Effects of Financial Planning on Business Performance,A Case Study of Small Businesses in Malindi District

Abstract

The importance of recording business transactions and keeping of business documents has become an important component in evaluation of business performance and fonns a right base for control. Small businesses must do financial planning in order for their business operations to achieve the desired goals. Whether or not these businesses practice financial planning as a management tool has not been empirically established. Evaluation of business operations before implementation is a crucial process that has to be done with a lot of care. This study sought to determine the effects of financial plamiing on business performance among small businesses in Malindi district of Kenya. The target population included all small businesses traders in Malindi district. Cluster sampling technique was employed to ensure fair distribution of the different kinds of enterprises from different trading zones in the area. A proportionate sample of 60 enterprises lrom the population was taken for the study. Primary data was collected through administration of two a structured questionnaire with the selected respondents. Secondary data collected from documented infonnation to supplement the primary data. The collected data was processed and analyzed using descriptive and inferential statistics. The study made the following findings about financial planning and performance of small businesses: sole proprietors preferred engaging in business ventures that serves the immediate consumers, required less capital to initiate and have high immediate retums; rate of tumover (sales) is important in determining the performance of a business and requires efficient financial planning; small businesses with financial plans are more likely to increase their number of employees and reduce their proportion of income used for household expenditure; and there are other factors a part from the level of education of the entrepreneur, number of full-time employees, age of the business and household expenditure that influenced the level of business performance. Based on the study findings, two key recommendations were made: there is a need for all the small businesses to embrace the concept of financial planning for effective business management, maximum rate of retums and overall business monitoring; and there is a need for owners/managers of small businesses to evaluate and consider a variety of factors in formulating their financial plans so as to improve performance (profits).