Internal Cash Controls and Financial Performance of Small and Medium Enterprises in Uganda a Case Study of Smes in Nkozi Community Trading Centre

Abstract

The study investigated and sought to establish the relationship between internal cash controls and financial performance of small and medium enterprises in Uganda. Internal controls were looked at from the perspective of Cash accountability, Internal Cash Audit and Cash budgeting and on the other hand, financial performance focused on Liquidity, Profitability and Solvency as the measures of financial performance. The Researcher set out to establish the causes of persistent poor financial performance from the view of internal cash controls.

The research was conducted using both quantitative and qualitative approaches using Correlation and Case study as Research Designs. Data was collected using Questionnaires and Interview guide as well as review of available documents and records targeting basically the business men and women of Nkozi Trading Centre community. Data was analyzed using the Statistical Package for Social Scientists where conclusions were drawn from tables, figures from the Package.

In the study, it was observed that a cash budget is always drafted because of its usefulness though the ability to draft the budget develops over time and due to a lot of competition among small and medium enterprises, entrepreneurs always adopt each one’s method of internal cash control in order to stay at the same level. From the study it was also discovered that surprise cash counts are periodically carried out by an independent employee, properly documented and the audit function is independent from management influence. It was also found out that cash is counted and verified when cashiers receive money to use for the day and a receipt is given for all transactions that are conducted in person. All this supported the importance of cash budgeting, accountability and auditing to financial performance of an organization. The study established a significant relationship between internal cash controls and financial performance of these businesses.

The Study therefore concludes that internal cash controls do function despite the challenges of implementing them and that there is a significant relationship between internal cash controls and financial performance of small and medium businesses.

The investigation recommends business employees to be involved in budgeting. A strategic planning should also be formulated and a lay out of the scope and direction of the business growth should be included. The management should regularly carry out auditing, planning and budgeting because they work hand in hand in order to improve and maintain the financial performance of the business. Business owners should adopt the use of accounting tools in business management and avoid using uneducated personnel to run business operation.

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