Cash Budgeting Practices and Profitability of Small and Medium-Sized Enterprises in Nyeri Town Sub-County, Kenya

Abstract

The study sought to establish the effect of cash budgeting practices on profitability of Small and Medium-sized Enterprises in Nyeri County, Kenya. Profitability was measured using the Return on Assets (ROA). The study used systematic sampling to determine the different SMEs whose employees and officials would be adopted as sample members. In this study, the researcher used 311 respondents as sample members with 100 of them being the officials mostly from management. Questionnaires were used in collecting primary data. The instrument was tested for reliability using Cronbach’s Alpha Reliability test while content validity was assessed using expert opinion. The researcher used Statistical Package for Social Sciences (SPSS) to conduct data analysis. The study used both descriptive and inferential statistics in data analysis. Further, diagnostic tests were conducted to check whether the data set met general assumptions for certain statistical procedures such as regression analysis. The diagnostic tests included; normality tests, multi collinearity test, and heteroscedasticity test. Data was analysed using descriptive and inferential analysis. Descriptive statistics included means and standard deviations. The inferential statistics included the regression analysis and Pearson correlation analysis. As indicated by R square, the Coefficient of Determination, 78.49 percent of variation or changes in profitability was explained by variation in cash flow management and its component variables. With regard to regression analysis results, the coefficient for cash budgeting (β=0.601, p=0.021) shows that cash budgeting has a statistically significant effect on profitability. The results of Pearson correlation analysis indicated that cash budgeting (r=0.662, p=0.001) has a strong positive and statistically significant relationship with profitability. The study recommends that SME managers ensure that adequate cash is set aside to cater for unforeseen negative cash flows, which was scarcely the case, going by the findings. In addition, it is recommended that the government through her agencies such as the National Chamber of Commerce and Industry and the Small and Medium Enterprise Authority consider financial literacy training for SMEs to enlighten them on best practices in business management especially matters related to cash budgeting.