The Effect of Budgeting Process on the Financial Performance of Top 100 Small and Medium Firms in Kenya

Abstract

The study sought to determine the effect that budgeting process has on the financial performance of top 100 SMEs in Kenya. The primary data was collected from the SMEs owners and managers using semi-structured questionnaires. The study adopted a descriptive technique in analysing data. The study use techniques such as standard deviations and mean. The study findings were presented in figures and tables. In this study, 100 questionnaires were sent to the owners of top 100 SME firms in Kenya. The response rate was 83%. The reliability statistics recorded a Cronbach’s Alpha co-efficient of 0.708 which implied that the questionnaire was internally consistent. The study found out that Budget Planning, Budget Control, Budget Coordination, Budget Communication and Budgetary Evaluation Process have all been implemented to a great extent. This indicates that the top 100 SME firms in Kenya have adopted all the processes of budgeting. The study concluded that there is a strong(R-value = 0.721) relationship between financial performance and budgeting processes, with financial performance accounting for 49% of the total variance in top 100 SME firms financial performance. Further, the study concluded that budget planning, budget control, budget coordination, budget communication and budgetary evaluation process have a positive effect which is significant on the top 100 SME firms’ financial performance. The study recommends that SMEs that have not adopted budgeting process should do so in order to enjoy the benefits that accrue. The study faced various challenges. The top 100 SMEs considered their information as confidential and legally privileged. This is why the respondents were slow in availing the information for fear of the information being used to create negative public image and the competitors using the information to have a competitive edge over them. The researcher had to use an introduction letter from the university to prove that the data was being sought to fulfil academic requirements and that it would be would be treated with utmost confidentiality. Further, the researcher didn’t have control over the accuracy of the data. However, it provided a good opportunity for the researcher to seek clarification over any contentious issues. The researcher handled the challenge by consulting the respondents on any issues were deemed not clear.