according to them supplies are more flexible in dealing with SMEs than the banks. Cumnat (2007) also argues along the same line that fast growing SMEs may finance themselves with trade credit when other types of finance are not sufficiently available.

5.1.2 Relationship between financial decisions and growth of SMEs 

The many SMEs in Nakawa district argue that because of the various financial decisions they make the businesses continue to grow faster and faster. The more reliable the decisions are, the more sales they make and large volumes of goods sold imply that the more and more profits are realized. Fixed costs are constant at certain levels of production and sales. Outside of these levels, fixed costs may vary with sales volumes. Sales are the lifeblood of any successful business. An increase in sales, all other things equal, usually translates into higher profitability (Byaruhanga, 2012). Sales volume refers to the number or quantity of products sold and can be expressed in either shillings or percentage terms.

If the level of profits of the firm is high, then the company can retain some of the profits for reinvestment (Yaron, Benjamin and Piprek, 1996). These are referred to as retained earnings which are undistributed portions of the company that are regarded as a source of owned capital. These profits are converted into reserves and used for the financing requirements of the company. This process of re-investing a portion of the profits of the company is called pouching back of profits or internal financing (Kakuru, 2001). Sandee (1999), Nakawa people do not make enough record keeping which sometimes lets down their aims that can be ploughed back for re/investment thus creating a barrier in financing their business.

5.1.3 The alignment between SME strategies and financial decisions.

Management talent within an SME is a scarce resource. Also, the training of the owner-managers is frequently of a technical nature, as opposed to a business or finance orientation. The perspective of these owners is influenced greatly by their backgrounds. On the other hand, it would be hoped that the advice of an accountant–adviser would be sought when making important financial decisions.

The researcher found out that foregoing characteristics of the SME and equally important strategies, leads to undesired performance. The owners have a significant impact on the decision-making process within the small firm, whether or not we agree with the logic. The result is a short-term mind set, prompted somewhat by necessity and partly by choice. Nevertheless, given the nature of the environment, what could we recommend to the owner-managers of the SME? That is, could there be a better process for making investment decisions for the SME?

As previously stated, for many owners of small firms the business is an extension of their lives. As a consequence, non-financial variables may play a significant part in their decisions for instance, the desire to be viewed as a respected part of the community may be more important to the owner than the present value of a decision.

The findings in conformity with Delmar (1997), Weinzimmer et al (1998) who argue that change-in-amount of perspective growth can be measured with a range of different indicators such as assets. The most frequently suggested being sales, employment, assets, physical output, market share and profits.

5.2 Summary of findings

Majority of the respondents agreed that they assessed better financial decisions to finance their businesses and that they attend meetings that always brief them before they acquire loans. This implies that their business operations have been boosted by these financial decisions. Majority respondents disagreed with the small businesses in their locality. Majority of the traders in Nakawa division agreed that their businesses cannot have sufficient capital thus emphasizing the vital role of credit facilities to SMEs. They agreed with the significance of all the credit financing facilities offered to enhance growth of their businesses. All in all, they agreed that financial decision making is needed.

From the above finding, it implies that there is a strong relationship between competitiveness and growth of SMEs, the researcher measured a positive effect of financial decisions on the growth of small and medium enterprises. A good number of respondents agreed that financial decisions have helped their businesses to expand while others said that they mostly praise working capital decisions which have enabled them to increase their sales volumes. In addition, the agreed that savings have helped in increasing the profitability of their businesses. Sales volumes increase, smooth running of business, to mention but a few have been made possible by making financial decisions. Bank loans among other credit facilities have helped them create and open up new branches. The overall assessment of the researcher measured a positive effect of financial decisions on the growth of small and medium enterprises, that is, a strong positive relationship (r2=0.669, P=0.035) was established. This implies that SMEs should utilize the credit facilities in order to improve on their performance and yield more return on their capital and make expansions

Small and medium enterprises that set good strategies like having visions, expansion procedures and motives have a positive alignment with financial decisions. SMEs utilize the services offered by banks and other development organizations in order to improve on their performance and yield more return on their capital and make expansions. Majority agreed that most businesses were owned and operated by their founders who have strategies to promote their businesses and that financial decisions help in maintaining business, improving their performance, and that they provided liquidity to the business. Their businesses served as their sole source of employment and business returns can sustain the business and the family. All in all, they agreed that Performance SMEs in Nakawa division was not so bad due to the presence of bank officers that teach better financial decisions in the area and the activities they perform. They continue to reveal that they have acquired new assets, increased sales, added working capital as well as increased profitability due to financial decision making.

5.3 Conclusion

The study discovered that successful business people make strong financial decisions on investment, funding and working capital thus a conclusion of a strong relationship between financial decision making and growth of SMEs. This analysis is an important contribution to the literature of evaluating finance activities. The study findings showed that financial decisions facilities enable small and medium enterprises improve on performance thus overall growth. From the rank correlation considered in the study, there is a positive relationship between the variables.  The strategies are ensured in a way of having proper records that give a promising environment for expansion thus positive alignment between SMEs strategies and financial decisions.

5.4 Recommendations

From the study findings, the researcher recommends the following;

• MFIs should devise means they deliver financing facilities, improve terms and conditions under which financial institutions offer various credit facilities to SMEs.
• The government of the republic of Uganda should partner with other financial institutions to provide subsidized financial/credit assistance to SMEs with little interest rates
• There should be assessment of the needs of SMEs so as financial institutions develop financial decisions that best suit the small and medium enterprises.
• Financial institutions should put in a provision of loan repayment periods extension for Small and Medium Enterprises.
• More credit need to be availed to the Small and Medium Enterprises given their significant role in the economic growth and development.

5.5 Areas for further research

More research needs to be carried out on the other aspects the impact of financial decisions on the growth of Small and Medium Enterprises.

In addition broader research should be carried out on the factors affecting the growth of Small and Medium Enterprises in rural areas.

More so, there is need for further research on other financial decisions needed by Small and Medium Enterprises in Uganda.

I recommend further research on other aspects of growth of Small and Medium Enterprises apart from those discussed in the study.

REFERENCES

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Allen, I. E; Elam, A; Langowitz, N and Dean M (2008) 2007 Global Entrepreneurship monitor report on women and entrepreneurship Babson college. The center for women’s leadership

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Arinaitwe, J.K. (2006), “Factors constraining the growth and survival of small scale businesses: a developing countries analysis”, Journal of American Academy of Business, Cambridge, Vol. 8No.2, pp.167-78.

Badagawa G (2000). Proceeding of the symposium on modalities for financing SMEs in Uganda, UN-New York and Geneva 2002

Balswin, (2005). Relationship lending and lines of credit in small firm finance. Prentice Publishers India.

Bank of Uganda November Report 2006

Bategeka, L. (2009): Uganda’s Achievements and Challenges in the Financial Sector: WhoseInterests Count? In: The Ugandan Banker”, Vol. 7, No. 4, Uganda Institute of Bankers, Kampala

Biryabarema, F. (2008): Small Scale Businesses and Commercial Banks in Uganda, by Lancashire Enterprises Plc and John Short Economic Services, Presto, UK.

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Matly and West head (2005). Commercial bank financing of white and black-owned small business start ups. Quarterly Review of Economics and Business

Mike, (2006).Carters Advanced Accounts, 6th Edition, Pitman Publishing Company London

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Mirero (2004).The economics of small business finance. New York Press.

Modigiliani and Miller (1963).Credit accessibility and Investment Decisions in Uganda’s manufacturing Sector. An Empirical Investigation

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APPENDICES

APPENDIX I: QUESTIONNAIRES

Dear respondent, I am a student of Kyambogo University undertaking a Bachelor of Administrative and Secretarial Science Degree carrying out a research on “The impact of financial decisions on the growth of small and medium enterprises, Nakawa Division.” This research questionnaire is prepared for the sole purpose of obtaining information about the role of credit facilities to the growth of small and medium enterprises. It’s purely academic in nature and the information obtained will be treated with the highest degree of confidentiality.

QUESTIONNAIRE

SECTION A: RESPONDENT’S PERSONAL DATA

Please tick in the appropriate box

1: Gender: Male

Female:

2: Group: Below 25 years

26 – 30 years

31-35 years

Above 36 years

3: Highest Level of Education qualification attained

Primary

Secondary

Diploma

Degree

Other (please specify)

4: State whether you are an employee or owner of the business
Employee Owner

5: What category of business do you deal in?

6: How long have you been in this business?

1-2 years       3-4 years         5-7 years      7 and above

SECTION B: AN EVALUATION OF MAJOR FINANCIAL DECISION MADE 

You are requested to show the extent to which you agree or disagree on matters relating to the impact of financial decisions in your business.

Instructions. Please tick most appropriate of: strongly disagree=1, Disagree=2, Not sure=3, Agree=4 and strongly agree =5)

If there is any others financial decisions made in your business not mentioned above please specify.

……………………………………………………………………………………………………………………………………………………………………………………………………

SECTION C: AN EVALUATION OF THE RELATIONSHIP BETWEEN FINANCIAL DECISIONS AND THE COMPETITIVE LEVEL OF SMEs.

The statements here below are to help in assessing the relationship between financial decisions and competitive level of SMEs of Nakawa traders.

If there is any other not mentioned above please specify.

…………………………………………………………………………………………………

SECTION D: AN EVALUATIONOFTHE ALIGNMENT BETWEEN SMES STRATEGIES ANDFINANCIAL DECISIONS.

The table below relates to statements that will enable the researcher to analyze the alignment between SMEs strategies and financial decisions.

If there is any other not mentioned above please specify.

……………………………………………………………………………………………………………………………………………………………………………………………………

APPENDIX II: INTERVIEWS

1. What are the major financial decisions you make in business?
2. How do you implement those decisions?
3. Have those financial decisions helped you to compete favorably? If yes how?
4. Are there any developments due to the financial decisions you make? If yes which ones are they?

Thank you for your cooperation