Cash Flow Management and Growth of SMEs in Uganda

Abstract

Cash flow management is a component of working capital management that aims to establish the financial position of the organization. The primary objective of cash flow management is to balance cash inflows with cash outflows in a matched approach to financing working capital. The study investigated the relationship between cash flow management and the growth of Small and Medium Enterprises (SMEs). The study was conducted in Gulu Municipal in northern Uganda using a cross-sectional survey design. Data were collected from a random sample of 94 businesses stratified as private schools (44), hotels (44), and clinics (6). The study used a quantitative approach, and the categorical data were measured using a five-pointLikert scale.  Data analysis was based on the generated descriptive and inferential statistics. The study established that there is a significant and positive relationship between SMEs growth and cash flow management at . The study found that motives for cash holding is the major determinants of SMEs growth.The significant and positive relationship between SMEs growth and cash flow management at  means that in making liquidity decision management should attach great importance to the cash component of working capital. A coefficient of determination of , means that about one third of the variation in growth of SMEs is accounted for by proper cash management of organizational resources. SMEs need to focus on cash flow management as a component of liquidity decision taken in their business. Financial institutions that finance gaps in working capital should ascertain clear cash holding strategies of the borrowers. Other researchers could explore the contribution of the components of working capital to the growth of SMEs. This should be in addition to the contribution of investment decision, financing decision, and dividend decision as a totality of best financial management practices in the promotion of growth of SMEs.

Keywords: Cash Flow Management, Motives for Cash Holdings, SMEs, Uganda

DOI: 10.7176/RJFA/15-2-03

Publication date: January 31^st 2024