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ANALYZING THE IMPACT OF BUDGET ON PERFORMANCE OF SMALL AND MEDIUM ENTERPRISES: THE CASE OF SEBAGGALA AND SONS

ELECTRICAL CENTER

CHAPTER 1

INTRODUCTION

1.1 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.

1.2 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, et al (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 above all save time, Iorun, J. et al (2014). 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, Kadiri, I. B. et al (2012)

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, (Lam, J. 2014) The money given out by banks with a future date of repayment (credit) is crucial to the economy due to its multiplier effect. Lam, J. (2014) further 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. Lam, J. (2014) 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 Ward, J. L. (2011), 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. (Ward, J. L. 2011).

Small and Medium-sized Enterprises (SMEs) play an important role in any economy through generation of employments, contributing to the growth of Gross Domestic Production (GDP), embarking on innovations and stimulating of other economic activities (Gamage, 2000). Therefore, for the developing countries, it is important to accelerate the growth of SMEs in order to gain sustainable development. The numbers of SMEs in uganda tend to increase continuously. In the context of SMEs, accounting information is important as it can help firms‟ mange their short-term problems in critical areas like costing, expenditure and cash flow by providing information to support monitoring and control (Mitchell et al., 2000, Son et al. 2006).

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, Hughes, R. (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 et al (2010),budgets are essential in not necessarily violating the rules of the organization or infringe the law of the organization but also in enabling maintenance of 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.

Objectives of the Study

To establish benefits of financial planning on performance of SMEs.
To analyze how budget implementation influence performance.

To establish the impact of monitoring budget implementation on performance of smes

1.5 Research Questions

What are the benefits of financial planning on performance of SMEs?
How does budget implementation influence performance.

What are the impact of monitoring budget implementation on performance of SMEs

1.6 Scope of the Study

1.6.1 Study Scope

The study will specifically look at the, benefits of financial planning on performance of SMEs, How budget implementation influence performance, and the impact of monitoring budget implementation on performance of SMEs.

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 31^st 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).

CHAPTER TWO

LITERATURE REVIEW

2.0 Introductions

This chapter reviews what various scholars have written about; impact of budgeting on the growth of small and medium enterprises, challenges of budgeting on performance of small and medium enterprises and Different ways of improving the performance of small and medium enterprises.

2.1 BENEFITS FINANCIAL PLANNING ON PERFORMANCE OF SMES

Planning is a process which is concerned with deciding in advance what, when, why, how, and who shall do the work (Donald, Thomas & Rebecca, 2001). Generally, planning involves establishment of organizational objectives and policies; identification of alternative courses of action and programs and selecting the best course of action and programme. Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives (Awino, Muturia & Oeba, 2011). The financial planning activity involves assessing the business environment; confirming the business vision and objectives; identifying the types of resources needed to achieve these objectives; quantifying the amount of resource (labor, equipment, materials); calculating the total cost of each type of resource; summarizing the costs to create a budget; and identify any risks and issues with the budget set (Abdul-Jalil, Dzuljastri & Ferdous- Azam 2013).

Public sector organizations are facing more challenging times, thus Government executives are tasked with more strategic responsibilities of financial planning in the face of increasing costs of offering public services and falling tax revenues thus increasing the difficulty and importance of financial planning (Denhardt & Denhardt, 2006). Meanwhile, changing budget priorities at all government levels require the realignment of funding for public sector programs. When public organizations are in the business of utilizing other people’s money to provide for the community’s wellbeing, public administrators have a responsibility to best utilize the scarce resources available in serving the unending needs of society. Scarcity in public service necessitates proper financial planning for public organizations (Finkler, 2005).

Comprehensive financial planning process is essentially vertical as it is developed from a given base year and so estimates of revenue and costs are to be based on the base year financial decisions already taken (Hendrick, 2000). It would mean that alternative expenditure packages for a program are to be considered based on previously decided financial options. Financial Planning and Management in Public Organizations synthesizes the wide range of issues in public finance into three broad categories: cash management, financial planning, and management control (Kenneth, 2010). As public-sector organizations seek to become more responsive and dynamic, their systems are evolving from tools of organizational control into systems that also incorporate a strong planning perspective (Finkler, 2005).

An essential purpose of financial planning is to assess the financial resources that will be required to implement the programmes and activities to achieve the goals and targets of the plan, to ensure that funding is available as and when needed, and to monitor the efficient use of resources and of progress towards reaching the goals and targets (Rosilyn, 2007). Financial Planning helps to focus the attention of the managers and subordinates towards organizational objectives. It predetermines the objectives and defines line of action to complete the work. Thus, good management is the management by objectives.

The budget embodies a plan articulated in financial terms or allocation of funds for execution of projects and programs of government within a given time frame in order to achieve pre-determined program objective(s) (Willoughby & Julia, 2001). Budgets establish the amount of resources that are available for a specific activity (Rubin, 2000). As managers manipulate monies to accomplish specific goals, they are declaring where the values of the organization lie. Denhardt (2006) argues that in public organizations, “The budget is, essentially, a measure of support (or lack of support) for specific programs. “Budgets reflect choices about what government will and will not do. They reflect general public consensus about what kinds of services governments should provide and what citizens are entitled to as members of society” (Stillman, 2000).

Effective financial planning encourages managers to think about new knowledge, idea, procedures, technique and strategy for the completion of work. It also helps to create new modified course of action. This is essential for the growth and expansion of working areas of the business (Kenneth, 2010). Financial Planning is the basis of control and defines the minimum standard of work to be achieved and time to complete the job. It is helpful to compare the actual performance achieved with that of predetermined or standard fixed. The manager evaluates the actual achievement of work interval of time. This is helpful to identify the deviation, if any, between actual and planned performances (Awino, Muturia and Oeba, 2011). Risk monitoring and control is the processes of keeping track of the identified risks, monitoring the residual risks and identifying new risks. This process should also ensure the execution of the risk plan and continually evaluate the plan’s effectiveness in reducing risk (Finkler, S.A. (2005). Resource allocations can also be monitored as these too will have been pre-planned and, where appropriate, allocated to the agreed actions (Hendrick, 2000).

Although small and medium-sized enterprises (SMEs) typically employ a major share of an economy’s total employees, SME management suffers from an insufficient business-related knowledge base that top managers in SMEs possess. Indeed, formal plans or cost controls are often only provided on an irregular basis and planning instruments are usually only used by a small number of individuals and developed rather intuitively (Brinkmann, 2002).

Given the role of strategic instruments in large companies and the notion that rational decision-making should prevail in enterprises regardless of size, practitioners and academics alike have recently called for an increased use of strategic planning in SMEs.

In this vein, several empirical studies reveal a link between strategic planning and success (Schwenk and Shrader, 2009). At the same time, SMEs often do not have the means to ensure the successful continuous application of strategic planning. In contrast to larger companies, SMEs normally maintain a lower level of resources, have more limited access to human, financial and customer capital, and lack a well-developed administration. Thus, the application of formal planning instruments is often missing, especially up to a certain ‘critical size’ (Karagozoglu & Lindell, 2008).

Goal Clarity and Difficulty Apart from the extent of budgeting planning and budgetary control processes as we explored above that may have a positive impact on organizational performance, the previous literature on goal setting (Yuen, 2004) has long stressed the beneficial effect of budget goals on promoting performance in an organization. A large group of previous studies (Yuen, 2004) analyze the characteristics of the budget goal from two aspects and show their potential link with performance.

Enables the management to make decisions that helps the organization to achieve its goals and objectives, (Wooldridge et. al, 2001). It has been used in the short-term (twoto-one year) for the operational planning in standard costing. It has also been developed to support strategic planning with firm planning and to develop the five-or-ten year plan, So there is a link between budgeting and operational planning and a link between budgeting and strategic planning. However, operational planning, strategic planning, and budgeting are three different concepts with different characteristics but both of the concepts are necessary for the performance of SMEs. Operational planning is characterized as a wide diversity of practices in different organizations. Strategic planning is an irregular activity that takes place in the higher echelons of an organization,Whereas budgeting as an accounting-based system shows a regular and routine pattern common to all organizations. Aside from the planning role of budgeting, numerous articles on management accounting constantly stress the multi-purpose role of budgeting in business organization, the so-called ‘conventional wisdom’ as propagated by textbooks.

Financial planning provide a basis for directing and evaluating the performance of individuals or segments of organizations and also structure the decision-making environment (Bruns & Waterhouse, 2005), so they appear to be appropriate as control devices impacting performance of organizations. Therefore, a considerable stream of research6 (Stede, 2000) emphasize the function of budgeting in management control processes and sought to explore the influence of budgetary controls on organizational behavior.

Improvement of Financial performance (e.g. profitability, growth) is used, in the vast majority of existing studies, to measure business performance (Murphy et al., 1996). However, the use of financial performance measures to evaluate organizational effectiveness has been criticized for being too narrowly focused. In a pioneering work by Hopwood in 1972, he explores the role of accounting data in performance evaluation and points to five negative aspects of reliance on accounting performance measures (RAPM).

Strategic planning is an irregular activity that takes place in the higher echelons of an organization (Anthony, 1965). Whereas budgeting as an accounting-based system shows a regular and routine pattern common to all organizations. Aside from the planning role of budgeting, numerous articles on management accounting constantly stress the multi-purpose role of budgeting in business organization, the so-called

Chakravarthy (1986) states that accounting performance measures are considered necessary, but not sufficient to define overall effectiveness. Bento and White in 2001 also mention the limitations of using accounting data in a small organization. They explain that accounting based performance measures for SMEs research suffer from two key drawbacks: firstly, the non-homogeneity of data (for example, resulting from the use of different depreciation and stock evaluation methods) or different measures and reporting standards used by different organizations; and secondly, the non-availability of data for smaller firms. The latter is particularly pertinent in China, where SMEs will not open their financial information to the public. Mckiernan and Morries in 1994 claim that ‘overall’ performance measures with a set of multidimensional measures are more appropriate. So, more subjective criteria might be better to gain insight into the performance in small firms and would seem to be more closely aligned with the determinants of performance identified by Keats and Bracker (1988) and Lumpkin and Dess (1996) in their conceptual frameworks for assessing

According to research, credit control may be defined as an activity at serving the dual purpose of increasing sales revenue by extending credit to customers who are deemed a good credit risk and minimizing risk loss from bad debts by restricting or denying credit to customers who are not good credit risk. It is also directly related to operation, quality, sales and the effectiveness of credit control lies in procedures employed for judging a prospect’s creditworthiness, rather than in procedures used in extracting the owed money also called credit management (Keneth, 2004).

Holmes and Nicholls (1989) summarize that management accounting information is associated with success and failure in SMEs depending upon how they are produced and utilized in their companies. However, Horngren (1995) argues that cost accounting or management accounting concepts and techniques are neutral instruments. It is not the cause of poor management but primarily symptoms since it may be used wisely or stupidly by managers of the firms.

Drury and Tayles (1995) concludes that the same rules and procedures established for external reporting (financial accounting) are likely also to be applied to internal reporting (management accounting) even some rules, referred to theory, are inappropriate for management accounting. Though external and internal reporting tend to employ the same rules, it does not mean that management accounting is subservient to financial accounting. The reason that most companies adopt the identical practices for both reporting systems is that firms prefer their internal profit to be reported consistently with external financial accounting requirements in order that they will be comparable with outsiders‟ assessments of overall company performance. In the other words, companies would like to be ensured that internal accounting system do not have any conflicts with external financial accounting requirements.

Credit policy is defined as the rules and guidelines established by top management that governs the company’s credit department audits performance in the extension of credit privileges (Jim Franklin, 2010). Boah, (2010) adds that a credit policy is the primary means by which management and the board of an institution guides the lending activities. It therefore, provides the scope for achieving the loan portfolio quality and returns, guides the risk tolerance levels in a manner commensurate with the institution’s strategic direction. The credit policy also addresses the procedures of recovering loan from customers which are due for payment but stuck in the portfolio (Zeller, 2010). Ahamed, (2010) describes a credit policy as a management philosophy spelling out the decision variables of credit standards, credit terms and collection efforts by which managers in credit institutions. The credit policy also assures a degree of consistency among departments by writing down what is expected of each department as well as ensuring consistence in handling customers based on pre-determined parameters.

These are the criteria that the client should meet to qualify for credit (Kakuru, 2000). These require intensive analysis to ensure effectiveness. It is vital for the credit standards to be set basing on individual credit applicant by credit information, credit limits and default rate (Kakuru, 2001). Pandy, (1993) recognizes the 5Cs as measurement parameters in setting credit standards and these include; character, collateral, capacity, capital and condition

2.2 HOW BUDGET IMPLEMENTATION INFLUENCES PERFORMANCE

Business budgeting is a basic and essential process that allows businesses to attain many goals in one course of action. There are several goals that many businesses seek to achieve (or should be trying to work toward) when they create and implement a budget. These goals include control and evaluation, planning, communication, and motivation (Lucey, 2004). (Kariuki, 2010), suggests that budgeting is a process of planning the financial operations of a business. Budgeting as a management tool helps to organize and formulize management‟s planning of activities. Budgeting as a financial tool is useful for both evaluation and control of organizations for the planning of future activities. Application of these tools can greatly impact the performance of a company (Larson, 1999).

Budgeting as a tool in financial management regularly prepares performance plans and budget requests that describe performance goals, measures of output and outcomes in various activities aimed at achieving performance goals. This helps in the sense that annual plans set forth in measurable terms form the levels of performance for each objectives in the budget period (Larson, 1999).

The budgeting process in manufacturing companies incorporates a policy in financial welfare. For instance, it indicates how money is distributed by the management to the different departments and key areas to focus on. This helps the management in planning and forecasting in order to reduce costs and unnecessary spending and also to increase profits so that the company.

The budget acts as financial management tool in the manufacturing firm to measure the actual and forecast against the budget throughout the planning process, it also assist in monitoring and controlling of current performance by providing early warning of deviations from the plans and analyses the anticipated versus actual results.

Finance always being disregarded in financial decision making since it involves investment and financing in short-term period. Further, also act as a restrain in financial performance, since it does not contribute to return on equity (Rafuse, 1996). A well designed and implemented financial management is expected to contribute positively to the creation of a firm‟s value (Padachi, 2006). Dilemma in financial management is to achieve desired trade- off between liquidity, solvency and profitability (Lazaridis, 2006).The subject of financial performance has received significant attention from scholars in the various areas of business and strategic management. It has also been the primary concern of business practitioners in all types of organizations since financial performance has implications to organization‟s health and ultimately its survival. High performance reflects management effectiveness and efficiency in making use of company‟s resources and this in turn contributes to the country‟s economy at large. (Naser and Mokhtar, 2004).

Profitability measures the extent to which a business generates a profit from the factors of production: labor, management and capital. Profitability analysis focuses on the relationship between revenues and expenses and on the level of profits relative to the size of investment in the business. Four useful measures of profitability are the rate of return on assets (ROA), the rate of return on equity (ROE), operating profit margin and net income (Hansen and Mowen, 2005). Repayment capacity measures the ability to repay debt from both operation and non-operation income. It evaluates the capacity of the business to service additional debt or to invest in additional capital after meeting all other cash commitments. Measures of repayment capacity are developed around an accrual net income figure. The short-term ability to generate a positive cash flow margin does not guarantee long-term survivability (Jelic and Briston, 2001).

Budgeting process pushes managers to take time to create strategies, targets and goals before activity begins. Budget preparation helps management focus on the next month or the entire coming year. The budgeting process forces managers to assess current operating conditions and aids in forecasting and implementing needed changes (Anderson,1996).

Budget preparation is also an excellent vehicle with which to work with all supervised personnel by requesting their managers and their staffs. At the end of a period the budget helps managers evaluate performance, locate problematic areas, bottlenecks and provide solutions to these problems (David, 1988).

Finally, performance budgeting is part of the managerialism discourse. As an eclectic concept, managerialism is influenced by a number of ideas from different disciplines (Grüning 2000). It follows the doctrine that the public sector is inefficient but can transform itself to become more efficient by introducing new management concepts, especially from the private sector (Moynihan 2008). Influencing practitioners and researchers particularly adopted the idea that more freedom leads to better performance and proposed corresponding budgeting reforms (Kettl1997). It has been argued that thinking in terms of costs might increase among public servants (Rieder and Lehmann 2002). In addition, the flexibility and efficiency of administrations should increase (Scott 2001) since they are able to allocate resources corresponding to current needs rather than historical expectations that are represented in the estimates (Boyle, 2009). In public management literature, research on new budgeting systems concentrates on the financial, technical and institutional aspects (Melkers and Willoughby 2005).

Public managers face pressure due to both new budgeting formats and increased performance expectations. Like a ‘transmission belt,’ they are responsible for the policy outcome. Despite the fact that a central aim of performance budgeting reforms is exactly the motivation of these public managers little research has been published on their experiences and evaluations.

Conflict of interest is implemented during budgeting process, Thembileet al, (2005) noted that during accounting process, an employee might not disclose a conflict of interest concerning a certain service provider. For example, the employee might award a contract to a relative’s company. This hidden interest is not in the interests of the organization. An employee might receive kickbacks from suppliers in exchange for approval to either order from or make a payment to them, when goods have not been fully supplied or are charged at a higher price. They added that Staff from the donor organization can be bribed by an entity manager, so that during the monitoring process some instances of non compliance are ignored.

The level of job security, Dervaes (2006) asserts that, in some countries working for an organization is an admirable and attractive occupation, but in others it is no longer as gratifying as it used to be. There are a number of reasons for this, ranging from restrictive legislation targeted at organization, single party autocratic government, donor fatigue and the presence of civil strife. Most employees working in such environments are tempted to engage in fraudulent activities, as they cannot make personal plans beyond the next two years at most. Most organizations operating in difficult environments have strategic plans ranging from six months to a year, and so the staff contracts may vary with the organization’s planning strategies. Organizations generally employ younger people who may be starting families, or who have young families, and need financial security.

Budget encourages the members in an organization to be Objective about company goals and policies to reduce on the chances of poor performance and encourage members to be proactive, The principle of objectivity imposes the obligation on all professional accountants to be fair, intellectually honest and free from conflicts. This principle requires four basic needs of credibility, professionalism, quality of service and confidence, (Reena et al, 2009).

Budgeting encourages professional competence to enable the members in an organization to be more hard working professionally, A professional accountant, in agreeing to provide professional services implies that he is competent to perform the services. Most of the SMEs Accountants when the organization has carried out proper budgeting they refrain from agreeing to perform professional services which they are not competent to carry out unless competent advice and assistance are obtained, Posti (2005).

Budgeting with an organization encourages Confidentiality of the company’s information this helps to eliminate over spreading of the company information to non, organizational members , A professional employee in an organization should respect the confidentiality of information acquired during the course of performing professional services. They should not use or disclose any such information without proper and specific authority, Dems (2010).

Budgeting helps an organization in giving employees a chance in the proper Interpretations of Rules of Conduct consist of interpretations which have been adopted, after exposure to state societies, state boards, practice units and other interested parties, by the professional ethics division’s executive committee to provide guidelines as to the scope and application of the Rules but are not intended to limit such scope or application. A member who departs from such guidelines shall have the burden of justifying such departure in any disciplinary hearing. Interpretations which existed before the adoption of the Code of Professional Conduct on January 12, 1988, will remain in effect until further action is deemed necessary by the appropriate senior technical committee.

2.3 TO ESTABLISH THE IMPACT OF MONITORING BUDGET IMPLEMENTATION ON PERFORMANCE OF SMES

The role of finance has been viewed as a critical element for the performance of small and medium-sized enterprises. Previous studies have highlighted the limited access to financial resources available to smaller enterprises compared to larger organizations and the consequences for their performance and development (Levy, 1993). Typically, smaller enterprises face higher transactions costs than larger enterprises in obtaining credit (Saito and Villanueva, 1981). Insufficient funding has been made available to finance working capital (Peel and Wilson, 1996). Poor management and accounting practices have hampered the ability of smaller enterprises to raise finance. Information asymmetries associated with lending to small scale borrowers have restricted the flow of finance to smaller enterprises. In spite of these claims however, some studies show a large number of small enterprises fail because of non-financial reasons (Liedholm, MacPherson and Chuta, 1994). Study by Tushabonwe-Kazooba, (2006) revealed that poor record keeping and lack of basic business management experience and skills are major contributors to failure of small business. Researchers have also identified lack of access to external finance and weak capital base, inexperience in the field of business, particularly lack of technical knowledge plus inadequate managerial skills, lack of planning and lack of market research as causes of small business failure (Lussier 1996; Murphy, Shleifer and Vishny 1996; Van Stel and Storey 2004). The solution for solving problems of economic growth in developing countries often resides in the performance of small scale industries.

Most firms use budget control as the primary means of corporate internal controls, it provides a comprehensive management platform for efficient and effective allocation of resources. Budgetary controls enable the management team to make plans for the future through implementing those plans and monitoring activities to see whether they conform to the plan, effective implementation of budgetary control is an important guarantee for the effective implementation of budget in the organization (Carr and Joseph, 2000).

Budgets analysis should be a regular and ongoing part of management duties because helps chart the course of operations and provides a means to evaluate performance once the task has been completed .If realistic goals have been established comparing the actual results with budgeted targets can help management assess how well the organization performed( Belverd, 1996).

According to (Anderson, 1996), the following are five groups of budgetary principles and are explained as follows: First, long Range goal principle: Annual operating plans cannot be made unless those preparing the budget know the direction that top management expects for the organization. Long range goals projections covering a five to ten year period must be set by the top management. In doing so management should consider economic or industry forecast

This kind of cooperation will occur only if each person realizes that he or she is important to the process. Fourth, budget follow up principles: Since the budget consists of projections and estimates, it is important that it be checked and corrected continuously. It makes more sense to correct an error than to work with an inaccurate guide (Anderson, 1996).

Planning and control and related resources and their costs are the keys to good management. The process of developing plans for a company‟s expected operations and controlling operations helps to carry out those plans is known as budgetary control. Objectives of budgetary control are: To aid in establishing procedures for preparing a company‟s planned revenues and costs. Budgets also aid in coordinating and communicating these plans to various to various levels of management (Kariuki, 2010).

In addition, budgets formulate a basis for effective revenue and cost control .for companies to benefit from budgetary control, they should first set quantitative goals, define the roles of individuals, and establish operating targets. Short term or one year plans are generally formulated in a set of period budgets. A period budget is a forecast of operating results for a segment or function of a company for specific period of time (Caldwell,1996).

The growth of SMEs has been in the recent past of great concern to many government policy makers and researchers globally because of realization of their economic contribution to Gross Domestic Product (GDP) and economic growth. As such they are no longer viewed as “stepping stones” to real business but as a means of industrial and economic growth and as well as tools of poverty eradication (ILO, 1986).

CHAPTER THREE

METHODOLOGY

3.0 INTRODUCTION

This chapter presents the methodology which consists of the research design, area of study, study population, sample population and selection, sampling technique, data collection method, data quality control, data collection procedures and limitations of the study.

3.1 Research design

Qualitative and quantitative research designs will be used, the researcher will use the above methods because many aspects will be covered in the study analyzing the impact of budget on performance of small and medium enterprises, qualitative research method will be used because it collects information within a short time while quantitative will be through interview to cross check what has been given.

3.2 AREA OF THE STUDY

The study will be carried out at sebaggala & sons ltd.

3.3STUDY POPULATION AND SAMPLE SIZE

The study will include the staffs of ssebaggala and sons like sales men, cashiers, managers and technical stuffs.

3.4SAMPLING SIZE

According to (Amin, 2005) sampling involves selecting a sample of the population in such a way that samples of the same size have equal chances of being selected.

The sample will comprise of 30 respondents who will include sales men, cashiers, managers and technical stuffs. While carrying out research, purposive sampling will be applied to the above different categories of respondents.

3.5 Data Collection Instruments

The major instruments for data collection will be questionnaires and interview guide. Surveys will be one part of a complete data collection and evaluation strategy. The major method of data collection for the study will be survey, which will be done using selected instruments like questionnaires. The questionnaire will provide respondents with ample time to comprehend the questions raised and hence, they will be able to answer factually.

3.5.1 Questionnaires

The questionnaire will be used to collect quantitative data. The researcher will administer the questionnaires to all the respondents, which will be designed basing on study objectives and questions. Respondents who can read and write will fill in the questionnaires themselves. The questionnaires will be close ended.

3.5.2 Interviews

Qualitative data will be collected from the informants using interviews. The interview guide will be structured. The interviews will be held with senior management and cashiers and will take approximately thirty to sixty minutes. This will be used since it’s the best tool for getting first-hand information /views, perceptions, feelings and attitudes of respondents. Both formal and informal interviews will be used to get maximum information from the different respondents to participate in the research.

3.6 Reliability and Validity of data

Data analysis in this study will focus on data validity and reliability. To establish the validity of the questions, pre-testing will be done amongst the selected categories of respondents. Their comment will be incorporated in the final instruments to suit the data requirement of the study. The final amended research instrument will be reviewed jointly by the researcher and the supervisor. Reliability will be checked using the test –retest practice advocated for by Amin(2005). In other words, the questions will be put to course mates and their comments noted, they will then be presented to the respondents and their views will be compared with those of the course mates. On receipt of the questionnaires, manual editing will be done, followed by coding. Frequency count of different variables will be done and this will give the number of occurrences and percentages out of total occurrences.

3. 7 DATA COLLECTION METHODS

Source of data will be from both primary and secondary sources.

3.7.1 Primary data

Primary data will be obtained from the questionnaires administered on the target respondents to gain opinions on analyzing the impact of budget on performance of small and medium enterprises.

3.7.2 Secondary sources

Secondary data is data which has been collected by individuals or agencies for purposes other than those of a particular research study. It is data developed for some purpose other than for helping to solve the research problem at hand (Bell, 1997). This will comprise of literature related to analyzing the impact of budget on performance of small and medium enterprises in relation to the case study. Secondary data will be sourced because it yields more accurate information than obtained through primary data, and it is also cheaper.

3.8 DATA COLLECTION PROCEDURES

Upon receiving the University permission to carry out research, the area of study will be visited for purposes of familiarization. The researcher will seek permission from staff and once allowed to proceed with research, questionnaires will be issued and an interview will be carried out with the selected staff.

3.9 QUALITY CONTROL OF DATA INSTRUMENTS

The instrument will be taken to the supervisor to check its correctness there after pilot study will be carried out to find out if it measures what it is meant for.

3.10 DATA PROCESSING AND ANALYSIS

The raw data will be coded, edited, and arranged ready for analyzing only completed raw data will be analyzed using statistical tables and graphs.

3.11 LIMITATIONS OF THE STUDY

Financial constraint, this is in terms of financial support for transport, printing questionnaires among other requirements that require finance. However this shall be overcome by soliciting money from friends, relatives and sponsors which will assist in making my work a success.

Respondents may delay in filling the questionnaire and fear to give information, but they will be persuaded that the information will be kept secret.

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