Effect of Budgeting Practices on Financial Performance of Manufacturing Small and Medium Enterprises in Nairobi County, Kenya

  • Marion Mbogo United States International University-Africa
  • Macharia Jimmy United States International University-Africa
  • Clement Olando School of Business and Economics Mount Kenya University

Abstract

Prior studies have asserted that small and medium-sized enterprises (SMEs) have grown and represented most businesses in Kenya. However, these studies continue to establish that 70% of Small-to-Medium sized enterprises (SMEs) in Kenya fail within their first three years of existence. One weakness postulated as a possible cause for this failure rate is poor financial performance. Existing literature has highlighted management accounting practices deployment, including budgeting, costing, and strategic management accounting practices. This is one possible remedy from an array of interventions.  This paper, therefore, aims to investigate the effect of budgeting practices, including planning for cash flows (BP), controlling cash flows (BC), resources allocation (BRA), activity coordination (AC), and   monitoring financial position (MFP) on Financial Performance (FPM) of Manufacturing Small and Medium Enterprises in Nairobi County, Kenya. This research adopted a descriptive research design that used data collected using a self-administered cross-sectional survey. A questionnaire from a randomly selected sample of 156 manufacturing SMEs in the City of Nairobi data was analyzed through structural equation modelling. The results revealed that budgeting practices positively and significantly influence manufacturing SME's financial performance. The findings of this study suggest that the financial performance of a manufacturing SME can be improved by deploying strategic action in budgeting practices in the form of planning for cash flows (BP), controlling cash flows (BC), resources allocation (BRA), activity coordination (AC) and   monitoring financial position (MFP).

Author Biographies

Marion Mbogo, United States International University-Africa

Marion Mbogo teaches in the Chandaria School of Business, United States International University-Africa.

Macharia Jimmy, United States International University-Africa

Jimmy is a holder of Doctor of Philosophy in Business Management from North-West University, South Africa (Management Information Systems Track). He is an Associate Professor in Information Systems and Technology, and immediate former dean, in the School of Science and Technology, United States International University. He has over 27 years of university teaching, research, consultancy, leadership, and private practice. Jimmy’s publication portfolio includes fifteen refereed journal articles, fourteen papers presented and published in international conference proceedings, and seven published teaching case studies.

Clement Olando, School of Business and Economics Mount Kenya University

Clement Olando is based in the School of Business and Economics, Mount Kenya University in Kenya.

                 

Published
2021-07-15

Journal Identifiers


eISSN: 1998-1279