THE INFLUENCE OF FINANCIAL MANAGEMENT ON THE PERFORMANCE OF

SMALL SCALE BUSINESSES

Case of: Kibindi Farm Project Masaka District

BY

A RESEARCH REPORT SUBMITTED TO UGANDA MARTYRS UNIVERSITY NKOZI

IN PARTIAL FULFILMENT FOR THE AWARD OF A DEGREE

IN BUSINESS ADMINISTRATION AND

MANAGEMENT

JUNE – 2014

TABLE OF CONTENETS

ABBREVIATIONS

PEST : Political Economic Social Technological

SWOT : Strength Weaknesses Opportunities Threats

NAADS : National Agricultural Advisory Services

BOU : Bank of Uganda

SEDA : SEDA

IV : Independent Variable

DV : Dependent Variable

MPT : Modern Portfolio Theory

SPSS : Special Package for Social Sciences

IIA : Institute of Internal Auditing

SWAP : SWAP

CVI : Content Valid Index

Abstract

The research study was, “The influence of financial management on performance of small scale

businesses”, Kibindi Farm Project as the case study-Masaka district. The purpose of the study

was to examine the effect of financial planning on performance of Kibindi Farm Project, to

establish the influence of financial control and performance of Kibindi Farm Project and

establishing the relationship between financial decision making and performance of Kibindi

Farm Project.

The researcher used both primary and secondary data sources while collecting data for the study.

Using primary data: questionnaires, interviews and documentary analysis were used plus

studying the existing secondary data as the main tools used.

It was established that there is poor financial planning evident of absence of financial statements

because they are not prepared: income statement and statement of financial position among

others despite the fact that there is a special finance manager .Although budgets are drafted,

expenditure still exceeded the estimated income to use in various departments basing on findings

Basing on the findings still, there is need for even female individuals to actively participate in

business activities since they were very few, there is also need to sensitize and educate Kibindi

Farm Project to start preparing financial statements because it is a vital tool for success of any

business. Further studies are recommended to investigate on the influence of other variables such

as the level of education on business performance other than financial management.

CHAPTER ONE

INTRODUCTION

1.1 Introduction

The chapter presents the concepts of financial management in small scale businesses financial

performance. It specifically deals with the background of the study, statement of the problem,

general objective, specific objectives, research questions, scope of the study, justification, and

significance of the study, conceptual framework, limitations and lastly a conclusion will be made

for the whole chapter.

1.2 Background of the study

Financial management means analyzing, planning and controlling the financial performances of

the firm. Regardless of the size and the property form, financial management is mostly

responsible for the financial policy adopted at the micro -economic level, which is to be enforced

in order to achieve the objectives established by t he owners and/or the managers of the financial

resources. The role of the financial management is to create a system of managerial reports in

order to efficiently develop the business. This system has two major elements: economic analysis

and budgets. It is highly important to implement a system of financial management, represented

by all the internal reports adapted to the managing team’s requests.

According to Armstrong (2002) financial management entails planning for the future of a person

or an organization to ensure a positive cash flow. It includes the administration and maintenance

of financial assets. Besides, financial management covers the process of identifying and

managing risks. Financial management is the management of the finances of an organization in

order to achieve financial objectives (Musgrave, 2009).The key objectives of financial

management are to create wealth for the business, generate cash, and provide an adequate return

on investment bearing in mind the risks that the business is taking and the resources invested.

Therefore, managements need to ensure that enough funding is available at the right time to meet

the needs of the organization. Planning the activities of an organization ensures that the

organization sets out in the right direction (Opiela, 2002). Without a formalized plan the

organization will lack direction and management will not be aware of their targets and

responsibilities. Therefore, a formalized financial plan and discipline will help to ensure a

coordinated approach and the planning process itself will force management to continually think

ahead, planning and reviewing their activities in advance (Shelley, 2001). According to Roe

(2004), if the organization has started out in the right direction but to ensure that it continues on

course it is the management’s responsibility to exercise control and monitoring. Appropriate

action can then be taken to correct any deviations from the plan. Therefore, for any organization

planning and control should go hand in hand (Shelley, 2001).

According to Kameri-Mbote (2005) financial management entails planning for the future of a

person or an organization to ensure a positive cash flow. It includes the administration and

maintenance of financial assets. Besides, financial management covers the process of identifying

and managing risks. Financial management is the management of the finances of an organization

in order to achieve financial objectives (Magnay, 2005). The key objectives of financial

management are to create wealth for the business, generate cash, and provide an adequate return

on investment bearing in mind the risks that the business is taking and the resources invested.

Therefore, managements need to ensure that enough funding is available at the right time to meet

the needs of the organization. Planning the activities of an organization ensures that the

organization sets out in the right direction (Opiela, 2002). Without a formalized plan the

organization will lack direction and management will not be aware of their targets and

responsibilities. Therefore, a formalized financial plan and discipline will help to ensure a

coordinated approach and the planning process itself will force management to continually think

ahead, planning and reviewing their activities in advance (Shelley, 2001). According to Roe

(2004), if the organization has started out in the right direction but to ensure that it continues on

course it is the management’s responsibility to exercise control and monitoring. Appropriate

action can then be taken to correct any deviations from the plan. Therefore, for any organization

planning and control should go hand in hand (Shelley, 2001).

According to Ross, et al (2008) financial management refers to the ways finances of a business

are managed or handled .But technically stated, financial management means planning,

organizing, directing and controlling the financial activities of an enterprise. To Koontz, et al

(2004), financial performance is where an organization is able to achieve their stated goals and

objectives, by being able to perform as per the work plan. Like any public organization, Koontz

and Weihrich (2004) also observe that to a greater extent, every organization is faced with the

inflexibilities of the political climate existing at any given time and as such causes significant

effect on financial performance of the organization. Therefore, participatory financial

management is a process where all staffs are engaged in determination of expenditure and

revenue mandates of the organization at different stages and levels in the planning and budgeting

cycle.

Hodge (2008) says that the performance of small scale businesses is a fundamental feature for

small scale businesses’ survival and sustainability where performance factors like budgeting,

financial reporting plus financial statements and saving are found to spur business expansion

hence being a key aspect of management of businesses.

Keizer, et al (2002) affirms that, the impact of financial management on the performance of

small scale businesses is both direct and indirect. It is upon this background that the study seeks

to analyze the factors influencing the financial performance of small scale businesses with major

focus on financial management as a key factor. Financial management is seen in the investment

and financial decisions that are usually made by the finance managers in the accounting

department of the organization. Therefore in this study financial management will mean a

mechanism of handling and controlling funds of an organization and indicated by budgeting.

Small scale businesses cover a broad range of areas and predominantly small enterprises in

which the case study is inclusive: Kibindi Farm Project. According to the bank of Uganda sector

report (2009) small scale businesses contribute to the economic development through job

creation, innovation and the competitive disciplining of markets. This is a justification why

developed, developing and emerging economies like Uganda have continued to recognize small

scale businesses as a major economic entity and their performance, an opportunity for

accelerating the country’s sustainable economic growth.

According to the global entrepreneurship monitor report (2004) over one in every three adult

Ugandans was engaged in one form of business. The report further posts that these businesses do

not live for long and for almost 35% of the small scale businesses close, about 37% start new

businesses again.

Kibindi Farm Project is a piggery project established in 2007 initially with three pigs: two

females and one male pig. It is located in Masaka district, Kibindi village in Buwunga sub

county, five kilo meters away from Masaka town. The farm faces challenges like inadequacy of

funds, high staff turn over and poor financial management which are making it hard to attain its

goals.

1.3Problem statement

Despite efforts by government and other donor agencies to provide support to small scale

businesses in order to attain sustainable financial performance through different government

programmes like the NAADS, there has been little improvement in financial performance of

many small scale businesses (BOU Report, 2009). Kibindi Farm Project as a case study, the

deterioration of financial performance may be explained by a number of factors: inadequate

generation of revenue, over expenditure of budgetary allocations, illegal payments, failure to

account for funds, lack of value for money in the project financial undertakings. This has

resulted into reducing profits, reducing sales growth, reducing market share, low return on

investment and low value for money which makes it less competitive on both local and

international markets (SEDA Uganda, 2010). According to Bhatia (2003) through proper

financial management there will be capital accumulation leading to investments, efficient and

economic use of funds that uphold the performance of a business.

1.4 General objective

To find out the influence of financial management on the performance of Kibindi Farm Project

1.5 Specific objectives

i) To examine the effect of financial planning on performance of Kibindi Farm Project

ii) To establish the influence of financial control on performance of Kibindi Farm Project.

iii) To establish the relationship between financial decision making and performance of

Kibindi Farm Project

1.6Research questions

(i) What are the effects of financial planning on performance of Kibindi Farm Project?

(ii) What is the influence of financial control on performance of Kibindi Farm Project?

(iii) What is the relationship between financial decision making and performance of Kibindi

Farm Project?

1.7 Scope of the study

1.6.1 Area scope

The study was carried out in Kibindi Farm Project in Masaka district. This is the area from where

the data needed was collected to accomplish the study.

1.6.2 Subject scope

The study focused on establishing the effect of financial management as the independent variable

(IV) and service financial performance as the dependent variable (DP).

1.6.3 Time scope

The study took a time scope of three years between 2009 and 2012 because this is the period

when the project realized poor financial performance.

1.8 Justification

The findings of the study might offer critical data to foster the response and the Kibindi Farm

Project authorities may be encouraged to improve on financial management.

The study might help to point out the role of financial management on the financial performance

of small scale businesses and also extension of knowledge on financial matters.

It is also a university requirement to be awarded a degree of Bachelors of business administration

and management.

1.9 Significance of the study

In simple terms, the study is hoped to highlight to the researcher about the influence of financial

management in small scale businesses financial performance.

The study may inspire other scholars to undertake research about financial management in other

organizations like banks, MTN and others.

1.10 Conceptual framework

Fig. 1: Conceptual framework showing the relationship between financial management and

performance

Financial Management (IV) Performance indicators (DV)

Financial Decision Making

Financial Control

Financial Planning

Moderating variables

Political Interference Rules & Regulations Legal Requirements

Improved liquidity Service delivery Resource

accumulation Reduced

embezzlement Improved working

capital

Source; Source: self constructed model, using the ideas suggested by Amin (2005)

According to the conceptual frame work above, financial management is considered as the

independent variable, and performance as the dependent variable. Moderating variables are the

factors that affect financial management. Moderating variables include political interference,

organizational rules and regulations and legal requirements. From the figure above, when all

factors under the independent variable are executed fully, and moderating factors are controlled

financial performance is evidenced with improved service delivery, resource accumulation,

reduced embezzlement and improved liquidity.

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction

This chapter is divided into four parts, namely, the Theoretical Review, the effect of financial

management on performance, association between financial management and performance and

the relationship between financial management and performance. This was done in line with the

study objectives and questions.

2.2 Theoretical Review

Literature reviewed was based on Modern portfolio theory (MPT) developed by Harry

Markowitz in the 1950s through the early 1970s and was considered an important advance in the

mathematical modeling of finance. Since then, many theoretical and practical criticisms have

been leveled against it. These include the fact that financial returns do not follow any symmetric

distribution, and that correlations between revenue are not fixed but can vary depending on

external events (especially in crises).

Modern portfolio theory of finance planning attempts to maximize portfolio expected revenue for

a given amount of sources, or equivalently minimize risk for a given level of expected revenue,

by carefully designing financial control mechanisms.

Portfolio theory provides a context for understanding the interactions of systematic risk and

revenue. It has shaped how institutional portfolios are managed and motivated the use of passive

planning techniques. This is because different types of revenue sources often change and this

requires proper strategic planning. Diversification lowers risk even if revenue or returns are not

negatively correlated indeed, even if they are positively correlated.

Portfolio theory was adopted for this study because it is based on three basic financial planning

preparations:

Strategic planning which is concerned with preparing long-term action plans to attain the

organisation’s objectives.

Operational planning which is concerned with preparing the short- to medium-term plans

of the organisation

Budgetary planning which is also concerned with preparing the short- to medium-term

plans of the organisation.

More technically, MPT models an asset's return as a normally distributed function (or more

generally as distributed random), defines risk as the standard deviation of return, and models a

portfolio as a weighted combination of revenue sources, so that the return or revenue of a

portfolio is the weighted combination of the revenue. By combining different sources whose

returns or revenues are not perfectly positively correlated, MPT seeks to reduce the total

variance of the portfolio return and also assumes that investors are rational and markets are

efficient and these requires proper financial control mechanisms..

2.4 The effect of financial planning on performance

The longer the effect of a plan and the more difficult it is to reverse, the more strategic it is.

Therefore, strategic planning is concerned with decisions that have enduring effects that are

difficult to reverse (Esaete, 2003). Strategic planning is long-range planning. In general

strategic planning is concerned with the longest period of time worth considering” Strategic

“planning deals with the futurity of current decisions. It also looks at the alternative courses of

action that are open in the future; and when choices are made among the alternatives they

become the basis for making current decisions”. Strategic planning “is a process of deciding in

advance what kind of planning effort is to be undertaken, when it is to be done, who is going to

do it, and what will be done with the results”. “The more of an organisation’s activities that are

affected by a plan, the more strategic it is strategic planning is broad in scope planning at the

corporate level is generally more strategic than planning at any organisational level below it”.

Budgetary planning is concerned with preparing the short- to medium-term plans of the

organisation (World Bank, 2001). It will be carried out within the framework of the strategic

plan. An organisation’s annual budget could be seen as an interim step towards achieving the

long-term or strategic plan (Esaete, 2003). All organisations need to manage performance so

that their financial and strategic objectives are achieved and management and financial

stakeholders can be confident in the associated control processes. The proper construction and

control of budgets is central to this, to safeguard the organisation’s viability and the effective

delivery of its objectives (Faguet, 2000). This requires a comprehensive financial planning and

approval framework; consistent and rigorous processes for constructing budgets, both capital

and revenue; sound methodologies for assessing the financial impact of proposed expenditure;

compatibility with other management and performance data, and a control system that sets clear

responsibilities and produces prompt and accurate monitoring information on performance

against budgets (Work, 2002).

In his paper 'Decentralisation of governance', Villadsen (2000) asserts that given the power to

decide on what future they want to bring about, local governments can effectively budget and be

able to achieve their set objectives. Njuguna, (2001) mentioned that the town councils have little

control over the utilisation of funds received from the central government. He said that in 1994,

the ministry of education issued a policy guideline circular specifying how the town councils

should spend the grants and out of the 1,598 million sent to Rakai that year, only 502 million

(31%) were not specified. Given these conditionalities, local governments' discretionary powers

to allocate to their priority areas is greatly inhibited (Steffenson and Trollegaard 2003). They

also sighted lack of full devolution to local governments of the development budget hence

affecting their internal revenue performance.

In a more decentralised structure, managers are provided with greater decision-making

autonomy for planning and control, including matters relating to purchase of capital items,

pricing of product and services, and the hiring and firing of personnel. Dansereau et al. (1975)

argue that bosses often attempt to secure increased organisational commitment from

subordinates by providing them with greater discretion and influence (Wagaba, 2002). It is

argued that subordinates with high decision-making autonomy are likely to develop a greater

sense of responsibility through increased personal involvement in making decisions

(Villadsen&Lubanga, 2000). In turn, subordinates are expected to reciprocate by offering

organisationally desired contributions such as organisational commitment. Empirical findings

by Bateman and Strasser (1984) and Morris and Steers (1980) indicate positive correlations

between decentralised structure and organisational commitment. Likewise, Mathieu and Zajac

(1990) report a positive association between managers’ task autonomy (whereby managers hold

greater decision-making authority over their work tasks) and organisational commitment.

However, as discussed in the previous section, the size of the correlations or the strength of the

relationship between structure and organisational commitment varies considerably (Morrow,

1993).

“Decisions that are the province of strategic planning are those most important to the

organisation’s future”. “Strategic planning is the process of deciding on the objectives of the

organisation, on changes in those objectives, on the resources used to obtain these objectives”.

Strategic planning “(1) focuses on decision situations concerned with both internal and external

environments of the organisation; (2) recognises the concept and importance of positive

acceptance from stakeholder groups; and (3) accepts the inevitability of rapid change in a

complex external environment”. Strategic planning “is applicable to any situation as long as: it

is directly related to overall organisational purposes; it is future-oriented; it significantly

involves uncontrollable environmental forces that affect organisational performance”. In

summary, “strategic planning is the process by which an organisation envisions its future and

develops the necessary procedures and operations to achieve that future...It requires the clear

setting of goals and objectives [which] provide the organisation with its core priorities and a set

of guidelines for virtually all day-to-day managerial decisions”.

Pollitt & Putnam (1998) says that, strategic planning starts with strategic objectives. Objectives

indicate what management expects to accomplish, while planning sets forth how, when, where

and by whom the objectives will be attained. Strategic objectives give rise to strategic planning

maturities. These maturities reflect the scheduled points in time by which strategic objectives

are scheduled to be accomplished. In turn, strategic planning maturities are established within

planning horizons. Planning horizons represent spans of time over which the activities leading

to planning maturities will be accomplished, thereby culminating in the attainment of the

strategic objectives that constitute the foundation of the strategic plan. Strategic planning

maturities are important to management because of the need to have a continuous focus on the

end date for the completion of strategic objectives. Strategic planning horizons are important to

management because planning necessarily begins with the setting of strategic objectives at some

point in the future and works backwards through future time into present time. The futuristic

orientation of strategic objectives necessitates that management decide today what it intends to

accomplish tomorrow and to undertake what needs to be done between then and now to get

from here to there.

Strategic planning is concerned with preparing long-term action plans to attain the

organisation’s objectives. Strategic planning is also known as corporate planning or long-range

planning. Strategic planning and management entails the use of systematic approaches for

developing an organisation’s vision, mission, values, objectives, actions for achieving these

objective, performance measures, and allocating resources to implement the plans, monitoring,

evaluating and reporting on performance (Opiela, 2002). The corporate planning process is an

important aspect of any organisation. Further, the use of credible performance management

frameworks is an important aspect of this process. Survey results indicate that the practice of

preparing multi-year business/corporate plans has taken root in local governments (Pollitt &

Putnam, 1998). However, a review of the quality and diversity of performance measures used

by revenue bodies indicates wide variations, with many using a mix of output, process and few

outcome indicators to measure organisational performance (Robertson, 2002).

Also, the survey noted that local governments have established departments responsible for

periodic monitoring, evaluation and reporting on performance of corporate, operational, tactical,

and individual performance imperatives. Although, they had not adopted modern practices and

technology in monitoring, evaluation and reporting (Esaete, 2003).Internal revenue performance

in this case refers to how well or poorly local governments have managed to attain their set

financial objectives/targets, through actions taken to achieve them. With financial performance,

local governments' independency on self-generated revenue will be improved by granting local

governments autonomy to prepare and approve their own budgets (Ramani, 2001). Financial

performance is also indicated by improved quality of accountability, value for money and

transparency in the systems for the local governments with well-designed monitoring and

evaluation systems, through the Local Governments Act and the Local Government Financial

and Accounting Regulations (World Bank, 2002).

A variety of tools and techniques have been developed to help managers identify and deal with

strategic planning decisions (Ramanujam et al., 1986). These techniques help managers to

change valuable data into forms suitable for decision making and action (Fleisher and

Bensoussan, 2003). The benefits of these tools include: increasing awareness about the business

environment, strategic issues, opportunities and threats which helps reduce the risk involved in

making certain decisions; establishing priorities in large complex companies and providing a

framework for evaluating the relative importance of different business portfolios; and aiding the

presentation of complex issues. They may also be seen as a valuable communications device, in

addition to their analytical role (Frost, 2003). Webster et al. (1989) presented a set of 30

strategic planning tools and techniques. More recently, Lisinski and Aruckij (2006) identified

28 tools of strategic planning. However, not all these tools and techniques are used by firms

operating in the countries which have been surveyed to date.

Most of the empirical studies reporting tool usage have been as part of studies of strategic

planning processes. A few studies have investigated the use of strategic planning tools and

techniques exclusively. For instance, a recent study of a range of organisations in one region of

the UK found that three tools – SWOT, bench marking and critical success factor analysis –

were used more extensively than any other (Gunn and Williams, 2007). Al Ghamdi (2005)

investigated the use of strategic planning tools and techniques in Saudi Arabian organisations.

He found that 10 per cent of organisations used tools and techniques regularly. The most

regularly used tool was analysis of critical success factors, followed by benchmarking, and then

“what-if” analysis, while SWOT analysis, product life cycle, and stakeholder analysis were used

only moderately. Experience curve, portfolio analysis, value chain analysis, Delphi, cognitive

mapping and Porter's five forces analysis were found to be the least used tools.

A study of Egyptian companies (Elbanna, 2007) reported that the most commonly used tools

were pro forma financial statements, cost-benefit analysis, portfolio analysis, benchmarking,

SWOT analysis, competitor analysis, analysis of critical success factors, gap analysis and

product life-cycle analysis. Less commonly used were experience curve analysis, value chain

analysis, Porter's five forces analysis, PEST analysis, balanced scorecard and cognitive

mapping.

Aldehayyat and Anchor (2008) investigated the use of strategic planning tools and techniques in

Jordanian companies which were quoted on the Amman Stock Exchange. The main findings of

this study are that the most used techniques by Jordanian companies are financial analysis (for

own business), PEST or STEP analysis, Porter's five forces analysis and analysis of key

(critical) success factors; that the managers of these companies had an awareness of most of the

techniques surveyed and that the use of strategic planning tools and techniques related more to

the size of company and less to the age or nature of the business.

2.5 The influence of financial control on performance

Historically, internal audit has been considered as a control function, the “organizational

policeman and watchdog” (Morgan, 1979), tolerated as a necessary component of organizational

control but deemed subservient to the achievement of major corporate objectives. However,

Institute of Internal Auditors, (IIA, 1991; Taylor and Glezen, 1991; Konrath, 1996) defines

internal auditing as “an independent appraisal function, established within an organization to

examine and evaluate its activities as a service to the organization”. By measuring and evaluating

the effectiveness of organizational controls, internal auditing, itself, is an important financial

control device (Carmichael et al., 1996), which is directly linked to the organizational structure

and the general rules of the business (Cai, 1997). Cook and Wincle (1976) argue that, the

Internal Control System resembles the human nervous system which is spread throughout the

business carrying orders and reactions to and from the management.

According to Cook and Wincle (1976), the l Control System resembles the human nervous

system which is spread throughout the business carrying orders and reactions to and from the

management. In this concept, by measuring and evaluating the effectiveness of organizational

controls, internal auditing, itself, is an important managerial control device (Carmichael et al.,

1996), which is directly linked to the organizational structure and the general rules of the

business (Cai, 1997). In today’s business environment internal auditor is now providing

management with a far broader range of information concerning the organization’s financial,

management and compliance activities to improve effectiveness, efficiency, and economy of

management performance and activities (Rezaee, 1996).

The financial control moves within a greater scope of management philosophy and of practical

application, and adds up value, offering at the same time a systematic scientific approach on the

assessment and the improvement of the effectiveness of a business’s financial position

(Papadatou, 2005; Karagiorgos et. al, 2006).

Financial control activity is primarily directed at improving financial performance. Framework,

financial control is broadly defined as a process, affected by an entity's board of directors,

management, and other personnel, designed to provide reasonable assurance regarding the

achievement of financial objectives in the following internal control categories:

Effectiveness and efficiency of financial operations.

Reliability of financial reporting.

Compliance with laws and regulations.

Management is responsible for internal control. Managers establish policies and processes to

help the organization achieve specific objectives in each of these categories. Internal auditors

perform audits to evaluate whether the policies and processes are designed and operating

effectively and provide recommendations for improvement (Nagy and Cenker, 2002; Goodwin,

2004, Karagiorgos et. al, 2007).

Tension is emerging between firm highly control system and the centrally driven SWAP

processes where service delivery targets have been established at the company level. This has

been combined with excessive and increasing central control over finance through a large

number of tightly earmarked controls. Despite the attempts by firm to increase central control

there remains wide variations in performance of firm, even with similar resource endowments.

The focus on central control has actually distracted attention from the need firm controls and

systems for accountability in the delivery of services.

The planning and budgeting processes are explicitly results-oriented. The firm set objectives, and

identify outputs and activities to be carried out over the next three years (taking into account

national targets where they exist). The quality of the analysis behind the use of performance

indicators has improved, although the use of indicators is often confused. Many firms have

identified a fairly comprehensive set of activity/output level targets, linked to resource

allocations.

In financial control is a very crucial element. Pickett (2009a) states that financial controls are put

in place to keep the company on course toward profitability goals and the achievement of its

mission, and to minimize surprises along the way. They enable management to deal with rapidly

changing economic and competitive environments, shifting customer demands and priorities, and

restructuring for future growth. Financial controls promote efficiency, reduce risk of asset loss,

and help ensure the reliability of financial statements and compliance with laws and regulations.

Because financial control serves many important purposes, there are increasing calls for better

financial control systems and report cards on them. Financial control is viewed more and more as

a solution to a variety of potential financial management problems.

According to Moeller (2009), financial control comprises the plan of organization and all of the

coordinate methods and measures adopted by a business to safeguard its assets, check the

accuracy and reliability of its accounting data, promote operational efficiency, and encourage

adherence to set financial l policies. Cascarino and Van Esch (2009) states that, financial control

is any action taken by management to increase the likelihood that an organization’s financial

objectives and goals will be achieved.

2.6 The relationship between financial decision making and performance

Complex financial disclosures as an ultimate responsibility for the integrity of organization’s

financial disclosure make it a challenge for internal audit to identify if there are discrepancies in

organization’s financial statements (Roth, 2010). It also becomes a big challenge to confirm

whether they are abiding by the financial reporting standards, verify whether sufficient controls

are in place, and affirm whether all stakeholders have sufficient information to make informed

financial decisions that result into improved performance.

Risk is an integral part of any endeavor. The risk management unit and the risk management

committee are responsible for risk management financial decisions, but it is the management task

to ensure that the risk management program works (Stern, 2010). An effective financial

decisions system depends on the ability to build process cycles against an accurate matrix of

assessed risk. However, given the dynamic regulatory environment and the complex inter-

connectedness of business functionalities, it is often extremely difficult to assess the versatile

nature of organization’s risk and to make appropriate financial decisions that affect performance.

It is now generally accepted that the correlation between financial decisions making and

financial performance affects all kinds of economic activities and that the perceived implications

and consequences of this interaction have changed considerably in the recent years. Financial

decisions making and financial performance have now become a matter of major public concern.

In this concept, decision making improves performance, and is a source of competitive

advantage (International Conference on Economic and Business Issues, New Delhi, India, 2009).

The contribution of financial decision making to financial performance is depicted via

demarcating the relationship between financial decisions and key elements of performance. In

this concept, it is a fact that the Board of Directors has been recognized as the key player in

financial performance by regulators and governance committees around the world (US Congress,

2002; ASX, 2003). The new definition of financial decisions focus on corporate governance,

especially the Board of Directors. This definition emphasizes internals’ audit role in aiding the

entity to achieve its objectives of the fact of the Board of Directors (Cohen et. al., 2002).

Papadatou, 2005; Karagiorgos et. al, 2006 observed that, based on the financial decision making

committee, on the one hand decisions making contributes to financial performance by:

Bringing best practice ideas about internal financial controls and financial risk management

processes to the decisions making committee, providing information about any fraudulent

activities or irregularities (Rezaee and Lander, 1993), conducting annual audits and reporting the

results to the audit committee encouraging the committee to conduct periodic reviews of its

activities and practices compared with current best practices to ensure that its activities are

constituent with leading practices (Sawyer, 2003).

2.7. Conclusion

From the above literature it is clear, that financial management through financial planning,

decision making, and control develops ever-new approaches to manage finance, and helps fulfill

increasingly more complex demands that management nowadays faces in managing finance.

Related to that, it can be expected that financial management policy will be increasingly oriented

towards advising the management on efficient financial performance.

CHAPTER THREE

METHODOLOGY

3.1 Introduction

The primary purpose of this study was to establish the influence of financial management

towards performance in Kibindi Farm Project Masaka District. This chapter deals with the

methods and procedures of data collection and analysis on the subject matter above. It shows the

research design, population of study, sample size and sampling techniques, data collection

instruments, testing validity and reliability of the instruments, research procedure and methods of

data analysis.

3.2 Research design

The study employed both descriptive and correlation research designs. These were used because

the research was both qualitative and quantitative in nature. Crain (1985) argues, research on

behavioral aspects is rather descriptive in nature thus needs to employ much of the qualitative

technique. Descriptive research design was employed on objective one to analyze data on

corporate planning towards internal revenue performancewhile objective two and three the

researcher employed correlation research design to analyze therelationship between operational

planning and internal revenue performance. The qualitative approach suited this investigation

because it is a process meant to understand social phenomena based on methodological tradition

of inquiry that explores social and human problems and practices related to financial planning

(Creswell, 1998). The study also took on quantitative research orientation. This is because the

relationship between financial planning and internal revenue performance were measured

quantitatively. Appropriate statistical techniques and simple quantitative tools like frequencies,

percentages and Pearson correlation with the help of SPSS were used.

3.3 Study population

Although the targeted population was eighteen, the study mainly involved the categories of

people who were consulted by the researcher during the investigations, especially the employees,

mangers, and Board of Directors because they are the key implementers of financial management

policies. The study population comprised of employees, General Manager, farm manager,

finance manager, Board of Directors. It is from this population that a sample was drawn.

3.4 Area of study

The study was carried out from Kibindi Farm Project Masaka district in the central region of Uganda. The area was selected because it has many small scale businesses with poor financial management policies.

3.5 Sample size and selection

Category Population

Sample size Sampling technique

Manager 03 03 Purposive

Board of Directors 05 05 Purposive

Employees, 10 10 Purposive

Total 18 18

According to Amin (2005) a sample refers to the selected elements from a population in such a

way that the sample elements selected represent the population. Therefore since the targeted

population was eighteen, the researcher took a sample of all respondents; group them into three:

10 employees, 01 general manger, 01 farm manager, 01 finance manager, 05 Board of Directors

from Kibindi Farm Project were selected purposively

3.6 Sampling Procedures

Amin (2005) and Odiya (2009) define sampling procedures as a process of choosing the units of

the target population which are to be included in the study. This is helpful because a holistic

coverage of the population is impossible given resources constraints. Therefore since the targeted

population was eighteen, the researcher took the entire population as a sample. 10 employees, 01

general manger, 01 farm manager, 01 finance manager, 05 Board of Directors from Kibindi

Farm Project. This enabled the researcher to choose a member from each of the groups to

represent others. This made data collection easy and time saving.

3.6 Sampling techniques

Sampling refers to the process of selecting elements of population in such a way that the sample

elements selected represent the population (Odiya, 2009). The sampling techniques used for this

study included purposive and simple random sampling techniques. The purposive sampling

method was used because Kombo, et al., (2006) argues that, purposive sampling has enormous

power of selecting information rich for in-depth analysis. The random sampling population was

finally reached using Morgan (1970)’s table as shown from appendix III.

3.7 Methods of data collection

The researcher used both primary and secondary data sources while collecting data for the study.

Using primary data: questionnaires, interviews and documentary analysis were used plus

studying the existing secondary data as the main tools used.

3.7 .1 Questionnaires

A questionnaire is a research instrument that contains a set of questions on defined issues under

study that are put to respondents for answering on a self-administered basis (Saunders, et al.,

2007). This was used to collect data from other staffs, given that they were somehow many in

numbers that it could take much time to interview them one-by-one. The instrument used

contained mostly closed-ended questions. The questionnaire was used because it was easy to

apply as most respondents ware educated and could fill in the questions easily or with little

guidance at their convenient time.

3.7 .2 Interviewing

An interview guide is a research instrument that contains a set of questions on defined issues

under study that are put to respondents on face to face basis (Saunders, et al., 2007). Some data

were collected using interview guide, interviews were held with the General Manager and

Finance officers. The interview guide contained mostly open-ended question. The instrument

was used for the study because some sections of the study respondents had more financial

information that could not be fully captured using a questionnaire and to get in depth information

the interview was the most appropriate.

3.8.3 Secondary data (Documentary analysis)

Documentary analysis was based on the little budgets prepared since there were no formal

financial statements and reports since 2009-2012, Auditor Reports and Project financial reports

being prepared.

3.9 Data management and analysis

The study was more of qualitative than quantitative although the researcher used both

approaches. The method of data analysis used for the qualitative data meant to derive and

interpret meanings and implications in relation to the main objective.

Reliable information was collected by the researcher regarding the influence of financial

management on the performance of small scale businesses-Kibindi Farm Project. The impact of

financial management is the independent variable while financial performance of small scale

businesses was the dependent variable .Therefore financial management provided information

that was relevant to the small scale business and this greatly influences performance.

3.9 Reliability and validity

3.9.1 Reliability

According to Trochim (2005) Reliability has to do with the quality of measurement. In its

everyday sense, reliability is the “consistency” or “repeatability of your measures. A pilot study

was done on 10 staffs of Kibindi Farm Project in order to ascertain those items in the instruments

that seemed to be vague. It was very difficult to find out whether the respondents were telling

the whole truth about the influence of financial management towards financial performance. The

respondents may have not given the whole truth for fear of being dismissed from their respective

jobs. The instruments were piloted to these selected people so as to establish the internal

reliability of the instrument. And because items of the questionnaire were multiple response

items that is Likert scale, the reliability of the instrument were established by calculating the

Chronbach’s alpha coefficient at the appendix. The instrument was considered good for research

purposes because the reliability was found more than 0.60 (Odiya, 2009).

Chronibach’s alpha coefficient; α = _ k _ X [(SD 2 - ∑SD i2 ]

(k - 1) SD2

Where:

k = number of items in the instrument (41)

SD = standard deviation of scores in the whole instrument

SDi = standard deviation of scores on individual items

α = 41 X 0.579 = 0.593

(41-1)

Since α was 0.6 then this implies that the instruments were 60% reliable

3.9.2 Validity

Validity in research means measuring what one intends to measure. To establish the validity of

the instruments, the researcher used expert judgement as recommended by Gay (1997) as the

best method for ensuring reliability.Concerning validity I set out to measure the influence of

financial planning towards internal revenue performance. The validity of the questionnaire was

tested using the content validity Index (CVI). The researcher with the help of supervisor used

the Content Valid Index (CVI) which is a scale developed by computing or rating the relevant

items in the instrument or questionnaire by checking their clarity.

Since CVI was 0.78 then this implies that the instruments were 0.78% good for the research

purpose

3.9.3 Data Analysis

After collecting the questionnaires, the researcher carried out central editing to check the

questionnaire for obvious errors such as wrong entry, missing or inappropriate replies and

contacted the respondents for clarifications where necessary. Data from the field was compiled,

sorted, edited and coded to have the required quality, accuracy and completeness. This was then

entered into the computer using the Statistical Package for Social Sciences (SPSS v. 17.0) for

analysis. The data was analyzed according to the research objectives. For the sample

characteristics, descriptive statistics such as frequency tabulations was used and for the analysis

of the objectives, analytical methods such as, Pearson correlation matrix was used. The

researcher used the Pearson correlation matrix to test the relationships between the independent

and dependent variables.

3.10 Ethical considerations

The researcher sought approved consent from the respondents and explained to them that the

main purpose of the research was purely academic before engaging them in the study. It was

possible that the researcher’s views could influence the way the study findings would be

documented thus creating an ethical dilemma of failure to present exactly what the study subjects

would reveal in the course of the study interviews. However, the prepared instruments helped the

researcher to collect objective data hence fears of personal views was reduced.

3.11 Conclusion

The chapter introduced the concept of research design, sampling design , data collection,

measurement scales, reliability of the research instrument, data processing and analysis and

limitations of the study which formed the research methodology. The next chapter introduces

presentation and interpretation of the study results.

CHAPTER FOUR

DATA ANALYSIS, INTERPRETATION, AND PRESENTATION

4.1 Introduction

This chapter presents a detailed description of the results which were obtained from the field.

These were trying to examine the relationship between financial management and performance

of small scale businesses, with Kibindi Farm Project as the case study. The collected data was

interpreted and analyzed using qualitative and quantitative data analysis methods whereby

quantitative data was analyzed using statistical technique. Data analysis was done following

objective by objective.

4.2 Summary of methodology

Tables, pie charts as well as simple bar graphs were used because they summarize a lot of

information in a small space yet easy to understand: people can interpret the information quickly.

The target population was 18 employees and the whole number of 18 respondents was purposely

selected.

4.3 Background information of respondents

4.3.1 Age bracket of respondents

Table 4.3 1: Age bracket of respondents

Age Frequency Percentage

18-25 6 33.3%

26-30 5 27.8%

31-35 4 22.2%

Above 35 3 16.7%

Total 18 100%

Source: raw data from respondents

Table 4.3.1 above shows that, 33.3% of the respondents are aged between 18-25 years, 27.8%

were between 26-30, and 22.2% were between 31-35 whereas only 16.7% were above 30 years

of age. This implies that, majority of the respondents were still young and energetic to work and

could work more to improve of financial performance of the company.

4.3.1 Gender of respondents

Pie chart 4.3.1: Gender of respondents

The results on the pie chart below revealed that, male respondents were 10 (55.6%) as compared

to their female counterparts who were 8 (44.4%).This implies that, a bigger percentage of

respondents at the project are of male employees.

4.3.3 Education level of respondents

Table 4.3.3: Level of education

Level Frequency Percentage

Primary 1 5.6%

Secondary 6 33.3%

Certificate 5 27.8%

Diploma 2 11.1%

Degree - -

Masters - -

PhD - -

No level 4 22.2%

Total 18 100%

Source: raw data from respondents

According to the tabulated data in table 4.3.3, only 11.1% of the employees have diplomas,

27.8% have certificates, 33.3% were secondary leavers while 5.6% were primary leavers yet

22.2% had no education level.

4.3.4: Experience in the project

Table 4.3.4: Experience in the project

Period Frequency Percentage

Less than 2 years 2 11.1%

2-3 years 2 11.1%

4-5 years 5 27.8%

6-10 years 9 50

Above 10 years - -

Total 18 100%

56%

44%

Male Female

Source: raw data from respondents

Following the results above, 50% of the respondents have spent between 6-10 years, 27.8% have

spent between 4-5 years, 11.1% have spent between 2-3 years, 11.1% too have spent less than 2

years yet no one has spent above 10 years, which was explained to be of the fact that the farm

has only existed for 7 years. The 50% represents that majority of the employees have spent much

time serving the organization which implied that they were capable of having almost all the

necessary information that the researcher needed for research.

Table 4.3.5: Area of responsibility

Table 4.3.5: Area of responsibility

Responsibilities Frequency Percentage

Owner 9 50%

General manager 3 16.7%

Employees 6 33.3%

Totals 18 100%

Source: raw data from respondents

Following the research findings, results from the 18 respondents showed that much of the work

is done by the owners and employees. This is evident in the 50% respondents as owners and

33.3% of employees. A few small scale businesses have general managers and this is equivalent

to 16.7% of Kibindi Farm Project. This is an indication that there is no clear division of labor and

responsibility in the farm since the scope of work is relatively small.

4.4 Objective 1: To examine the effect of financial planning on performance of Kibindi

Farm Project

In order to effectively find out the effects of financial planning on performance of small scale

businesses with Kibindi Farm Project as the case study, specific questions in line with the

research objectives were designed.

4.4.1 Preparation of financial statements

Table 4.4.1: Preparation of financial statements

Responses There is proper planning

and record keeping

Financial statements are

always prepared

Frequencies Percentage Frequencies Percentages

True 7 38.9% 4 22.2%

Very true 2 11.1% - -

Neutral 4 22.2% 7 38.9%

Untrue 4 22.2% 1 56%

Very untrue 1 5.6% 6 33.3%

Total 18 100% 18 100%

Source: raw data from respondents

Table 4.4.1 revealed that, out of the 18 respondents, 7 (38.9%) accepted that, there is proper

financial planning and record keeping, 2 (11.1%) say it is very true, 4 (22.25) are neutral,

4(22.2%) say it is untrue yet 5.6% say it is very untrue. This indicates that financial management

plan contributes to financial performance of Kibindi Farm Project.

In order to find out whether financial statements are always prepared, 22.2% said it is true,

38.9% were neutral, 5.6% said it is untrue financial statements are not always prepared yet

33.3% said it is very untrue about the preparation of the statements in the project. This implies

that the small scale business’ perception of financial statement preparation is not so clear. There

are no formalized income statements and balance sheets being prepared. This was further

evidenced by the research question that required establishing whether the financial plan and

books of accounts are maintained to keep track of the expenditures.

Additionally, concerning expenditure, it was still found out that the expenditure of the project is

limited to what was approved in the financial management plan.50% agreed, 22.2% strongly

agreed yet 27.8% strongly disagreed. This was derived from the analysis that was carried out by

the researcher.

To find out whether the financial management plan properly operates, it was revealed that there

are cases of departments spending more than what was approved in the budget.55.6% agreed on

the presence of those cases, 27.7% disagreed yet 16.7% strongly disagreed. Comparing the

percentages, it can be concluded that sometimes expenditures exceed income in some

departments which might be as a result of poor financial planning or poor finance management.

Table 4.4.2: Whether there is a special finance manager

Response Frequency Percentage Cumulative

percentages

True 10 55.6% 55.6%

Untrue 8 44.4% 100%

Total 18 100%

Source: raw data from respondents

4.4.2: A pie chart showing whether there is a special finance manager

56%

44%

TRUE utrue

On whether there is a special finance manager the findings revealed that, 55.6% said there is a

special finance manager whereas 44.4% denied it.

According to John Conroy cited in Timothy S. Hatten (1997) page 463 said that one reason that

so many businesses run into cash flow problems is that too often no one is put in charge of it.

The idea of having one individual in firm responsible for cash management is also in order by

Leslin. Manonson, president of cash management resources and a leader of the American

management association’s corporate cash management course. He said that cash managers

should get help from financial survey individuals, knowledgeable professionals, bankers or

colleagues in the financial profession. They should attend regional cash management seminar,

read industry magazines and books on cash management.

Table 4.4.3: Authorization of purchase

Responses Frequency Percentage

Disagree 4 22.2%

Strongly agree 9 50%

Agree 5 27.8%

Total 18 100%

Source: raw data from respondent

4.4.3: A pie chart showing authorization of purchase

22%

28%

50%

disagree agree strongly agree

In testing adherence to established procedures, table 4.4.3 above established whether

authorization of purchase and all reallocation of funds go through established procedures and the

following results were established. The biggest percentage 50% strongly agreed and

acknowledged the manager’s role in authorizing any purchase which is an indication of strong

internal controls which are meant to ensure that the business funds are spent according to the

intended desired goal. Only 22.2% were in disagreement and 27.8% agreed.

In conclusion therefore, it can be concluded that Kibindi Farm Project’s failure to manage

finance is due to failure of preparing financial statements: income statement and statement of

financial position. This is evident in table 4.4.1 above in which a bigger percentage (33.3%) of

respondents said it is very untrue when they were asked to establish whether financial statements

are always prepared.

In addition to the above, a question was asked to find out whether the financial management plan

properly operates, it was revealed that there are cases of departments spending more than what

was approved in the budget.55.6% agreed on the presence of those cases, 27.7% disagreed yet

16.7% strongly disagreed.

Budgetary planning is concerned with preparing the short- to medium-term plans of the

organisation (World Bank, 2001). It will be carried out within the framework of the strategic

plan. An organisation’s annual budget could be seen as an interim step towards achieving the

long-term or strategic plan according to Esaete (2003).But however it was deduced from the

analysis that Kibindi Farm Project does not always prepare financial statements in reference to

table 4.4.1 where 33.3% respondents agreed that it is very untrue when they were asked whether

financial statements are always prepared.

According to Steffenson and Trollegaard (2003) lack of full devolution to the development

budget and other financial statements affects internal revenue performance. This hence helps to

explain why financial management is a problem to the farm project.

In conclusion therefore, the farm should devote itself to preparation of financial statements as a

mean of managing finances properly at the project and strategically. And as supported by Opiela

(2002) who says that without a formalized plan the organization will lack direction and management

will not be aware of their targets and responsibilities.

4.5 Objective 2: To establish the influence of financial control on performance of Kibindi

Farm Project

Table 4.5.1: Whether staff understands how budgeting and financial performance operates

Responses Frequencies PercentageStrongly disagree 3 16.7%Disagree 4 22.2%Neutral - -Agree 8 44.4%Strongly agree 3 16.7%Total 18 100%

Source: raw data from respondents

A graph showing staff understands of budgeting and financial performance

Category 1

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00%

strongly disagree strongly agree neutral disagree agree

On whether staff understands how budgeting and financial performance operates , the findings

revealed that, out of the 18 respondents, 44.4% agreed that staff understands how budgeting and

financial performance operate, 22.2% disagreed, 16.7% strongly agreed while another 16.7%

also disagreed strongly.

Table 4.5.2: Cost control is essential for financial performance

Response Frequency PercentageAgree 6 33.3%Strongly agree 10 55.5%Disagree 1 5.6%Neutral 1 5.6%Total 18 100%

Source: raw data from respondents

4.5.2: A pie chart showing the usefulness of cost control

33%

55%

6%6%

agree strongly agree disagree neutral

The findings from table 4.5.2 above revealed that, cost control is essential for financial

performance and accountability of the project. This is evident of the 55.5% respondents who

strongly agreed, 33.3% agreed whereas 5.6%, 5.6% disagreed and remained neutral respectively.

Table 4.5.3: Whether the business makes budgets, an indicator of internal control

Responses Frequencies Percentage

Agree 5 27.8%Neutral 2 11.1%Strongly agree 11 61.1%Total 18 100%

Source: raw data from respondents

Whether the business makes budgets, as an indicator of internal control the finding revealed that,

61.1% of the respondents strongly acknowledged the need for budgeting, 27.8%agreed while

11.1% were neutral about the subject matter.

Table 4.5.4: Whether there is need to evaluate the financial management plan or budget.

Responses Frequencies PercentageStrongly disagree - -Disagree 1 5.6%Neutral 3 16.7%Agree 6 33.3%Strongly agree 8 44.4%Total 18 100%

Source: raw data from respondents

4.5.4 A bar graph showing the need to evaluate financial management plan

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

Disagree Neutral Agree Strongly agree strongly disagree

Source :raw data from respondents

The finding from table 4.5.4 above indicates that, it is of great importance to evaluate the

financial management plan or budget and that it has enhanced financial performance of the

project. This is supported by the biggest percentage of 44.4% of respondents who were strongly

in agreement,33.3% agreed and 16.7% plus the 5.6% were neutral and as well in disagreement

respectively.

Table 4.5.6: profitability and customer satisfaction

Responses The business has been making profits

Our products satisfy customers

Frequency Percentage Frequency PercentageStrongly disagree 3 16.7% - -Disagree 3 16.7% 5 27.8%Neutral - - 2 11.1%Strongly agree 5 27.8% 11 61.1%Agree 7 38.8% - -

Total 18 100% 18 100%Source: raw data from respondents

About whether the business has been making profits, 7 (38.8%) agreed, 5 (27.8%) strongly

agreed whereas 3 (16.7%) were strongly in disagreement .On the other hand, the employees

claimed that their products (pigs, piglets, manure and urine) satisfy customers. This is evident of

the 11 respondents (61.1%) who strongly agreed although 5 (27.8%) respondents disagreed.

However, the 2 respondents (11.1%) were neutral.

4.5.7: The project carries out auditing, an indicator of internal control

Responses Frequency Percentage

Disagree 9 50%

Neutral 5 27.8%

Agree 4 22.2%

Total 18 100%

Source: raw data from respondents

4.5.7A bar graph showing whether the project carries out auditing

disagree

neutral

agree

strongly disagree

strongly agree

0% 10% 20% 30% 40% 50% 60%

Column1

As tabulated above, it was revealed that Kibindi Farm Project does not carry out auditing. This is

because the biggest percentage of 50% disagreed, 27.8% were neutral whereas only 22.2%

agreed.

At the project, financial management is sometimes measured based on time management hence

financial management is determined by the results achieved in a given time period. This was

revealed during the interviews which the researcher conducted. The results were: 10 (55.5%) out

of the 18 respondents agreed, 6 (33.3%) disagreed while 2 (11.1%) strongly disagreed.

Still, it was found out that lack of budget or financial management plan participation by all

stakeholders affects financial performance negatively because the estimates cannot be

appropriate.9 out of the 18 respondents agreed, that is 50%.5 (27.8%) strongly agreed yet 3

(16.7%) disagreed. Also, budget financial management plan supervision is essential for the

effective and efficient financial performance of the project.

13 (72.2%) respondents out of the 18 respondents agreed that the project officials know the

factors that influence financial performance of the project, 3 (16.7%) were neutral yet the 2

(11.1%) strongly disagreed. It was still found out that evaluation, control and feedback are so

essential for financial performance.

According to Pickett (2009a) financial controls are put in place to keep the company on course

toward profitability goals and the achievement of its mission, and to minimize surpluses along

the way. They enable management to deal with rapidly changing economic and competitive

environments, shifting customer demands and priorities, and restructuring for future growth.

Correlations

1 .794 **

. .000

66 66

.794 **

.000 .66 66

Pearson Correlation

Sig. (2-tailed)N

Pearson CorrelationSig. (2-tailed)N

Financial decision making

Performance

Financial

Decisionl

Performance

t

Correlation is significant at the 0.01 level (2-tailed).**.

However, the project’s internal controls like budgets are rarely maintained at the farm. This is

evident of the results in table 4.5.3 although table 4.5.4 revealed that there is need for preparation

of budgets where 44.4% out of 18 respondents agreed strongly.

Concerning auditing as an indicator of internal control, it can be concluded that kibindi farm

project’s management does not appreciate the usefulness of auditing yet historically, internal

audit has been considered as a control function, the organizational policeman and watchdog by

Morgan (1979)

In conclusion there fore, the project needs to carry out auditing and prepare budgets always in

order to make it easy to trace the usage of funds.

4.5 Objective 3: To establish the relationship between financial decision making and

performance of Kibindi Farm Project.

4.6 The relationship between financial decision making and performance

Table 4.6.1 The relationship between financial decision making and performance

1

From the figure above, the two variables show that there is a high positive correlation co-

efficient (r) of (r = 0.794) 79.4 %. A change in financial decision making affects performance at

79.4 %. This implies that performance is highly influenced by the financial decision taken.

It is now generally accepted that the correlation between financial decisions making and

financial performance affects all kinds of economic activities and that the perceived implications

and consequences of this interaction have changed considerably in the recent years as supported

by Roth (2010). Financial decision making and financial performance have now become a matter

of major public concern. In this concept, decision making improves performance, and is a source

of competitive advantage. (International Conference on Economic and Business Issues, New

Delhi, India, 2009).

4.7 Conclusion

It can be concluded that says that without a formalized plan the organization will lack direction and

management will not be aware of their targets and responsibilities, the project needs to carry out

auditing and prepare budgets always as indicators of internal control an it is now generally

accepted that the correlation between financial decisions making and financial performance

affects all kinds of economic activities.

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Introduction

This chapter gives a summary, conclusion and recommendations of the study findings based on

the objectives as follow:

The purpose of the study was to establish the influence of financial management on performance

of small scale businesses, with Kibindi Farm Project as a case study. Therefore, the summary,

conclusion and recommendations were based on the major findings in chapter four.

5.2 Summary of the study findings

5.2.1 Objective 1

The first research question was: what is the effect of financial planning on the performance of

small scale businesses with Kibindi Farm Project as the researcher’s case study. This is

supported by the results in table 4.4.1.On the other hand, the research established that there are

mixed perceptions about the meaning of financial statements. There are no formalized income

statements and balance sheet being prepared. However at least some little budgets were

maintained.

In addition to the above, a question was asked to find out whether the financial management plan

properly operates, it was revealed that there are cases of departments spending more than what

was approved in the budget.55.6% agreed on the presence of those cases, 27.7% disagreed yet

16.7% strongly disagreed.

5.2.2 Objective 2

The second research question was: what is the influence of financial control on performance of

Kibindi Farm Project. Several questions were asked to find out whether the business makes

budgets and carries out auditing as indicators of internal controls. The findings were tabulated in

tables 4.5.3 and 4.5.7 respectively.

About budgeting, 11 (61.1%) strongly agreed that budgets are made though not always, 5

(27.8%) agreed whereas only 2 (11.1%) were neutral. On the other hand,9 out of 18 (50%)

respondents agreed that the project does not carry out auditing,4 (22.2%) agreed whereas 5

(27.8%) were neutral.

5.2.3 Objective 3

The third research question was to establish the relationship between financial decision making

and performance of Kibindi Farm Project. The calculation revealed that, there is a high positive

correlation co-efficient (r) of (r = 0.794) 79.4 %, then this means that there is a high relationship

between financial decision making and performance. This further implies that, a change in

financial decision making influence performance of Kibindi Farm project by 79.4 % hence

performance is affected by financial decision taken by 79.4% and 19.6% may be due to other

factors like quality of the product and skill of employees among others.

5.3 Conclusion

There are no formalized income statements and balance sheet being prepared. it was revealed

that there are cases of departments spending more than what was approved in the budget.it can

still be concluded that the project does not carry out auditing –an indicator of internal control yet

even the budgets are prepared irregularly. The calculation revealed that, there is a high positive

correlation co-efficient (r) of (r = 0.794) 79.4 %, then this means that there is a high relationship

between financial decision making and performance.

5.4 Recommendations

Small scale business owners should start preparing financial statements since these statements

are a vital tool to financial success as they can help to trace incomes and expenditure hence

monitoring financial performance.

The government should come in to organize seminars, workshops and sensitization programs to

train the various small scale business owners periodically on how to plan through preparing

financial accounting records this is because proper record keeping is a vital tool in tax

administration of which the government is a direct beneficiary.

There is also need to sensitize the women to get actively involved in the productive

entrepreneurial activities since research revealed that most the employees were men.

Business owners need to attend business management courses so that they improve on their

business administrative skills and performance.

5.5 Suggestions for further research

Other researchers need to carry out investigations trying to establish the relationship between

business performance and other variables such as education levels, gender, and the role of formal

education on business performance or on job creation, where research has not been exhaustively

carried out.

The research findings were based on small scale businesses: Kibindi Farm Project in Masaka

district, as the case study. There is need for similar studies to be carried out with bigger

businesses and in other parts of the country.

References

Berea O.A., Grigoruţ C., Bălăceanu V.A., (2008), Evaluarea afacerilor. Managementul

financiar şi realizarea performanţelor , Editura Bren, Bucureşti;

Collin A. Carnall, (1990), Managing change in organisations , Editura Prentice Hall

International, Londra;

Davies, D., (2000), The art of managing finance, Mc Graw – Hill Book Company, New

York;

Harringtion M.J., (2001), Management total în firma secolului XXI, Editura Teora,

Bucureşti;

M. Le Saget, (1999), Managerul intuitiv, Editura Economică, Bucureşti;

Tichy M.N., (2000), Liderul – arta de a conduce, Editura Teora, Bucureşti.

APPENDIX I

TABLE FOR DETERMINING SAMPLE SIZE FROM A GIVEN POPULATIONN S N S N S N S N S

10 10 100 80 280 162 800 260 2800 33815 14 110 86 290 165 850 265 3000 34120 19 120 92 300 169 900 269 3500 24625 24 130 97 320 175 950 274 4000 35130 28 140 103 340 181 1000 278 4500 35135 32 150 108 360 186 1100 285 5000 35740 36 160 113 380 181 1200 291 6000 36145 40 180 118 400 196 1300 297 7000 364

50 44 190 123 420 201 1400 302 8000 36755 48 200 127 440 205 1500 306 9000 36860 52 210 132 460 210 1600 310 10000 37365 56 220 136 480 214 1700 313 15000 37570 59 230 140 500 217 1800 317 20000 37775 63 240 144 550 225 1900 320 30000 37980 66 250 148 600 234 2000 322 40000 38085 70 260 152 650 242 2200 327 50000 38190 73 270 155 700 248 2400 331 75000 38295 76 270 159 750 256 2600 335 100000 384

Note: “N” is population size“S” is sample size.

Krejcie, Robert V., Morgan, Daryle W., “Determining Sample Size for Research Activities”,

Educational and Psychological Measurement, 1970

APPENDIX 2

Questionnaire

Dear respondent,

This questionnaire is seeking information concerning the topic “the influence of financial

management on performance of small scale businesses.”This is for an academic purpose only

and shall be accorded utmost confidentiality. There fore, your contribution towards filling this

questionnaire will be a great contribution to my academic endeavor.

Thank you

GENERAL INFORMATION

Section A

Age bracket

18-25 years 26-30 years 31-35 years Above 35 years

Gender

Male Female

Education level

Primary Secondary Certificate Diploma Degree Masters PhD No level

Experience at the project

Less than 2 years 2-3 years 4-5 years 6-10 years Above 10 years

Area of responsibility

Owner General manager Employees

Section B

Key

This is true (1)

This is very true (2)

Neutral (3)

This is untrue (4)

This is very untrue (5)

The impact of financial management and performance

Please tick to the level you agree with the statements

No. 1 2 3 4 5

The project always prepare its financial management plan on time to

control its expenditure

Expenditure of the project is limited to what was approved in the

financial management plan or budget

The project always meets its financial management plan or budget

commitments

The project does not suffer cases of cash outflows exceeding cash

inflows

Whether there is special finance manager

Books of accounts are maintained to keep track of expenditures

There are no cases of departments spending more thaw ht was

approved in the financial management plan

The project does not transfer funds from approved programs on

expenditure items not approved in the financial management plan or

budget

All re-allocation of funds go through established procedures

applicable in project

Section c:

The association between financial management and performance

Please tick according to the level you agree or disagree

Strongly agree (5)

Agree (4)

Neutral (3)

Strongly disagree (2)

Disagree (1)

No. 5 4 3 2 1

The staff at the project understand how budgeting and financial

performance operates

The project carries out auditing

Time management is essential for carrying out accountability of the

budget or financial management plan

Financial performance is measured by results achieved

Products satisfy customers

Cost control is essential for financial performance and accountability

of the project

Lack of budget or financial management plan participation by all

stakeholders affects financial performance

Evaluation, control and feedback are essential for financial

performance

At the project, financial performance is measured based on time

management, quality products and cost saving.

Budget supervision is essential for the effective and efficient

financial performance of the project

Proper coordination of the budget processes enhances financial

performance

Financial management plan evaluation has enhanced performance at

the project

Proper financial control leads to profitability and customer

satisfaction

Section D

The relationship between financial management and performance

Please tick according to the level you agree or disagree with the statements below

No. 5 4 3 2 1

There are adequate controls in the day today running of the project

There are well established work processes followed when performing

the operations of the project activities

The management of the project usually updates our budgetary plans

The staff of the project usually follows approved procedures in

execution of their duties

We usually experience system breakdown at the project

There is always information flow amongst employees at the project

Staff are usually sensitized on operational planning

Staff always adhere to the approved procedures followed during

operational planning

The staff are always committed and honest

At the project, operational planning decisions are usually made at the

appropriate level

We always integrate risk management into operational planning at all

levels

INTERVIEW GUIDE

Section A: FINANCIAL MANAGEMENT

Does the project always prepare budgets on time?

Is the expenditure of the project limited as approved in the budget?

Does the project always meet its budgeted commitments?

Does the project maintain a clear record of revenue received ad spent?

Are there cases of departments spending more than approved?

Section B: PERFORMANCE

Does the staff at the project understand how budgeting and financial performance operate?

Is cost control essential for financial performance?

At the project, is financial performance sometimes measured based on time management, quality

products and cost saving?

Do the project officials know the factors influencing performance?