ABSTRACT (Rephrased)
This study examined how financial decisions influence the growth of Small and Medium Enterprises (SMEs) in Nakawa Division. The research was guided by three specific objectives: to identify the key financial decisions made by SMEs, to assess the relationship between financial decisions and the competitiveness of SMEs, and to evaluate how well financial decisions align with business strategies.
A descriptive and analytical research design was employed to explore the relationship between the variables in detail. The study sampled 30 SMEs within Nakawa Division. Data collection methods included questionnaires and interviews, and the collected data were analyzed using tabulation and descriptive narration for clarity.
The findings revealed that most respondents strongly agreed that financial decision-making plays a crucial role in business growth. Additionally, the study established a positive relationship between SMEs’ strategies and their financial decisions.
The study concluded that sound financial decisions are essential for the growth of SMEs. It recommended revising lending policies and loan conditions to better support SMEs, as well as reducing interest rates to enhance access to financing.
CHAPTER ONE (Rephrased – Section 1.0–1.1)
1.0 Introduction
This chapter outlines the background of the study, statement of the problem, purpose, objectives, research questions, scope, and significance of the study.
1.1 Background of the Study
According to Storey (1994), the difference between small and large firms goes beyond size, requiring unique models to study SMEs. Small firms differ in several ways: ownership and management are often combined, leading to a close connection between the owner and the business (Ang, 1992). This relationship affects both economic decisions and emotional investment.
Additionally, the ownership structure influences risk and diversification. Firms managed by a single owner avoid agency costs, while family businesses may face succession-related challenges. SMEs also experience significant information asymmetry when dealing with external financiers due to limited and informal records. Furthermore, their survival is often uncertain, as the business may collapse if the owner exits, especially in the absence of succession planning.
Despite the importance of financial decision-making, limited research has been conducted on its impact on SME competitiveness. Financial management is particularly critical for small businesses, which operate under resource constraints and must allocate funds efficiently to survive and grow.
Previous studies (Ibarra, 1995; Van Auken and Howard, 1993) identify key causes of business failure, including poor financial planning, limited access to finance, inadequate capital, uncontrolled growth, weak financial forecasting, overinvestment in fixed assets, and mismanagement of capital.
The growth of SMEs is reflected in increased production, employment, innovation, and wealth creation (Uganda Investment Authority, 2008). Matlay and Westhead (2005) emphasize that thriving SMEs are essential for sustainable economic development at local, regional, and national levels.
In Uganda, SMEs are defined as enterprises employing between 5 and 50 people, with assets not exceeding UGX 50 million and annual turnover between UGX 10 million and UGX 50 million (Kasekende & Opondo, 2003).
In Nakawa Division, SMEs are typically small, independently owned businesses engaged in activities such as retail trade, catering, tailoring, transport services, and other informal sector operations (UBOS, 2004).
