Financial Literacy, Working Capital Management and Business Performance of Small and Medium Enterprises in Kampala District

Abstract

The study sought to establish the relationship between financial literacy, working capital management and business performance of SME in Kampala District. The study adopted across sectional design using a sample size 379 SMEs. The data was tested for reliability and validity, analyzed using SPSS version 25 as well as results presented based on the study objectives. The correlation coefficient analysis revealed positive and significant relationships between financial literacy and business performance, working capital management and business performance, financial literacy and working capital of SMEs which implies that when one variable is improved it leads to improvement of the other. Furthermore, findings indicate that financial literacy combined with working capital have been found to have a greater influence on the business performance (Adj R2 of 0.783). Therefore, more emphasis should be put on improving financial literacy and working capital management since these enhances performance. The researcher therefore recommends that to improve business performance there is the need for improvement of financial literacy through personal development by SMEs owners/managers in the area of education and training since the findings indicated that the majority of the respondents were diploma and certificate holders. To this effect, SME owners/ managers may lack some perquisite skills and abilities. In addition to gaining work and related experience, new small and medium enterprises can work with established companies to allow new entrepreneurs gain experience in the functional areas of working capital management as well as marketing since the findings indicated that most SMEs in Kampala District are below ten years old.