CASH MANAGEMENT AND SURVIVAL OF SMALL AND …
CASH MANAGEMENT AND SURVIVAL OF SMALL AND MEDIUM BUSINESS ENTERPRISES (SMES) IN UGANDA
A CASE OF 20 SELECTED SMALL AND MEDIUM BUSINESSES IN KAMPALA
BY
WALUSIMBI SAMUEL
07/U/15822/EXT
FACILITATES BY
DR. KAMUKAMA NIXON ARINAITWE
A RESEARCH REPORT SUBMITTED TO MAKERERE UNIVERSITY AS PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF BACHELOR OF COMMERCE DEGREE
JUNE 2011
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ADECLARATION
I Walusimbi Samuel declare that this project report is my original work and has never been submitted for any award in any University or institute
Signed……………………………............. Date ……………………………..
WALUSIMBI SAMUEL
APPROVAL
This report has been submitted for examination with the approval of the University supervisor
Signed ……………………………………… Date …………………………
DR. KAMUKAMA NIXON ARINAITWE
DEDICATION
I dedicate this piece of work to my mum Lunkuse Alice Beatrice, dad the late Walusimbi Israel, Mrs. Kawumi Margret brothers, sisters, friends and in laws
ACKNOWLEDGMENT
I wish to extend my gratitude to my supervisor DR. Kamukama Nixon Arinaitwe who heartedly contributed a lot towards the success of this work. I also wish to extend my thanks to management of businesses who helped me in carrying out research in their businesses
In the same way I thank the mum Lunkuse Alice Beatrice, my dad Walusimbi Israel. Thank you for cherishing education.
My sisters Mrs. Kalema Grace, Miss Nansimbi Joyce, Miss N. Allen, Edith, Janet, Joan, Morin, Else and Millie for their assistance.
In the same breath I extend thank my brothers; Mr. Ssenoga Joseph and Joel Ssenteza for their encouragement towards this work.
In the same way I thank Mrs. Ssenoga Agnes and Mrs. Kawumi Margret for their assistance and encouragement.
I also extend my sincere gratitude to my children; Kigozi R, Ssengendo E, Willy K, Bulamba W, Florence Z and Nampera J for their tiresome help.
I extend my thanks to my great friends; Mukas Sadhi, Bukenya Wilson, Baguma Abel, Kawuma Charles, Nsubuga Twaha, M Hamid, K Francis, B Rogers and S Wilberforce. Thanks for your encouragement and assistance.
I thank Mr. Tukundane Andrew for his effort towards my education at large.
Above all I heartedly extend my appreciation to the almighty.
TABLE OF CONTENTS
ADECLARATION i
APPROVAL ii
DEDICATION iii
ACKNOWLEDGMENT iv
TABLE OF CONTENTS v
LIST OF TABLES viii
LIST OF FIGURES AND DIAGRAMS ix
LIST OF ACRONYMS x
ABSTRACT xi
CHAPTER ONE 1
1.0INTRODUCTION 1
1.1 Back Ground of the Study 1
1.2 Problem Statement 3
1.3 Purpose of the Study 3
1.4 Objectives of the Study 4
1.5 Research Questions 4
1.6.0 Scope of the Study 4
1.6.1 Study Scope 4
1.6.2 Geographical Scope 4
1.6.3 Time Scope 4
1.7 Significance of the Study 4
CHAPTER TWO 5
LITERATURE REVIEW 5
2.0 Introduction 5
2.1 Cash management 5
2.1.1 Cash management policies 5
2.1.2 The key to effective cash management in SMEs 7
2.1.3.0 Cash Flow 8
2.1.3.1 Cash Flow Projections 9
2.1.3.2 Techniques for Improving Cash Flow 11
2.1.4 Cash planning 11
2.1.5.0 Managing cash shortages 12
2.1.5.1. Set your policies. 12
2.1.5.2 Time your invoices. 12
2.1.5.3 Consider a retainer of a deposit (COD) 13
2.1.5.4 Offer discounts 13
2.1.5.5 Keep in Touch 13
2.1.6 Determining the optimal cash balance. 14
2.1.7.0 Cash control system 14
2.1.7.1 Examples of procedure that illustrate good cash control system 15
Control over cash received 15
Control over cash collection 15
Control over cash banking 16
Control over cheque payment 16
Control over petty cash 16
2.1.8.0 Indicators of cash management 17
2.1.8.1 Cash planning 17
2.1.8.2 Safety 17
2.1.8.3 Cash control 17
2.1.8.4 Cash allocation 17
2.1.9 Good cash management means: 18
2.2.0 Survival of small and medium enterprises 18
2.2.1 Factor that may lead to business failure 19
2.2.2 Failure rate and actions that should be taken to make business success full 21
2.3 Relationship between cash management and survival of a business 22
2.4 Conclusion 25
CHAPTER THREE 26
METHODOLOGY 26
3.0 Introduction 26
3.1 Research design……………………………………………………………………………...26
3.2 Study population 26
3.3 Sampling design 26
3.3.2 Sample size 27
3.4.0 Data collection 28
3.4.1 Sources of data 28
3.4.2 Methods and instructions of data collection: 28
3.5.0 Data processing and analysis 28
3.5.1. Editing: 28
3.5.2. Coding 28
3.5.3 Data analysis: 28
3.6 Limitations to the study 29
CHAPTER FOUR 30
PRESENTAATION, INTERPRETATION AND ANALYSIS OF THE FINDINGS 30
4.0 Introduction 30
4.1 Demographic 31
4.1.1 Age 31
4.1.2 Gender 32
4.1.3 Marital status 32
4.1.4 Education level 33
4.1.5 Working experience 34
4.2 Cash management 35
4.2.1 Business plan 35
4.2.2 Workshop/training relating to cash management 36
4.2.3 Cash flows 37
4.2.4 Policies of handling the balance of higher cash in flows 37
4.2.5 Policies of handling negative net cash flows 38
4.2.6 Possible investment alternatives 39
4.2.7 Cash management policies 39
4.2.8 Budget 41
4.2.9 Credit 42
4.2.10 Ways of collection of debts 44
4.2.11 Recording of cash 44
4.2.12 does the business benefit from cash management policies? 45
4.3 Survival of business 45
4.3.1 The period in which the business has been in operation 45
4.3.2 Attendance of seminar/workshop/training relating to business 47
4.3.3 Indicators that those trainings or workshops were beneficial 48
4.3.4 Factors that might hinder survival of business 48
4.4 Relationship between cash management and survival of SMEs 49
4.4.1 Relationship between cash management and survival of SMEs 50
4.4.2 Nature of the relationship 50
4.4.3 Indicators 51
4.4.4 Whether the business achieves the purpose of cash management 52
4.4.5 Indicators 52
4.4.6 Other factors that contribute to survival of businesses 53
CHAPTER FIVE 54
SUMMARY, CONCLUSION AND RECOMMENDATIONS 54
5.1 Summary 54
5.1.1 Cash management 54
5.1.2 Survival of SMEs 54
5.1.3 The relationship between cash management and survival of SMEs 55
5.2 Conclusions 55
5.3 Recommendations 55
5.3.1 Recommendation on cash management 55
5.3.2 Recommendations on survival 56
5.3.3 Areas for further research 57
REFERENCES 58
APPENDICES 61
LIST OF TABLES
Table 1: Shows Cash flow Projections 10
Table 2: Shows Categories of Respondents 28
Table 3: Response rate 31
Table 4: findings on age distribution 32
Table 5: Distribution according to gender 33
Table 6: findings on marital status 33
Table 7: Findings on education levels 34
Table 8: Findings on working experience 35
Table 9: findings about business plan 36
Table 10: Showing findings on whether respondents have ever attended training or workshop or seminar relating to cash management 37
Table 11: showing findings on the nature of cash-flows 37
Table 12: Presentation of policies used to handle cash 38
Table 13: presentation of findings on investment alternatives 39
Table 14: presentation of findings on cash management policies 40
Table 15: shows findings on budgeting 41
Table 16: presentation of findings on whether businesses spend according to budgets 41
Table 17: presentation of findings on credit 42
Table 18: findings on whether cash spent and received is recorded 44
Table 19: Findings on whether businesses are benefiting from cash management policies adopted 44
Table 20 findings on the period in which selected businesses have been in operation 45
Table 21 presentation of findings on attendance of workshop/training and whether it benefits the business 46
Table 22 presentation of findings on the relationship 49
Table 23 Presentation of findings on the nature of the relationship 49
Table 24: computation of correlation coefficient 50
Table 25: findings on benefits from cash management 51
LIST OF FIGURES AND DIAGRAMS
The diagram showing cash management cycle…………………………………7
The diagram that shows optimal cash balance…………………………………14
Figure 1 a bar graph showing distribution according to age…………………...33
Figure 2: Distribution of respondents by education level………………………35
Figure 3 is a pie-chart showing findings on working experience………………36
Figure 4 is a graph showing findings on business plan ………………………...37
Figure 5 is a bar graph showing policies used by SMEs to handle cash………..39
Figure 6 is a column graph showing cash management policies adopted by selected SME…...............................................................................................41
LIST OF ACRONYMS
SMEs — Small and Medium Business Enterprises
URA — Uganda Revenue Authority
UIA — Uganda Investment Authority
GDP — Gross Domestic Product
BOU — Bank Of Uganda
PSF — Private Sector Foundation
UMA — Uganda Manufacturers Association
UNCCI — Uganda National Chamber of Commerce and Industry
EPB — Exporters Promotion Board
USSIA — Uganda Small Scale Industries Association
CEO — Chief Executive Officer
CDs — Certificate of Deposits
US — United States
CDO — Consider a retainer Of a Deposit
SBA — Small Business Admiration
SACCO—Saving And Credit Cooperative Organization
ABSTRACT
The potential of Micro, Small and Medium enterprises (SMEs) in promoting economic growth in both developed and developing countries is widely accepted and documented by both scholars and policy makers. Inadequate and/or lack management (technical) skills for effective management of SMEs, especially in developing countries, has been identified as a major stumbling block for their survival and hence impending realization of this potential. Training is one of the ways of addressing this challenge of inadequate management skills which is faced by SMEs.
The purpose of the study was to examine the relationship between cash management policies adopted by selected SMEs and survival of SMEs in Uganda, with a case study of Kampala district. The study was descriptive in nature and both primary and secondary data was later used to revolve the objectives of the study that is: To examine cash management the effectiveness of policies adopted by the selected SMEs; To establish survival of SMEs, and To establish the relationship between cash management and survival of SMEs.
Further data was collected using questionnaires and the information obtained from the field was arranged according to themes (objectives of the study), after which it was analyzed do establish the significance of the results.
The major findings of the study were; cash management policies used by some of the selected SMEs were effective because; 61% and 17% use flexible and non flexible cash management policies respectively. However, in some no any cash management policy is used, this is represented by 17%. There is a strong correlation coefficient of -0.98 which shows that there is a strong relationship between the variable. However, the relationship is collapsing.
The findings also revealed that the failure rate is of SMEs is high. This is because; 80% of the selected businesses have been in operation for less than eight years and only 2% have survived for more than 16 years.
In light of the above discussion, some SMEs are not doing badly. The researcher suggested that; there is a need for improvement of management policies, planning, and coordination of activiti as recommendations.
CHAPTER ONE
1.0 INTRODUCTION
This study was about cash management and survival of Small and Medium Enterprises in Uganda. It was centered on how cash management policies adopted by selected SMEs affect their survival.
1.1 Back Ground of the Study
Cash management is an essential tool which aims at establishing the financial position of the organization. Pandey, (1980) notes that, cash management is the set of guidelines established by management to ensure that the organization has optimal cash balances at any time to meet organization’s goals; cash recovery should be matched with cash spent on services so that there is no unused cash balances.
Cash management is concerned with; collection, concentration, and disbursement of cash including, measuring liquidity, managing cash balances and short term investments. (Cash management:///).
Therefore, this requires efficient planning of cash, approval of cash expenditure, and safe custody of cash and allocation of cash. This will safeguard the obligations of the firm and hence making it able to achieve its needs. However, organization may fail to meet its obligations due to misappropriation of cash, limited cash resources, poor safety of cash, and poor allocation of cash. It is upon this that organization may fail to succeed.
There is no single universally accepted definition of SMEs but many vary according to regional differences (Hill, 2001). Gore et al (1992) as cited by Hill, (2001) states that “Like the proverbial elephant the small firm is one of those things that is recognized when seen but difficult to define.” In Uganda small-scale enterprise is an enterprise or a firm employing less than 5 but with a maximum of 50 employees, with the value of assets, excluding land, building and Working capital of less than Ug.shs 50 million (US$ 30,000), and the annual income Turnover of between Ugshs.10-50 million (US$6,000-30,000). A Medium sized Enterprise is considered a firm, which employs between 50-100 workers (URA, UIA, Uganda top 100 mid-size company surveys 2009).
According to the study carried out by Okello, OC.O, (March, 2008), SMEs have different types, among others, they include; Filling stations/gas stations/petrol stations, Milk cooling plants, Restaurants, bars, hotels, Maize milling, Garages, Jua-Kali, General merchandise, Saloons, Stationery, Hardware shops, Pharmacy/clinic.
It is known that, Kampala-Uganda is one of the easiest places to start up and own a business in the East Africa region. This is reflected by the number of Micro Small and Medium enterprises which account to over 99% of private business. Also, SMEs is one of the fastest growing sectors, due to fact that, in every year over 10,000 people starts a business. Though, 40% fail within a year and 80% within five years. (.ug/D/9/32/662491). This Implies high rate of failure of SMEs in Uganda.
According to Bank of Uganda,(various years) Quarterly and Annual report, SMEs are increasingly taking the role of primary vehicle for creation of new jobs that is, employing about three million (3,000,000) people, contribute to about 70%of GDP as well as paying taxes for national development. On top of that, they also provide the economy with a continuous supply of ideas, skills and innovation necessary to promote competition and allocation of scarce resources, domestic linkage such as the link between agriculture and large scale industries, and ensuring equitable distribution of income. This has in turn helped to mitigate the problem associated with unplanned urbanization, offering efficient and progressive decentralization of the economy. Thus, SMEs play a crucial role in creation opportunities that make the attainment of equitable and sustainable growth and development possible.
Despite the role they play in the economy, there is increasing rate of enterprise mortality. This may be due to; limited access to cheap funds needed for log term growth through new investment and taking up new opportunities, lack of managerial training and experience, inadequate skills and education needed to run SMEs, National policy and regulatory frame work, technological changes that is since 1990s, there has been a growing concern about the impact of technological change on the work of SMEs, poor infrastructures, scanty market information, and low productivity and profitability, hence impending the success of SMEs . (Ladu, 2011).
Basing on the above background, it has prompt the researcher to investigate whether the root cause of the problem is due to cash management as his starting point to have other factors brought on board.
1.2 Problem Statement
Cash management is not a matter of choice; it is some thing that must be undertaken in any business. (Pande, 1998). There is no precise way of determining the exact amount of cash that can enable all SMEs to succeed.
The SMEs is one of the fastest growing sectors in Uganda, but their challenge is high rate of failure, since, over 10,000 people who start a business every year, 40% fail within a year and 80% within five years. (.ug/D/9/32/662491). To overcome the problem, the government and other players such as the Bank of Uganda (BOU), micro finance institutions, banks, Private Sector Foundation (PSF), Uganda Manufacturers Association (UMA), Uganda Investment Authority (UIA), Uganda National Chamber of Commerce and Industry (UNCCI), Export Promotion Board (EPB), and Small Scale Industries Association (USSIA) have designed program and policies that are market-driven and market non-distorting to support SMEs. Government has, for example, created stable macroeconomic conditions, liberalized the economy, and encouraged the growth of micro-financing business (Kikonyogo, C.N. 2000, Kasekende, L and Opondo, H. 2003). However many SMEs are continuously failing and closing down.
1.3 Purpose of the Study
The study purpose is to find out whether cash management policies adopted by selected Small and Medium Enterprises have impact on their survival.
1.4 Objectives of the Study
▪ To establish the effectiveness to of cash management policies adopted by selected Small and Medium Businesses.
▪ To establish the survival of Small and Medium Businesses in Uganda.
▪ To establish the relationship between cash management and survival of SMEs in Uganda.
1.5 Research Questions
▪ Are cash management policies adopted by selected SMEs effective?
▪ How do SMEs survive?
▪ What is relationship between cash management and survival of SMEs?
1.6.0 Scope of the Study
1.6.1 Study Scope
More emphasis was put on cash management and success of SMEs.
1.6.2 Geographical Scope
The study was conducted in 20 selected SMEs based in Kampala.
1.6.3 Time Scope
The study was conducted in a period of three months.
1.7 Significance of the Study
This study is expected to benefit;
▪ The owners and management of selected SMEs as an attempt to ensure their success.
▪ Other SMEs which will learn how to improve cash management in order to survive.
▪ Other researchers who will further research on cash management and success of SMEs in Uganda.
▪ The researcher himself since the investigation will be part of the requirements for the award of degree at Makerere University.
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter presents a review on existing literature on cash management as a dependent variable and survival/success as an independent variable as well as the relationship between the two variables.
2.1.0 Cash management
According to Van, H (1985), Cash management involves managing the monies of the firm in order to maximize cash availability. It includes the policies and procedures adopted by the management of an entity to assist in achieving the management’s objectives of ensuring orderly and efficient conduct of business including; adherence to management policies, laws and regulations, safeguarding cash, the prevention and detection of fraud and error, promoting orderly, efficient and effective operations, quality of product and services, timely delivery and hence ensuring survival of the business.
2.1.1 Cash management policies
These are set of guide lines by the business to ensure that it has optimal cash balances at any time. The organization seeks to match the cash receipts and disbursements. So that there is no redundant surplus cash balances or potentially establishing cash benefits (Kakuru, 1993). The policy actions help in achieving a match between cash receipts and disbursement by;
a) Ensuring efficient management of cash receipts and disbursement,
b) Advance cash planning so that the organization is not overwhelmed by un anticipated movements in cash flows,
c) Investment of surplus cash to earn a return on planning deficit in advance.
According to Gupta, A (2009) and Chandra, D, (2002), Cash is used to mean coins, currency notes, cheques, bank overdraft held by the firm, demand deposits in the banks. It includes cash and cash equivalents like marketable securities and time deposits in the banks which deposits can be easily converted into cash.
Further, Pandey, (1998), defines cash management as the process which is concerned with management of cash flows into and out of the business, cash flows within the fir and cash balances held by the firm. Therefore, cash management involves collection, concentration and disbursement of cash including; measuring the level of liquidity, managing cash balances and short term investments. This can diagrammatically be explained as below;
The Diagram Showing Cash Management Cycle
Source: I.M. Pandey PG 912
Kakuru, (2000) asserts that, sales generate cash, which has to be disbursed out. The surplus cash has to be invested while the deficit has to be covered through borrowing. Thus cash management seeks to accomplish two cycles at minimum costs and at the same time to achieve liquidity and control. However, all these depend on whether there are investment opportunities.
According to Gupta, A (2009) and Mashestwari (1994), Cash management is aimed at objectives such as; meeting cash disbursement needs as per payment schedule, minimizing the amounts covered up as cash balances. Therefore, for proper cash planning, there is a need for management supports that understands the business and is responsible for its needs as noted by Franks (1995).
Cash is the money that is easily accessible either in the bank or in the business. Profit is the amount of money a firm expects to make if all expenses are paid evenly over a period of time being measured. However, it is not a day to day reality. Cash is what the firm must keep to keep the doors open. Over time, the company’s profits are of little value if they are not accompanied by positive cash flows. The business cannot spend profit; it can only spend cash ().
2.1.2 The key to effective cash management in SMEs
Cash flow is the primary indicator of a business’ health. If handled properly your company will be in top form, but, likewise, poor management could lead to a serious slump, according to Morison Menon partner and CEO, Prabhakar Kamath speaking in SME Advisor Summit, Kamath said many people confuse cash flow with profit. “The term refers to the movement of cash in and out of a business. If managed well, the operating cash flow always exceeds the net profit,” he asserted, adding that this may not be the case for start ups. The good news for those with good levels of operating cash flow is that bankers would typically be happy to lend to you. So, cash flow management is integral to the success of a business and needs to be tracked, chased and captured. This is true during periods of financial boom, but is perhaps even more essential in a recession.
“Boom-time circumstances tend to allow for some errors, such as extending credit to the wrong customers – errors that in the long term could harm your business,” said Kamath. But what defines good cash-flow management? He suggested that it is necessary to have a team in place dedicated to managing a firm’s cash flow, with a focus on working capital.
“An exemplary management team should achieve a good cash-conversion period, which could be accelerated through the implementation or improvement of customer purchase and credit decision processes, shipping, timely invoicing, monthly statements of accounts and cash-discount policies.
Kamath went on to explain that when it comes to the accounts payable department, adopting a not sold until paid for attitude is a necessity, especially in the current market in which many customers have defaulted on payments. Furthermore, the financial standings of existing customers should be reviewed, especially those who are increasing their order sizes, and it is also crucial to manage the inventory well. Inventory turnover goals should be set and monitored, reorder levels and quantities should be set and policies formed, the inventory should be verified periodically and inventory aging must also be monitored. “Maintain a good relationship with creditors or you won’t get good credit returns,” he said.
For those who take Kamath’s advice and revamp poor cash-flow management practices, the benefits are many, including better terms with creditors and bankers, reduced dependence on financing and attracting more customers with reputable finance departments. (2011/01/show-me-the-money).
2.1.3.0 Cash Flow
Cash flow refers to the flow of cash into or out of the business of a period of time. Cash out-flow is measured by the money the business is paying to; creditors, suppliers, and salaries. Whereas the in-flows are the moneys the businesses receive from customers, lenders and investors.
Cash flows can be categorized into; positive cash flow that is, when the business is receiving more cash than what it pays out. However, on the other hand, negative cash flow is where the business is receiving less cash than what it pays out. A negative cash flow can cause a number of problems that result in shortage of cash for instance; too much and obsolete inventory, or poor collection of accounts receivable. If the firm does not have money in the bank or can not borrow addition cash at this point, it may be in serious trouble which can force it to close its doors. ().
2.1.3.1 Cash Flow Projections
According to Berry, D.O, (2008) a sound financial management means knowing the cash flow for your business, forecasting your cash needs, planning your borrowing strategy so you have cash when you need it, and having financial records that show your payback ability. Even a business with respectable sales volume can have cash flow problems, and it is often due to poor financial planning.
Too often small business owners feel that their knowledge of the line of business is sufficient to ensure that their business is a success. However, when starting a business, you need more than a few thousand dollars in the bank and a good idea for a business. You need to estimate cash flow over many months to construct a reasonable cash flow projection. One of the common problems for start-up businesses is a lack of capital.
Without a ready supply of cash, almost every business will occasionally experience problems associated with the lack of cash in the bank. A shortage of cash to meet debts or maintain product supply can cause problems for a business. Bankruptcy can and does occur with otherwise profitable businesses, when there is insufficient capital to carry the business through a cash crunch.
To assure yourself of cash when you need it, prepare a cash flow projection. A cash flow projection is a forecast of the difference between cash coming into the business and cash going out of the business.
Table 1: Shows Cash flow Projections
|Time horizon: |Purpose: |
|Short-term |To determine short-term cash position. |
|(weekly, monthly) |To plan amount of cash that can be put in short-term investment account (money market, CDs). |
| |To estimate working capital requirements. |
|Long-term-Annual |To show how much cash will be needed to run the business in the coming year. |
|(12 months) |To determine where the cash will come from. |
| |To determine seasonal variations in cash flow. |
| |To estimate annual borrowing requirements, ability to make repayments. |
| |Supporting information for loan application. |
|Long-term-Strategic |To support strategic planning. |
|(3-5 years) |To determine equity needs. |
| |To estimate borrowing requirements. |
| |Supporting information for raising equity capital |
Source: U.S. Small Business Administration
Cash flow projections should be prepared for short-term (weekly, monthly), and long-term (annual, 3-5 years) planning purposes as illustrated in the table above.
By knowing your cash position now and in the future, you can:
▪ Make certain you have enough cash to purchase sufficient inventory for seasonal cycles;
▪ Take advantage of discounts and special purchases;
▪ Properly plan equipment purchases for replacement or expansion;
▪ Prepare for adequate future financing and determine the type of financing you needs (short term credit line, permanent working capital, or long-term debt);
▪ Show lenders your ability to plan and repay financing.
For a new or growing business, the cash flow projection can make the difference between succeeding and failure. For an ongoing business, it can make the difference between growth and stagnation.
Cash is generated primarily by sales. But in most businesses, not all sales are cash sales. Even if you have a retail business and a large percentage of your sales are cash, it is likely that you offer credit (charge accounts, charge cards, term payments, layaway, and trade credit) to your customers. Thus, you need to have a means of estimating when those credit sales will turn into cash-in-hand. By knowing; who will you offer credit to?, how much credit will you offer?, your customers' creditworthiness, when will your bills go out?, the time frame you will expect payment, how you will follow-up if a payment is not made.
2.1.3.2 Techniques for Improving Cash Flow
To improve cash flow, the firm should consider the following; sell for cash or credit card rather than on terms, if your industry practices permit, establish good credit policies, if it sells on terms, bill promptly and before customer check writing cut-off, age accounts receivable monthly, follow well defined collection methods, add late charges and fees when possible, tighten customer credit requirements, pay bills only on due date, unless there is a discount for early payment, spread payments to your suppliers out over the month, if possible, monitor your inventory to minimize the amount you keep on hand (but also make certain that the business has what it needs at all times), clear slow moving items out at cost, lease instead of purchase equipment, pay the minimum amount of estimated taxes, make bank deposits promptly, put excess cash balances into interest bearing accounts whenever feasible, time your equipment, supplies, and inventory purchases carefully, use tax losses or credits, consider prudent borrowing, increase sales, and increase prices, if possible.
2.1.4 Cash planning
According to Pendey (1995),cash planning is a technique to plan and control the use of cash, it control and protect the financial conditions of the firm by developing a projected cash flow and out flow for the period. He further notes that, a cash budget is the most significant device to plan for and control cash receipts and payments.
A cash budget is the summary statement of the firm’s projected time period. This information help the financial manager to determine the future cash needs of the firm, plan for the financing of these needs and exercise control over cash and liquidity of the firm. The researcher is wondering whether Daily loaf is actually budgets for inflows and outflows of cash.
2.1.5.0 Managing cash shortages
According to , cash flow shortages are a challenge for many small businesses. One way to relieve the pressure for cash is through better management of company receivables. Here is some of the way to tighten control over your cash.
2.1.5.1. Set your policies.
Before you make a sale, you need to set your billing policies or your customers will set them for you. If your product or service goes out the door without payment, you are essentially lending money to that customer. Are they worthy of your credit? Prevent problems by asking for credit references. Then, take the time to call those references. Are they listed in Dun & Bradstreet? Ask why they left their last vendor (perhaps they have a string of unpaid vendors ahead of you?) Be cautious and firm and follow your gut instincts about a potential customer. More than likely, your instincts are right on the mark. Trust them.
2.1.5.2 Time your invoices.
Make it a policy to never let a job or product leave your business without an invoice. It may seem like an inconvenience, but your collection rate will improve dramatically. There are several reasons for this. These are;
▪ First, it is easier for a customer to relate the value of your product to the price you have charged. As time goes by, other needs crop up for the customer and you are no longer a priority.
▪ Second, if your customer receives your invoice weeks after they have received your product, they may feel that there is no reason to pay quickly. In their minds, if you can afford to wait to bill them for weeks, you can also afford to wait several more weeks for them to pay.
▪ Finally, staying on top of billing evens out your cash flow. Instead of billing once a month (or when you are desperate for cash) and waiting another month to get the money, you will have money coming in on a steady basis.
2.1.5.3 Consider a retainer of a deposit (COD)
If a customer has proven to be a poor payer, ask for a retainer. Do not be embarrassed. They were not embarrassed about owing you money all the time. Why should you be now? You can simply say, "Based upon your past credit history with us, we will need X amount in advance and the remainder when the job is completed." Or, type up a payment agreement, have them sign it, and then give them a copy. It is harder for someone to put off paying when they have a signed agreement in their hands.
2.1.5.4 Offer discounts
May want to offer discounts for invoices paid within a certain time frame. One common offer is a 2 percent discount if an invoice is paid within 10 days.
2.1.5.5 Keep in Touch
Follow up immediately on unpaid invoices. Your customers will quickly size you up as to whether or not you are someone who expects to get paid. When prioritizing their payment schedule, your customers are more likely to put you at the head of the list if you have a reputation for following up on a regular basis. It is best to set a payment date on your follow-up letter and call your customer on that date if your payment has not yet been received. Having a written script for any follow-up phone calls you may need to make may make this process easier for you.
2.1.6 Determining the optimal cash balance.
Transactions cost and risk of too small balance should be matched with the opportunity cost of too large balance in order to find out the optimum cash balance of the company. The following diagram gives a better description.
The diagram that shows optimal cash balance
Total
COST
Minimum cost Opportunity cost
Transaction cot
0 X
Optimal cash balance
Source: Pandey (1998)
Point X shows the optimal cash balance which a firm seeks to achieve, is the point where the some of the opportunity cost and transaction costs are minimized.
2.1.7.0 Cash control system
This embodies the overall attitude, awareness and action of management regarding the control system and its importance in the entity. The control system has an effect on the effectiveness of the specific control procedures. A strong control system for example,; one with tight budgetary controls over cash received, cash is banked, petty cash, cash cheques, and effective control of cash balance brought down. However, a strong cash control system does not by its self ensure effectiveness of cash control, factors reflected in the control system include; Management philosophy, operating style, the entity’s organizational structure and methods of assigning authority and responsibility.
2.1.7.1 Examples of procedure that illustrate good cash control system
Control over cash received
This is where by the business safeguards against possible interceptions between the receipts and opening of the post, for example; by using a locked mail box and restricting access to the keys, supervising the opening of the post by responsible official and where true volume of the mail is significant, at least two persons should be present when the mail is being opened, this ensures division of duties between custody of the assets and recording of transactions. These two should be independent of the cashier; records should be made at the time of the opening the post of cheques and cash received. This record may be in form of rough cash book, a list, adding machine list or copies of remittance advice. This provides control over the eventual sums banked and entered into the cash book. A copy of the list should be handed over to the cashier and the second copy filed separately from the cashier and the cashier should not have access to the receipt before this record is made.
Control over cash collection
Control of cash collection is where; authority to collect cash should be clearly defined, clients should remit cash at regular interval which should be formalized or notified by the firm, a responsible person to follow up clients who have not remit cash in time and defaulters, collection should be recorded when received for example, in a rough cash book or copies of receipts which should be given to cashier, the collector’s cash receipts should be reconciled to the eventual banking, a responsible official should check the collector’s cash books with the cash book entries. Cash shortages and surpluses should be investigated and independent reconciliation of the number of sales transaction and cash received should be made.
Control over cash banking
This is where receipts should be banked daily except in exceptional cases, where cash receipts are used before banking. There should be strict control over disbursements, each day’s receipt should be recorded promptly in the cash book, periodically, a comparison should be made between the silt of cash and cheques received and banked, restrictions in opening new book accounts, bank reconciliation should be prepared at least monthly, bank statement should be received promptly, the person responsible should be independent of the receipts and payments alternatively one independent person should check the reconciliation and if reconciliation is prepared by an independent person, he should obtain the bank statement directly from the bank and hold until the reconciliation is complete.
Control over cheque payment
Used cheques payments should be held in a secure place, the person who prepare cheques should have no responsibility to payment ledgers, cheque should be designed only when evidence of a properly approved transaction is available, such evidence may take the form of; invoice, payroll, and petty cash book. This cheque should be evidenced by signed support documentation, that is those that approving the original document should be independent of those that signing cheques. Cheque signatories should not be responsible for recording payments, cheque signatories should be restricted to a minimum practical number that is, at least two signatories should be required except perhaps for cheque of small amounts, the signing of bank cheques and cheques in favor of the signatory should be prohibited, cheques should be cross checked before being signed and supporting document should be canceled as paid to prevent their use for further cheque payments. This cancellation should be done by the cashier before the cheque is signed or by the cheque signatory at the time of signing the cheque.
Control over petty cash
This2is where petty cash expenses should be budgeted for, rules should exist preferably preventing the issue of cashing cheques. Periodically the petty cash should be reconciled by an independent person. Surprise cash accounts, a maximum amount should be placed on a petty cash payment to discourage normal procedure being by passed, vouchers should be concealed once reimbursement has taken place, the level and location of cash float should be laid down formally and based on needs, there should be restricted access to the floats, they should securely laid for example, in a locked drawer with restricted access to keys, all expenditures should require a voucher signed by a responsible official not the petty cashier.
2.1.8.0 Indicators of cash management
2.1.8.1 Cash planning
This involves planning for the cash received before it is spent so as to be effective in achieving the firms objectives that is, management of cash inflows and cash outflows and according to Kakuru (2000), cash management is concerned with the management of cash flows that is to say inflows and out flows.
2.1.8.2 Safety
There should be safe custody of cash received, to avoid unauthorized users of cash and misappropriation of cash; in other words, there should be one to authorize use of cash.
2.1.8.3 Cash control
This comprises of the overall attitude and actions of management regarding the control systems of cash in the entity. A strong control is on with tight budgetary control over cash received, cash banked, petty cash, cash cheques and effective control of cash balances brought down.
2.1.8.4 Cash allocation
Sources of cash should clearly be highlighted and cash should be allocated accordingly. For example; cash paid in line with supply of essential requirements used in the business should be used to acquire such requirements.
2.1.9 Good cash management means:
▪ Knowing when, where, and how your cash needs will occur,
▪ Knowing what the best sources are for meeting additional cash needs; and,
▪ Being prepared to meet these needs when they occur, by keeping good relationships with bankers and other creditors.
The starting point for avoiding a cash crisis is to develop a projection. Smart business owners know how to develop both short-term (weekly, monthly) cash flow projections to help them manage daily cash, and long-term (annual, 3-5 year) cash flow projections to help them develop the necessary capital strategy to meet their business needs. They also prepare and use historical cash flow statements to gain an understanding about where all the money went ().
2.2.0 Survival of small and medium enterprises
Since Uganda is developing at a fast rate and most businesses are SMEs and possibly Almost 80 percent of all business in Uganda are SMEs. However most of them "do not live past their first anniversary." (Monasterski, C on March 28, 2007 in Africa, Business environment).
According to John Keough, more than 50 percent of SMEs fight an uphill battle from the start and fail in the first five years. This is a common scenario for Ugandan small businesses, as most of them 'never celebrate their first anniversary.' That is to say, in Uganda SMEs account to 99% of private of private business. However, in every year, for over 10,000 people who starts a business, 40% fail within a year and 80% of the business within five years (.ug/D/9/32/662491). This is attributed to; Lack of Managerial Training and Experience that is, Many SMEs owners or managers lack managerial training and experience; Inadequate Education and Skills
Education since skills are needed to run micro and small enterprises; Lack of Credit; National Policy and Regulatory Environment; Poor Infrastructures; Technological Change; Lack of sufficient market information poses a great; Scanty Markets Information (Tuesday, January 25, 2011 - Daily Monitor).
According to the research carried out by Kazooba, T.C, (2006) about the Causes of Small Business Failures in Uganda, he found that the causes of small business failure are; Lack of capital, Increased taxes, Low sales, Management problems, Negative cash Flows, Poor record keeping, Family situations, Inadequate control of inventory, Lack of business plan, Faulty product concept and Load shedding.
The latest statistics from the Small Business Administration (SBA) show that "two-thirds of new employer establishments survive at lease two years, and 44 percent survive at least four years." This is a far cry from the previous long-held belief that 50 percent of businesses fail in the first year and 95 percent fail within five years.
Brian Head, Economist with the SBA Office of Advocacy, noted that the latest statistics are a much more accurate assessment of new business success rates, and that "as a general rule of thumb, new employer businesses have a 50/50 chance of surviving for five years or more."
2.2.1 Factor that may lead to business failure
Key factors that if not avoided will be certain to weigh down a business and possibly sink it forevermore.
Starting business for the wrong reasons; would the sole reason you would be starting your own business be that you would want to make a lot of money? Do you think that if you had your own business that you would d have more time with your family? Or may be that you would not have to answer to anyone else? If so, you would better think again.
Poor Management; new business owners frequently lack relevant business and management expertise in areas such as finance, purchasing, selling, production, and hiring and managing employees. Unless they recognize what they don't do well, and seek help, business owners may soon face disaster. They must also be educated and alert to fraud, and put into place measures to avoid it.
Insufficient Capital; a common fatal mistake for many failed businesses is having insufficient operating funds. Business owners underestimate how much money is needed and they are forced to close before they even have had a fair chance to succeed. They also may have an unrealistic expectation of incoming revenues from sales. It is imperative to ascertain how much money your business will require; not only the costs of starting, but the costs of staying in business. It is important to take into consideration that many businesses take a year or two to get going. This means you will need enough funds to cover all costs until sales can eventually pay for these costs.
Location; location is critical to the success of your business. Whereas a good location may enable a struggling business to ultimately survive and thrive, a bad location could spell disaster to even the best-managed enterprise. Some factors to consider: Where your customers are; Traffic, accessibility, parking and lighting; Location of competitors; Condition and safety of building; Local incentive programs for business start-ups in specific targeted areas; the history, community flavor and receptiveness to a new business at a prospective site
Lack of Planning; anyone who has ever been in charge of a successful major event knows that were it not for their careful, methodical, strategic planning and hard work success would not have followed. The same could be said of most business successes. It is critical for all businesses to have a business plan. Many small businesses fail because of fundamental shortcomings in their business planning. It must be realistic and based on accurate, current information and educated projections for the future.
Overexpansion; a leading cause of business failure, overexpansion often happens when business owners confuse success with how fast they can expand their business. A focus on slow and steady growth is optimum. Many a bankruptcy has been caused by rapidly expanding companies.
No Website; simply put, if you have a business today, you need a website. In the U.S. alone, the number of internet users (about 70 percent of the population) and e-commerce sales (about 70 billion in 2004, according to the Census Bureau) continue to rise and are expected to increase with each passing year. In 2004, the U.S. led the world in internet usage ().
2.2.2 Failure rate and actions that should be taken to make business success full
The exact failure rate for small businesses is a hotly contested topic in business circles. Some experts believe that publicized failure rates are highly exaggerated, while others stand by their claim that the businesses included in most failure rate estimations only represent the tip of the iceberg.
Even so, most business experts conform to a theory of "thirds": Of all the new business startups, 1/3 eventually turn a profit, 1/3 break-even and 1/3 never leaves a negative earnings scenario. According to a study by the U.S. Small Business Association, only 2/3 of all small business startups survive the first two years and less than half make it to four years. With numbers like that, it's no wonder so many would-be entrepreneurs think twice before taking the plunge.
A business man does not need a master’s degree to make his business success fully but just guts, determination, and a little common sense advice. As below:
1. Attitude
If you start your business with the attitude that it's probably going to fail, guess what - it will. The businesses that succeed are the ones that were founded on an attitude of success. For successful small business owners failure is not an option, and so they avoid people who live and breathe negativity. Instead, they stay positive and move full steam ahead toward reaching their goals.
2. Sacrifice
Starting a small business is not a comfortable or luxurious undertaking. It requires nothing less than a total commitment to make whatever sacrifices are necessary to succeed. The most successful small businesses make sacrifices early on and reap the benefits once the business has surpassed the startup phase.
3. Risk
Looking for a risk-free investment? If so, you'd be better off putting your money is a savings account and avoiding small business altogether. Small businesses are inherently risky ventures. Sometimes the risks pay off and sometimes they don't. But unless you are willing to take the risks in the first place, there is virtually no possibility that your business will ever succeed.
4. Planning
More often than not, the one thing that separates small business successes from small business failures is planning. With all of the resources available to small businesses these days, there is no excuse for not taking the time to create an executable business plan for your company. A good business plan is a roadmap that highlights the best routes to profitability and warns you of potential hazards along the way. If you don't have one, it's highly likely that you'll be lost and out of business in no time at all
().
2.3 Relationship between cash management and survival of a business
Cash management is a broad term that refers to the collection, concentration, and disbursement of cash. The goal is to manage the cash balances of an enterprise in such a way as to maximize the availability of cash not invested in fixed assets or inventories and to do so in such a way as to avoid the risk of insolvency (Kono, C, 2004).
According to Masonson, (2010) Cash flow is said to be the lifeblood of any business. He added that, the a comprehensive guide in handling and managing your cash more effectively is; getting the money from customers sooner, paying bills at the last possible moment, concentrating money to a single bank account, managing accounts payable, accounts receivable and inventory more effectively, and squeezing every penny out of your daily business."
Halloran, (1994) and Shakespere, T.L. (1996) asserted that, one might be led to believe that profit is the main objective in a business but in reality it is the cash flowing in and out of a business which keeps the doors open. They added that, Cash flow is more dynamic in the sense that it is concerned with the movement of money in and out of a business. It is concerned with the time at which the movement of the money takes place. Therefore, you need to be able to maintain enough cash on hand to run the business, but not so much as to forfeit possible earnings from other uses.
Fitzjkenny (2005) observed that, Cash has become a big problem for many small and even big businesses today. Lack of it has driven numerous small and even big businesses into bankruptcy. Unfortunately many more small businesses will become bankrupt because their owners have neglected the principles of cash management which normally determines their success or failure. Cash is like oxygen to a business. When it is there, it is taken for granted but in its absence, death of the business comes quickly.
Therefore, managing cash flow which is a struggle for many business owners involves:
Forecasting, Collecting, Disbursing, Investing and planning for the cash a company needs to operate smoothly.
A business must have enough cash to meet its obligations as they come due or it will experience bankruptcy. Creditors, employees and lenders expect to be paid on time, which requires cash.
Although cash flow problems affect all companies, young businesses are more prone to suffer cash shortages because all the available cash is used for productive activities and their cash generating activities have not reached the level to generate enough cash to cover rapidly growing expenses.
A study of successful businesses conducted by Geneva Business Bank found that the greatest potential threat to cash flow occurs when a company is experiencing rapid growth. However, collections from the increased sales often lag behind as the company grows and the result is a cash crisis. Unfortunately, many small businesses do not engage in cash planning which led to their failure.
Another study found that many small business owners do not engage in cash planning and that out of 2,200 small businesses studied, 68% performed no cash flow analysis at all. The result is that many successful, growing and profitable businesses fail because they become insolvent as they do not have adequate cash to meet the needs of their growing business with a booming sales volume.
Small business owners don’t understand that if they are successful, stock and receivables will increase faster than profits can fund them. The resulting cash crises may force an entrepreneur to lose equity control of the business or ultimately declare bankruptcy and close.
Therefore, every entrepreneur must fulfill the five key cash management roles in order to ensure survival of their his business and these are;
1. Cash Finder- the entrepreneur must make sure that there is enough capital to pay all present and future bills. This is not a one-time task but an ongoing job.
2. Cash Planner- As a cash planner, an entrepreneur makes sure the company’s cash is used properly and efficiently. Must keep track of its cash, make sure it is available to pay bills and plan for its future use.
3. Cash Distributor- This role requires entrepreneur to control the cash needed to pay the company’s bills and the priority and the timing of those payments. Forecasting cash disbursements accurately and making sure the cash is available when payments come due are essential to keeping the business solvent.
4. Cash Collector – This role requires the entrepreneur to make sure customers pay their bills on time. Since uncollected accounts drain a small company’s pool of cash very quickly and consequently insolvent.
5 Cash Conserver – This role requires the entrepreneur to make that sure the company gets maximum value for the money it spends. Avoiding unnecessary expenditures is an important part of this task since more expenditure means cash reduction which can lead to bankruptcy.
According to KuTenk (2000) noted that, The key to the survival of any business is cash flow, because if cash does not flow into the business at an adequate rate to maintain the level of working capital, then the business will struggle to survive. If there is not a positive difference between the two (that is cash inflow and out flow), then the business cannot pay its bills on time. Many highly profitable firms have gone under because they have attempted to expand faster than their working capital would allow, and have simply run out of money with which to operate the business on a day-to-day basis.
2.4 Conclusion
Cash management is typically a concern of all firms in this competitive environment whether product or service oriented. It should be noted from the above discussion that there is a strong relationship between cash management and survival of SMEs
Masonson, (2010) noted that “cash is the life blood of the business”, therefore should be managed properly to prevent the business from running into bankruptcy.
CHAPTER THREE
METHODOLOGY
3.0 Introduction
This chapter mentions and describes the methods and processes of how the research was carried out. It covered the items of research design, sample selection methods, data analysis techniques and limitations of the study.
3.1 Research design
The researcher used descriptive and explanatory research designs to ascertain, describe the characteristics of variables and explain the occurrence of the problem.
In addition, associational and cross sectional research designs were used in order to generate the relationship between the variables over a period of time.
3.2 Study population
The study was conducted in 20 selected SMEs in Kampala on existing management/owners and employees. The population comprised of 100 individuals from which the researcher obtained a sample of 41 respondents comprising of 20 owners and 21 employees.
3.3 Sampling design
The research used purposive sampling in order to select respondents with specific desired information. Also stratified sampling designs were used to select respondents from the population with least bias. The strata included; owners and employees. In addition, convenient sampling was also be used to select with the desired information like the owners.
3.3.2 Sample size
From the above population, the sample size was obtained using the formulae which was put forward by Saunders, Lewis and Thornhill (1997).
Sample size=P×Q×(Z/E)²
Where;
P: Number of target population that conforms to the characteristics of the sample required,
Q: Number of the target population that does not conform to the characteristics of the required sample,
Z: Confidential level required (that is 95%), and
E: Margin of error (5%).
Given the population of 100 respondents, p=87 (87%) and Q=13 (13%)
Therefore,
P×Q×(Z/E) ²
=0.87×0.13×(0.95/0.05)²
=40.8291≈41.
From the above, the researcher will use a sample of 41 respondents, comprising of 20 owners/ managers and 21 employees as shown by the table below;
Table 2: Shows Categories of Respondents
|Categories of respondents |Number of respondents |
|Owners |20 |
|Employees |21 |
|Total |41 |
Source: Primary data
3.4.0 Data collection
This cover sources of data and methods that were used to collect data from the field.
3.4.1 Sources of data
Data was collected from both primary and secondary sources. Primary sources included responses of respondents from the selected SMEs as well as personal observation. Whereas secondary sources included; The SMEs’s, reports, text books, and news letter.
3.4.2 Methods and instructions of data collection:
Data were collected using questionnaires which were given to respondents to fill them as per instructions.
3.5.0 Data processing and analysis
Raw data obtained were edited and then analyzed to produce meaning full information.
3.5.1. Editing:
This was done to eliminate errors in order to ensure that only correct and vital information is identified and used to draw conclusion.
3.5.2. Coding
Verbal data was converted into variables and categories of variables using numbers so that data can be entered into a computer for analysis.
3.5.3 Data analysis:
Both qualitative and quantitative analytical techniques were used to analyze qualitative and quantitative data respectively, like; means, percentages, Pearson’s coefficient of correlation coefficient, frequency tables and computer programs li.ke Excel that’s used to draw graphs, pi-charts among others.
3.6 Limitations to the study
The researcher experienced a number of problems and challenges in the course of carrying out the research, these were;
Financial constraints: Being student and self sponsored, the researcher experienced financial hardship, this was minimized by reducing expenditure like walking instead of using a tax or boda-boda, not taking launch at some times among others.
Time: Since the study demanded allot in a limited time, plus other demanding academic issues such as tests and exams. To this the researcher used a time table which was used to effectively manage the time and eliminate time wastage like; watching films and sports, clubbing and rum-mongering were all abstained by the researcher in order to utilize his scarce time effectively.
Slow response and non response from some of the respondents: Since some respondents were claiming that they were so busy and others will not be available at all while others are expected to be jealous and mean this was reduced by keeping in touch with them, and use of convincing communication to attract them to answer the questionnaires and also creating a relationship with them.
Denied access to some information which is expected to be confidential. For example information about cash management which is of value to this research, this was solved by asking open ended questions which were so related to that confidential information.
Weather changes, this was curbed by using umbrella during times of high rains and sunshine. The research also reached on the extent of hiding in house shades in case of very high rains.
CHAPTER FOUR
PRESENTAATION, INTERPRETATION AND ANALYSIS OF THE FINDINGS
4.0 Introduction
This chapter presents field data, give interpretation and analysis of findings made as an attempt to establish the relationship between of cash management and survival of Small and Medium Enterprises in Kampala. The results obtained from the study are presented in form of tables, frequencies, pie-charts, graphs and percentages in line with the stated objectives and research questions.
The findings were as results of questionnaires which were given to respondents to fill.
The study was conducted in different types of business that is; Manufacturing, Guest house, Washing bay, Boutiques, charcoal selling, cosmetics, drug shop, Money lending, Carpentry and metal works, Petro station, General merchandise, Bakery, Restaurant, Metal fabrication, Saloon, Media and graphic designing, bar and restaurant, Video library, Secretarial bureau, Super market; where two respondents were selected from each except in cosmetics business were only one respondent was selected and this implies that this research is based on a general knowledge of the different business in Kampala and therefore, qualify for generalizability due to its reliability.
These businesses were further categorized as Small and Medium businesses and this was used to determine the response rate as shown in the table below.
Table 3: Response rate
| |Questionnaire | |
|Scale of business |Issued |Received |Percentage |
|Small scale |30 |30 |100% |
|Medium scale |11 |11 |100% |
|Total |41 |41 |100% |
Source: primary data (survey of question two)
From above table, it is shown that all questionnaires that were issued were received and on top of that they were well answered, this implied a high response rate and therefore, the information obtained is reliable.
4.1 Demographic
4.1.1 Age
Here, respondents were requested to show their age brackets and the findings were as in the table below;
Table 4: findings on age distribution
|1 |A |B |C |
|2 |Age group (years) |Frequency |Percentage |
|3 |15-25 |18 |44% |
|4 |26-35 |11 |27% |
|5 |36-45 |7 |17% |
|6 |46-55 |4 |10% |
|7 |55 and above |1 |2% |
|8 |Total |41 |100% |
Sources: primary data (survey of question four)
From table 4 above, it was found that 18 respondents represented by 44% are falling in age bracket of 15-25 years, 11 respondents represented by 27% are in age group of 26-35, 7 (17%) fall in age group 46-55years, whereas 1 respondent represented by 2% are in age bracket of 55 and above. This implies that research is reliable since it covers all the age distribution of which are all in working age. Graphically, this was illustrated as in the bar graph below;
[pic]
Source: primary data (analysis of table 4)
4.1.2 Gender
Respondents were asked to show their gender and findings are presented as in the table below;
Table 5: Distribution according to gender
|Gender |Frequency |percentage |
|Male |27 |65.9% |
|Female |14 |34.1% |
|Total |41 |100% |
Source: primary data (survey of question 5)
From the table 5 above, it was found that out of 41 respondents; 27 were male making a percentage of 65.9%, and 14 representing 34.1% were female. This implies that the researcher was not gender bias and therefore, findings can be relied on.
4.1.3 Marital status
Respondents were asked to indicate their marital status and the findings are as in the table below;
Table 6: findings on marital status
|Marital status |Frequency |Percentage |
|Single |25 |61% |
|Married |16 |39% |
|Total |41 |100% |
Source: primary data (survey of question 6)
Findings on marital status show that out of 41 respondents; 25 were single and 16 were married representing 61% and 39% respectively. This shows that the researcher was not biased against marital status of that respondents hence information is reliable.
4.1.4 Education level
In order to establish the most prevalent education level that would give the most desirable data, respondents were asked to show their education level and the finding are shown as in the table below;
Table 7: Findings on education levels
|A |B |C |D |
|1 |Education level |Frequency |Percentage |
|2 |Primary and below |4 |10% |
|3 |Senior secondary |17 |41% |
|4 |technical/vocation |3 |7% |
|5 |Diploma |1 |2% |
|6 |University |16 |39% |
|7 |Others | |0% |
|8 |Total |41 |100% |
Source: primary data (survey of question 7)
From the table 7 above, it was found that out of 41 respondents; 4 that is 10%a are primary leavers and below, 17 respondents representing 42% are certificate holders, 3 (7%) are diploma holders, and 16 respondents representing 39% are university graduates. This implies that all education levels were represented in the study hence reliability of the findings and also 41% and 39% (that is senior secondary and university respectively) show that on average respondents have sufficient knowledge about the topic in the study.
Similarly, the graph shows a summarized distribution of education level.
[pic]
Source: primary data (analysis of table 7)
4.1.5 Working experience
To establish the experience of the respondents, they were asked to show there their working experience and the findings are presented in the table below;
Table 8: Findings on working experience
|A |B |C |D |
|1 |Period worked for |Frequency |Percentage |
|2 |Below 1 and half year |13 |32% |
|3 |1 and half-3 years |5 |12% |
|4 |3-5 years |13 |32% |
|5 |5 years and above |10 |24% |
|7 |Total |41 |100% |
Source: primary data (survey of question 8)
From the table 8 above, it can be seen most of respondents had working experience of below 1 and half year and 3-5 years constituting 13 respondents which represents around 32% for both, these were followed by those above 5 years which constitute 10 respondents and a percentage of 24% and the lowest number of respondents is 5 represents having 1 and half year to 3 years. It is therefore, implies that different categories of respondents in different working experience were represented and the 32% of those that fall in 3-5 year of working experience category as well as 24% which have 5 and above years of working experience shows that respondents had the acquired knowledge towards the study.
Similarly the pie-chart 3 below provide a visual representation of the composition of respondents according to their working experience.
[pic]
Source: primary data (analysis of table 8)
4.2 Cash management
4.2.1 Business plan
In order to find out whether businesse particepants plan for their businesses, respondents were asked to show whether their businesses have business plans. The findings are as in the table below;
Table 9: findings about business plan
|Responses |Frequency |Percentage |
|Yes |28 |69% |
|No |13 |31% |
|Total |41 |100% |
Source: primary dat (survey of question 9)
Findings from the table 9 above shows that, 28 respondents responded reported that their businesses have business plans whereas 13 respondents their businesses do not have business plan. This represents 69% and 31% respectively. This implies that, even though the majority of businesses do have business plans that is 69%, there is still a need for other businesses to begin planning for their businesses in order to exploit the benefits of planning for business and hence, ensure their survival. This can further be sumarrized as in the graph below;
[pic]
Source: primary data (analysis of table 9)
4.2.2 Workshop/training relating to cash management
Respondents were asked to show whether they have ever attended any workshop/training/seminar relating to cash management, the findings are as in the table below;
Table 10: Showing findings on whether respondents have ever attended training or workshop or seminar relating to cash management
|Responses |Frequency |Percentage |
|Yes |17 |41% |
|No |24 |59% |
|Total |41 |100% |
Source: primary data (survey of question ten)
From the table above (table 10), it can be seen that out of 41 respondents; 17 representing 41% said yes whereas 24 representing 59% which is the majority said no. implying that much effort is required to train personnel how to manage their finances otherwise most of the businesses will fail due to in adequate skills by managers relating to financial management.
4.2.3 Cash flows
To establish the nature of cash flows, respondents were asked to show whether they are experiencing positive (high in flows) or negative (lower in flows) cash flows, and the findings were summarized in the table below;
Table 11: showing findings on the nature of cash-flows
|Responses |Frequency |Percentage |
|Yes |30 |73% |
|No |11 |27% |
|Total |41 |100% |
Source: primary data (survey of question 11)
It can be established from the table above that, out of 41 respondents, 30 represented by 73% said that their businesses experience positive cash flows whereas 11 represented by 27% are experiencing negative cash flows. This implies that only 73% are the businesses which make substantial profits and therefore are solvent. However, 27% businesses are making losses which can lead to insolvency and consequently failure.
4.2.4 Policies of handling the balance of higher cash in flows
To identify various policies used to handle cash balances as a result of positive cash flows, respondents were asked to select the policies they use and the findings are as in the table below;
Table 12: Presentation of policies used to handle cash
|Policy |Frequency (%) |Percentage |
|Bank it |20 |51% |
|Invest it |15 |39% |
|Keep it in safe |4 |10% |
|Others |_ | |
|Total |39 |100% |
Source: primary data (analysis of question 12)
It can be observed form the table 11 above that out of 30 respondents; 20 bank their cash, 15 invest it where as only 4 keep it in safe, representing 51%, 39% and 10% respectively. This implies that there is a need to improve on ways of handling cash balances in some businesses (10%) since keeping cash in safe is not a safe way of holding it due to its high exposure to theft and also cash in safe do not add value to business. This was further analyzed as below;
[pic]
Source: primary data (analysis of table 12)
4.2.5 Policies of handling negative net cash flows
To identify the ways of handling negative net cash flows, respondents were asked to give some of policies they use to handle that and they had these to say;
Half payment of creditors like suppliers, Borrowing from friends, from financial institutions like microfinance, Reducing debt periods that is requiring debtors to pay early, Adjusting/increasing the credit payment period that’s to suppliers, Covering with future incomes, reducing expenditure, for instance switching on electricity only when it is used.
It is therefore, implies that some businesses at least have put some measures to handle the challenge of handling negative net flows however, there is need to strengthen these policies if going concern of such businesses is to be attained.
4.2.6 Possible investment alternatives
To find out investment alternatives used by businesses, respondents were asked to specify some of these alternatives and the findings are as in the table below;
Table 13: presentation of findings on investment alternatives
|Investment alternatives |frequency |Percentage |
|Long-term |9 |48% |
|Short-term |8 |42% |
|None |1 |5% |
|Others |1 |5% |
|Total |19 |100% |
Source: primary data (analysis of question 14)
From the table 13 above it can be seen that; 7 respondents representing 48% invest in long term ventures, 8 representing 42% in short term whereas 1 representing 5%do not consider any investment alternative and other in other investments. However, it is not clear whether evaluation is done before investments are taken, if not, this is likely to limit survival of these businesses. It can also be established that out of 41 businesses, only 18 businesses do invest representing only 44% and the rest that is 54% do not invest and some are claiming that they lack sufficient funds to take up investment alternatives whereas others do not have knowledge of investment which is dangerous and therefore impeding the survival of those businesses.
4.2.7 Cash management policies
In order to establish cash management policies adopted by selected businesses, respondents were asked to show their cash management policies and the findings are as in the table below;
Table 14: presentation of findings on cash management policies
| Policies |Frequency |Percentage |
|Flexible |22 |61% |
|Non flexible |7 |19% |
|Other |_ |0% |
|None |7 |19% |
|Total |36 |100% |
Source: primary data (survey of question 15)
From table 14 above, it was found out that out of 36 respondents who responded to this question, 22 representing 61% use flexible cash management policy that is they spend as cash demands fall due, 7 representing 19% they use fixed policy that is they do not consider changes in prevailing circumstances which is likely to limit operations and the growth. 7 representing 19%, they spend unholy without using any policy, absence of cash management policy is likely to render a business into insolvency and in turn failure. It was also established that out of 41 businesses only 29 do have cash management policies in place implying that 12 representing 29% do not have cash management policies in place, this is perceived as a threat to survival/success of such businesses. Further analysis is as below;
[pic]
Source: primary data (analysis of table 14)
4.2.8 Budget
On this question, respondents were asked to show whether they budget to their operations. The findings were presented in the table below;
Table 15: shows findings on budgeting
|Responses |frequency |Percentage |
|Yes |35 |85% |
|No |6 |15% |
|Total |41 |100% |
Source: primary data (survey of question 16)
Table 15 above show that out of 41 respondents, 35 representing 85% responded that they budget to their operations while, 6 respondents representing 15% do not budget for their operations. This implies that most businesses do budget for their operations however, those that do not budget they are likely to lose their finances due to un-budgetary expenditure and this is most likely to impend survival of these businesses
The researchers went on in the following question (question 23) and ask respondents (those who budget to their operations) whether they allocate cash according to the approved budgets, findings were presented in the table 16 below;
Table 16: presentation of findings on whether businesses spend according to budgets
|Responses |Frequency |Percentage |
|Yes |20 |73% |
|No |15 |27% |
|Total |35 |100% |
Source: primary data (survey of question 23)
From the table above, it is clearly shown that out of 41 respondents; 30 spend according to budgets representing 73% whereas 11 respondents do not spent according to budgets in these, 5 budgets whereas 6 do not budget at all. This continually declares that 27% of businesses allocate their cash sluggishly thus their survival is compromised.
4.2.9 Credit
The researcher wanted to find out whether selected businesses offers goods or service on credit, and the respondents were asked to indicate their side. The findings were presented in the table below;
Table 17: presentation of findings on credit
| |A |B |C |
|1 |Response |Frequency |Percentage |
|2 |Yes |31 |76% |
|3 |No |10 |24% |
|4 |Total |41 |100% |
|5 |Basing on | | |
|6 |Character |15 |37.5% |
|7 |Capacity |10 |25% |
|8 |Capital |2 |5% |
|9 |Collateral |4 |1% |
|10 |Condition |7 |17.5% |
|11 |None |2 |5% |
|12 |Total |40 |100 |
|13 |Giving a credit period of | | |
|14 |Less than a week |10 |26% |
|15 |1-2 weeks |4 |10% |
|16 |2weeks-a months |6 |15% |
|17 |1-one an half month | |0% |
|18 |One and half -2 month |1 |3% |
|19 |2-3 months |2 |5% |
|20 |3-6 months |2 |5% |
|21 |6-12 months | |0% |
|22 |not specified |14 |36% |
|23 |Total |39 |100% |
Source: primary data (survey of question 17, 18, 19, and 20)
From table 17 above, 31 respondents representing 76% said that they offer goods or services on credit while 10 representing 24% are not offering goods or services on credit to their customers rather they sale only on cash basis. However, even though these businesses are not exposed to risk of defaulting by credit customers, their sales are limited and therefore their expansion is limited.
In addition, the researcher wanted to identify some of the basis on which these businesses base when they are giving out goods/services on credit. From the same table it can also be clearly being seen that out of 31 respondents who offer goods/services on credit; 15 (38%) base on characters of the customer that is, how a particular customer have been performing; respondents representing 25% base on capacity of a customer; 2 base on capital; 4 respondents representing 10% base or collateral; 7 respondents representing 18% base on conditions and term; whereas 2 respondents representing 5% do not have any basis of offering goods or services on credit but this is dangerous to the business since it can led to high levels of bad debts which means losses to business.
The researcher wanted to investigate the credit period given to customer, here the respondents were asked to show the credit period they extend to their customers. As table 15 shows;10 respondents representing 26% give less than one week, this is ideal to business since funds are tied in debts for a short period and the same goes to 4 representing 10%, and 6 representing 15% give a period of 1-2 week and 2 weeks –a month respectively. However, beyond one month the business is tying its money in debtors, this is shown by 1(3%), 2(5%) and 2(5%) give a period of one and a half to two months,2-3 months and 6-12 months respectively. It is also clearly seen that 14 respondents representing 36% do not specify credit period to their customers which indicates that, the customers decide when to pay back without being pressurized but this is likely to lead to huge number of bad debts and definitely tying large sums of money in debts which limit profitability of the business and in turn survival.
4.2.10 Ways of collection of debts
In order to find out the mechanisms used to collect debts, respondents were asked in question 21 to give some of the mechanisms they use to collect debts from credit customers, and they had this to say;
Using of invoices
▪ Remembering them by; phone calls, approaching them politely, warning letters, among others,
▪ Use of credit notes which are sent to debtors when the credit period have elapsed
▪ Use of cheques that is postured cheques
▪ Not giving a particular customer goods or services on credit before paying pending debts
▪ Depositing on the firm’s bank account
▪ If all fail out legal procedures are considered
4.2.11 Recording of cash
The researcher wanted to find out whether cash received and cash spent is recorded in the selected businesses, and findings are presented as in the table below;
Table 18: findings on whether cash spent and received is recorded
|response |Frequency |Percentage |
|Yes |29 |71% |
|No |12 |29% |
|Total |41 |100% |
Source: primary data (survey of question 22)
It is demonstrate from table 18 above that; 29 respondents representing 71% said that they record cash, while 12 respondents represented by 29% do not record their cash movements. This implies that 29% of businesses do not have cash security and this is likely to force such businesses to close down due to insufficient cash balances.
4.2.12 does the business benefit from cash management policies?
To investigate whether businesses are benefiting from cash management policies adopted by select businesses, respondents were asked to show their side on this and the findings are as in the table below;
Table 19: Findings on whether businesses are benefiting from cash management policies adopted
|Responses |Frequency |Percentage |
|Yes |40 |98% |
|No |1 |2% |
|Total |41 |100% |
Source: primary data (survey of question 24)
It is clearly observed from the table 19 above that; 40 respondents show that they benefit from cash management policies adopted and this is represented by 98% whereas, 1 respondent representing 2% said that the business is not benefiting from cash management policies adopted. These (98%) respondents claim that this may be the reason for their survival.
4.3 Survival of business
4.3.1 The period in which the business has been in operation
The researcher wanted to find out the number of years in which the business have been in operation and the findings were presented in the table below;
Table 20 findings on the period in which selected businesses have been in operation
|Period (in years) |Frequency |Percentage |
|0-3 |19 |47% |
|4-8 |14 |34% |
|9-15 |7 |17% |
|16 and above |1 |2% |
|Total |41 |100% |
Source: primary data (survey of question 25)
From the table 20 above, it is shown that majority of the respondents said that their businesses have survived for less or equal to three years with the largest number of 19 representing 46%, this is followed by those that have survived for 4-8 years with 14 respondents representing a percentage of 34%, in the period of 9-15 years, there are only 7 respondents representing 17%, and finally 1 respondent representing 2% fall in the period of 16 and above. This provides the evidence that majority of businesses do not survive for five years and some do not even celebrate their first birth day while those that escape do not survive beyond 8 years that is 81%. Therefore, very few businesses survive beyond 10 years that’s only 19%. This is approximate to what was given by .ug/D/9/32/662491 that in every year over 10,000 people starts a business. Of which 40% fail within a year and 80% within five years. The analysis was further summarized as below. This was further analyzed as below;
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Source: primary data (analysis of table 20)
4.3.2 Attendance of seminar/workshop/training relating to business
In order to investigate whether respondents for selected businesses have ever attended any training or seminar and whether they benefited from such training or workshop, respondents were asked to show their response for that and the findings are as in the table below;
Table 21 presentation of findings on attendance of workshop/training and whether it benefits the business
|Responses | | |
|Attendance |frequency |percentage |
|Yes |17 |41% |
|No |24 |59% |
|Total |41 |100% |
|Benefits | | |
|Yes |15 |88% |
|No |2 |12% |
|Total |17 |100% |
Source: primary data (survey of question 26 and 27)
In the table 21 above, it is clearly seen that out of 41 respondents from the selected businesses; 17 have ever attended workshop/training relating to their businesses representing 41% and 24 representing 59% have never. This shows that, there are few number of people with required skills of running business this is evidenced by a huge number of respondents (59%) who lack such skills
In addition, out of 17 respondents who have ever attended workshop or training relating to business, 15 representing 88% benefited whereas 12% gained nothing, this indicates that training or workshops are crucial to business personnel as a way of improving their skills.
4.3.3 Indicators that those trainings or workshops were beneficial
In order to find out the indicators that respondents who have ever attended workshop/training benefited, respondents were asked to mention some of those indicators and they had this to say;
▪ Growth/expansion in terms of sales, profits due to growth of in-flows, productivity, and assets
▪ Introduction of new product or services
▪ Understanding the scope of the business
▪ Prompt payment of expenses like; salaries and wages, suppliers
▪ Timely payment to creditor and by creditors
▪ Increased efficiency and effectiveness hence reduced costs, increase in product quality and better use of equipments
▪ Skills of knowing how to handle customers hence knowing; what are their needs, when they need, how they need to be served
▪ Ability to buy in large volumes
▪ Knowledge of management like; budgeting, planning, coordinating and control
4.3.4 Factors that might hinder survival of business
In order to establish the factors that might hinder survival f businesses, respondents were asked to mention some of those factors, and they give the following;
▪ High competition from other related businesses especially large enterprises, this has reduced market for their sales
▪ High costs of operation like; cost of material, electricity, rent and timbers are high and this has in turn limit the levels of profit that accrue to the business by increasing out flows
▪ Price fluctuation which has led cost of materials, transport costs and other to change over time the has limited forecasting and planning for the business hence limiting their survival
▪ Chaos caused by customers which some time lead to destruction of properties like bottles and glasses this is commonly in bars and is likely to cause more losses hence impeding their survival.
▪ High fees charged by the government and local governments that is; taxes and licenses, these increase out flow of cash hence minimizing cash balances
▪ Low creativity this is mostly due to inadequate skills in areas of; marketing, production and research and development. This has limited product diversification, increase in product as per the market and expansion of market share, which limit sale, cash inflows and in turn survival of the business.
▪ Low customer turn over, this has limited sales and inflows hence limiting business survival.
▪ Seasonal factors like Christmas, Easter, Idd among others this limit sales in other time after and before these event and consequently business survival, also weather changes has contributed to failure of businesses.
▪ Instabilities caused by riots from students and people which causes destruction of properties and theft, this leads to more losses and therefore, impending business survival.
▪ Poor management policies like spending without following budgets.
▪ Load shading which limit productivity, sales, cash inflows and in turn survival of the businesses.
▪ Poor location, since more businesses are located in areas which are invisible and inaccessible, this limit customer turn over and consequently survival o businesses.
▪ In adequate funds to supplement to owners equity which has limited productivity, sales, productivity, and in turn survival of businesses.
▪ Delayed payment by customers, lack of collateral security, high interest rates and high default rates might also contribute to business failure.4.4 Relationship between cash management and survival of SMEs.
4.4.1 Relationship between cash management and survival of SMEs
To establish whether there is a relationship between cash management and survivals of businesses, respondents were asked to show in their opinion whether there is a relationship between cash management and failure of businesses, finding are as in the table below;
Table 22 presentation of findings on the relationship
|Responses |Frequency |Percentage |
|Yes |41 |100% |
|No |0 |0% |
|Total |41 |100% |
Source: primary data (survey of question 30)
Table 22 above shows that all respondents agreed that there is a relationship between cash management and survival of businesses this is evidenced by 41 respondents which give a percentage of 100%. This implies that cash has a greater influence on survival of businesses hence need to be handled with greater care.
4.4.2 Nature of the relationship
To find out the nature of the relationship, respondents were asked to describe the nature by showing their choices. The findings are as in the table below;
Table 23 Presentation of findings on the nature of the relationship
|Responses |Frequency |Percentage |
|High |23 |56% |
|Medium |12 |30% |
|Low |6 |15% |
|Total |41 |100% |
Source: primary data (analysis of question 31)
From the table 23 above, it was fund that out of 41 respondents; 23 representing 56% answered that there is a high relationship, 12 representing 30% answered that there is a medium relationship, and 6 representing 15% answered that there is low relationship. It is therefore, implied that survival of businesses is highly influenced by cash management.
The researcher went on to determine the strength of the relationship using Pearson’s correlation coefficient.
Table 24: computation of correlation coefficient
|Responses |(x) |(y) |x2 |y2 |xy |
|High |1 |23 |1 |529 |23 |
|Medium |2 |12 |4 |144 |24 |
|Low |3 |6 |9 |36 |18 |
|Total |6 |41 |14 |709 |65 |
r = n (∑x y)-[(∑x) (∑y)]
√ [(n∑x2-(∑x) 2) (n∑y2-(∑y) 2)]
3(65)-[6×41] = -51
√ [(3×14-62) (3×709-412)] √ [(17) (446)]
Therefore, r = -0.986
From this, it is determined that there is a high relationship between cash management and survival of business of 0.989. However, the relationship is negative which show that there are poor cash management policies adopted by these businesses in Uganda which is mainly attributed to inadequate skills. Hence SMEs need to improve their cash management policies if they are to ensure their survival.
4.4.3 Indicators
In this question, the researcher wanted to find out the indicators that there is; high, medium or low relationship. Here are some of them;
For high and medium, respondents said that since they started to use appropriate policies their businesses are progressing and these are the indicators; High profitability, Enough liquidity, reduced costs, Growth in sale (stock), Good will of the business, minimum losses, timely payment of expenses (bills, suppliers and wages), expansion of business, among others.
However, those that said that it is low, they claim even though they are trying to use appropriate policies their businesses are no progressing and they had these to say; Negative net cash flows, Low growth, High expenses, Shat down of some units or product lines among others.
4.4.4 Whether the business achieves the purpose of cash management
Here respondents were asked to show whether their businesses are achieving the main purpose of cash management which is; adequate cash balances. Findings are presented in the table below;
Table 25: findings on benefits from cash management
|Respondents |Frequency |Percentage |
|Ye |30 |73% |
|No |11 |27% |
|Total |41 |100% |
Source: primary data (survey of question 33)
From table 25 above, it can be established that 30 businesses representing 73% are benefiting from cash management they also added that, this is the reason as to why they are still going concern. On the other hand 11 businesses representing 27% are not benefiting from their cash management policies and this can be attributed to poor cash management policies, and it implies that these businesses may not continue for un foreseen period.
4.4.5 Indicators
On this question, respondents were asked to give some of the indicators that they are either benefiting or not benefiting from cash management, and these are there suggestions; Ability to determine their net cash flows, Increase in stock, Ability to meet daily expenses as they fall due, Availability of adequate cash, Sales and profitability growth, Timely payment of insurance premiums and fees, and absence of pending debts.
However, some respondents are claiming that their cash management policies have no helped them to achieve the benefits of good cash management policies. The indicators are; Low growth of the business, Inadequate cash needs to meet expenses as they fall due, High levels of defaulting by creditors, Existence of theft, Failure to meet standards, low sales; productivity; and profitability, Increasing cash out flow with falling cash inflows for the period of time. It is therefore, ideal for these businesses to adopt cash management policies so as to achieve the benefits of having a good cash management policy.
4.4.6 Other factors that contribute to survival of businesses
To establish other factors that contributes to survival of businesses (apart from cash management), respondents were asked to give some of them, and they suggested the following;
• Support from financial institutions like banks, micro finances and SACCOs, for example by extending low interest credit schemes.
• Favorable conditions like; political stability, stable prices among others.
• Favorable government policies on investment, like tax reduction.
• Customer care like; after sales service.
• Employee motivation, training and supervision.
• Product or service quality.
• Location of the business.
• Supplying source such as; sourcing from cheaper sources.
• Efficiency and effectiveness of operation like use of skilled personnel, minimizing of wastage and time management.
• Level of competition in the market and the market size, marketing techniques and demand for the products/services.
• Credibility, trust-worthy and patience in business.
• Experience in the business.
• Interest in the business and hard working.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
5.1.1 Cash management
It was found that selected SMEs use the following cash management policies depending on whether they experience positive or negative net cash flows. In case of positive net cash flows, they suggested the following policies; Banking, Investing, or keep it in safe represented by 51%, 39% and 10% respectively. In addition, they showed that they invest in short term, long term investment opportunities while others re-invest. However, in case of negative net cash flows; they borrow (both long term and short term), half payment to creditors, reducing debt collection period, increase credit period, and reduction of expenditure. They further indicated that they use flexible, non flexible and others use none as their cash management policies.
It was also found that the level of cash kept by some selected SMEs is optimal and the respondents claimed that that is the reason as to why they are still going concern.
5.1.2 Survival of SMEs
It was fund out that the majority of SMEs have survived for the period between 0-8 years represented by 81%, with the minority of 19% have survived for more than 8 years.
From the study, the researcher investigated that the factors that might hinder survival of businesses are; competition, high costs of operation, high fees charged, strikes and chaos which cause instabilities and losses, poor management, weather changes, in adequate capital, load shading, among others.
On further survey about whether the businesses benefit from seminars or training, respondents who responded to this question (42%), suggested the following indicators as follows; Increased sales, profits productivity; Expansion; development of new products; reduced costs; understanding the scope of the business; ability to plan, budget, control and coordination of activities.
5.1.3 The relationship between cash management and survival of SMEs
Firstly, it was found that there is a relationship between cash management and survival of SMEs since all respondent agreed that ‘yes’ there is a relationship
On the proceeding survey, it was determined that the relationship is high since it takes the high percentage of 56%, with the minority of 15% responding that the relationship is low. In addition, the computation of the nature of the relationship showed that it is strong with a correlation coefficient of -0.986 implying that cash management strongly influence survival of businesses.
Finally, the findings on other factor (apart from cash management) that influence survival of businesses were; Financial assistance; Favorable economic conditions like stable prices; customer care like creation of a high customer relationship; Service/product quality; favorable government policies on investment; political conditions; Sourcing from cheaper sources; time management; experience and credibility in business.
5.2 Conclusions
Findings from the study showed that some selected businesses have adopted appropriate cash management policies. This gives the reason as to why they are still going concern and this in evidenced by; growth and expansion; improved performance and availability of optimal cash balances. However, some SMEs use poor cash management policies, and this has led to; inadequate cash balances; low growth; and reduced performance in general, this implies that there is a gap which need to be covered.
5.3 Recommendations
In reference to the above discussion, it seems that some SMEs are doing well while others are badly-off; therefore, researcher recommended the following on such situation.
5.3.1 Recommendation on cash management
To ensure that the organization has optimal cash balances at any time to meet organization’s goals; cash recovery should be matched with cash spent on services so that there is no unused cash balances (Pandey, 1980).
The business should also improve their cash management policies that is; by adopting the most appropriate policies like; banking, investing, budgeting and planning for cash
requirements. As cited by Kakuru, (2000) that; the surplus cash has to be invested while the deficit has to be covered through borrowing.
There is also a need to improve on the technical skills of personnel in SMEs and this can be done through; training, workshops, and motivation can also improve productivity and performance.
Businesses should also identify cheaper sources (supplier), other ways of reducing costs like cheaper sources of funds and conducive credit policies.
There is a need for the businesses to know their cash needs by determining the optimal cash balances, that is the point where some of the opportunity cost and transaction costs are minimized (Pandey, 1980).
Businesses should adopt good cash control systems like; control over cash received, control over cash banking, control over petty cash, control over cash payment and control over cash collection (), and this will improve on safety.
5.3.2 Recommendations on survival
There is a need for the government to provide adequate security to safe guard businesses mostly during riots. In addition, the government needs to provide additional assistance, sensitizations and favorable investment policies, to boost investment, and growth of businesses.
Time management should be emphasized in order to limited idle time hence increasing productivity, sales, and profitability of the businesses, and in turn survival of businesses
There is a need to increase funds extended to SMEs by financial institutions and the cost of such funds have to be substantially reduced so that businesses fully benefit from such funds.
The quality of products/services need to be improved to create a competitive advantages for business a Deming noted that high quality product/service will increase market share, improve business prospects, increased growth and consequently survival of business
Firms should develop ways of attracting more customers like; like customer care so as to increase demand for firms’ products/services. In addition marketing techniques and skills need to be improved to stimulate turnover of businesses, cash flows and in turn survival of the business. There is a need to improve planning techniques, formulation of policies, coordinate and organize activities to execute such plans.
5.3.3 Areas for further research
The researcher emphasized that the following areas to be researched on by other researchers. They include;
▪ Other methods and techniques of cash management apart from those researched on by the researcher.
▪ Further research should be carried out to other authors and other cites and what they are saying on survival of businesses.
▪ Further research should be carried out on the relationship between cash management and survival of businesses.
▪ Further research is needed to be carried out on the effect of other factors like; product/services quality, motivation among others on survival of businesses.
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APPENDIX ONE
QUESTIONNAIRE
Dear respondent:
I am a student of Makerere University carrying out a research study as a part of fulfillments for the award of degree of Bachelor of Commerce.
I humbly seek to get your opinion about the issue in question to facilitate the study about cash management and success/survival of Small and Medium Enterprises. Your opinion will be highly confidential and specifically used for academic purposes
SECTION: A
General information;
1) Type of the business...................................................................................
2) Scale of business. Small scale Medium scale
3) Address
Division..................................... Parish.......................................... Village..................................
4) Age
25. 26-35 36-45 46-55 56 and above
5) Gender; Female Male
6) Marital status; Single married
7) Education level;
Primary and below Senior Secondary School Technical/ Vocation
University Others specify
8) How long have you been engaged in this business
1-18 months 19-36 months 3-5 years 5 years and above
SECTION: B
CASH MANAGEMENT
9) Doe your business have a business plan?
Yes No
10) Have you attended any workshop/seminar/training relating to your business?
Yes No
11) Are there instances where you experience high cash inflows than outflows?
Yes No
12) If 1 is chosen in question (11), what policies are in place to handle that?
Bank it Invest it keep it in safe others specify
13) If 2 is selected in question 11) what policies are in place to handle that?
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
14) If 2 is chosen in question 12), what investment does the business puts its money?
Long term Short term None Others specify
15) What kind of cash management policies does your business use?
Limited Stringent None Others specify
16) Does your business budget for its operation?
Yes No
17) Does your business have cash security?
Yes No
18) Does your business offer goods or services on credit?
Yes No
19) If 1 is chosen in question 18, how do you determine the credit worthiness of a given customer?
Characters Capacity capital Collateral
Condition Others specify…………………………………..
20) What credit period do you usually offer to your credit customers?
A day- a week 1week-2weeks 2weeks-1month 1-1and1/2 month
1and1/2 -2months 2-3months 3-6months 6-12months
21) In case of receiving cash from customers, what mechanisms have you adopted to ease collection of such monies?
...................................................... ......................................................... .................................... ..................................................... ........................................................ ....................................
22) Does the business record cash received and cash spent?
Yes No
23) Does your business allocate it cash according to its approved budgets?
Yes No
24) In general, does your business benefit from cash management?
Yes No
SECTION: C
Survival/success of small and medium business enterprises
25) For how long have your business been in operation?
0-3 years 4-8 years 9-15 years 16 years and above
26) Have you ever attended any workshop/training/seminar relating to your business?
Yes No
27) If 1 is chosen above, has it helped your business to improve?
Yea No
28) If 1 is taken in question 27, what are the indicators?
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………
29) What are the factors that might hinder survival of your business?
……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………....
SECTION D
RELATIONSHIP BETWEEN CASH MANAGEMENT AND SUCCESS/SUVIVAL
30) Do you think there is a relationship between cash management and survival of your business?
Yes No
31) If 1 is chosen in question 30), how do you describe the relationship?
Improving Steady Worsening
32) What are the indicators?
............................................................ .....................................................................
............................................................ ......................................................................
33) The main purpose of cash management is to ensure availability of enough cash balance; do you think your cash management policies have helped your business to achieve that?
Yes No
34) What are the indicators?
……………………………………………………………………………………………………………………………………………………………………………………………………………...
34) Apart from cash management, what do you think are other factors that can lead to
Success/survival of your business?
................................................................................................................................................
................................................................................................................................................
36) In your opinion, what do you think can be done to overcome the problems above?
i).........................................................................................................................
ii).........................................................................................................................
iii)..........................................................................................................................
iv)..........................................................................................................................
v)..........................................................................................................................
Thanks for your cooperation
-----------------------
Cash collection
Borrow
Business operation
Deficit
Investment
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Information and control
Cash management
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