ANALYZING THE IMPACT OF BUDGET ON PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES
CASE STUDY: SEBBAGGALLA AND SONS ELECTRICAL CENTER
INTRODUCTION
This chapter covers the background of the study, Statement of the problem, purpose of the study, research questions, and scope of the study, significance of the study and definition of terms.
1.1 Background to the Study
Budgeting covers vast Areas of organizational activities and it is the cornerstone of organizational success that for an organization to stand out in this new era of high level of competition and the growing level of sophistication in the todays ever-changing world, therefore for companies to stay profitable budgeting is necessary and imperative, (Almaory, 2008).
Budgeting has had a huge impact on industries, the community in general and our daily lives. budgeting helps in many areas and its used by the different department of the organization to ensure cost reduction, profit maximization, increased customer satisfaction and better organizational competitive strength, this has further been made possible by introduction of technology to ensure efficiency in budgeting and and above all save time, (Kwok Hung Lau and Haibo Huang 2012). The business environment today has been undergoing unprecedented change and many companies are seeking new ways to stand out from the competition by sustaining their competitive advantage. In today’s highly competitive global marketplace, the pressure on organization’s to find new ways of creating and delivering value to customers is growing stronger, Somuyiwa, (2010).
Budgeting is a system which is very essential for business enterprises to stay in business and as such an institution with poor budgeting ability is at risk of collapse, (Fehr et al, 2005). The money given out by banks with a future date of repayment (credit) is crucial to the economy due to its multiplier effect. Nnanna, (2001) observes that the budgeting is important for the take-off and efficient performance of any enterprise. Such an enterprise may be small medium or large. Besides the entrepreneurs′ initial need for capital for investment purposes, it is equally required to coordinate other factors of production such as land and labour. Nzotta (2001) also reiterated that bank credit influences positively the level of economic activity in the country. It is capable of influencing what is to be produced, for whom and how is it to be produced and even at what price the good or services is going to be available to consumers. Efficient budgeting is a prerequisite for a financial institution’s stability and continuing profitability, while poor budgeting is the most frequent cause of poor financial performance and condition. Small and Medium Enterprises Development (SMEs) has continued to be a popular phrase in the Business world. This is because the sector serves as a catalyst for employment generation, national growth, poverty reduction and economic development. SMEs world over can boast of being the major employers of labor if compared to the major industries including the multinationals. According to Peterise, (2003), SMEs both in the formal and informal sectors employ over 60% of the labour force in Nigeria. More so, 70% to 80% of daily necessities in the country are not high-tech product, but basic materials produced with little or no automation. Most of these products come from the Small and Medium Enterprises. (Odubanjo, 2000).
Sound Budgeting is a prerequisite for a financial institution’s stability and continuing profitability, while deteriorating credit quality is the most frequent cause of poor financial performance and condition. The prudent management of credit risk can minimize operational risk while securing reasonable returns, Ensuring lending staffs comply with the credit union’s lending license and by-laws is the first step in managing credit risk. The second step is to ensure board approved policies exist to limit or manage other areas of credit risk, such as syndicated and brokered loans, and the concentration of lending to individuals and their connected parties (companies, partnerships or relatives). (Odubanjo, 2000).
Small and medium-sized enterprises (SMEs) account for over 95% of firms and 60%-70% of employment and generate a large share of new jobs in OECD economies. They have specific strengths and weaknesses that may require special policy responses. As new technologies and globalization reduce the importance of economies of scale in many activities, the potential contribution of smaller firms is enhanced. However, many of the traditional problems facing SMEs perhaps may include; lack of financing, difficulties in exploiting technology, constrained managerial capabilities, low productivity; regulatory burdens become more acute in a globalised, technology-driven environment, (OECD, 2008).
Sebbaggala and sons is an SME located in Kampala Uganda the company has been trying to maintain an efficient budgeting system in order to realize flexibility, profitability and maintain a sustainable growth of its business in to a large corporate company, but though the company has tried it has failed to achieve a sustainable growth, this study therefore intends to analyze into the impact of budget on performance of small and medium enterprises with specific reference to Sebbaggalla and Sons Electrical Center, located at Kampala Uganda.
1.2 Statement of the Problem
According to Ogbonna, (2010), BUDGETING, are essential in not necessarily violating the rules of the organization or infringe the law of the organization but enables in maintaining organizational principles in timely reaction to customers needs, proper financial management , increase on organizational efficiency and better management in organization resources, however many businesses have failed in their infant stages, according to World Bank report (2006) 95% of the new global business fails with in their fifth birth day. Sebbaggala and sons electrical is a small and medium enterprise however, however despite its massive investment by the shareholders the business of Sebbaggala and sons has failed to grow into a multinational company, (Sebaggala and sons, 2010), This therefore has continued to puzzle management as to what needs to be done in order to be able to grow , basing on this, therefore this study intends to analyze into the impact of budget on performance of small and medium enterprises with specific reference to Sebbaggalla and Sons Electrical Center, located at Kampala Uganda.
1.3 Purpose of the Study
The study seeks to analyze into the impact of budget on performance of small and medium enterprises with specific reference to Sebbaggalla and Sons Electrical Center, located at Kampala Uganda.
1.4 Objectives of the Study
- To establish impact of budgeting on the growth of small and medium enterprises.
- To examine the challenges of budgeting on performance of small and medium enterprises.
- To establish different ways of improving the performance of small and medium enterprises
1.5 Research Questions
- What are the impacts of budgeting on the growth of small and medium enterprises?
- What are the challenges of budgeting on performance of small and medium enterprises?
- What are the different ways of improving the performance of small and medium enterprises
1.6 Scope of the Study
1.6.1 Study Scope
The study will specifically look at the; the impacts of budgeting on the growth of small and medium enterprises, the challenges of budgeting on performance of small and medium enterprises and the different ways of improving the performance of small and medium enterprises.
1.6.2 Geographical Scope
The study will be carried out at Sebbaggala and sons electrical center.
1.6.3 Time scope
The period of data to be considered in the organization will be from 2012-2016 and period of body of knowledge in reviewing literature will be from 2001-2016 while the study will be carried out from March to September 31st 2016.
1.7 Significance of the Study
The study is expected to provide guidance to the Central Bank and other regulators in the credit risk management policy formulation.
The study will add to the already existing literature on factors that determine performance of small and medium enterprises
The study is expected to stimulate further research into the area of lending policy formulation and challenges of credit management.
The study is expected to enable commercial banks identify the credit management policies that are critical in ensuring the growth of small and medium enterprises.
The study will help the government in formulation of policies regarding credit institutions in the country.
1.8 DEFINITION OF TERMS
SMEs are defined as non-subsidiary, independent firms which employ fewer than a given number of employees. This number varies across national statistical systems. The most frequent upper limit is 250 employees, as in the European Union. However, some countries set the limit at 200 employees, while the United States considers SMEs to include firms with fewer than 500 employees. Small firms are generally those with fewer than 50 employees, while micro-enterprises have at most ten, or in some cases five, workers. Financial assets are also used to define SMEs. In the European Union, SMEs must have an annual turnover of EUR 40 million or less and/or a balance-sheet valuation not exceeding EUR 27 million, (world bank , 2008).
