DEBT MANAGEMENT POLICIES AND PERFORMANCE OF SMALL SCALE

BUSINESSES IN JINJA DISTRICT-UGANDA

BY

MUKISA IVAN
1153—05014—01185

A RESEARCH DISSERTATION SUBMITTED IN PARTIAL FULFILLMENT OF

THE REQUIREMENTS FOR THE AWARD OF BACHELORS
DEGREE IN BUSINESS ADMINISTRATION OF
KAMPALA INTERNATIONAL UNIVERSITY

JUNE, 2018
 DECLARATION

This dissertation is my original work and has never been presented for a degree or
any other academic award in any university or institution of learning.

Signature:

Student’s Name

Date
 APPROVAL

I confirm that the work reported in this dissertation is carried out by the candidate
under my supervision.

Signature~ q
Superv~sor’s Name:~~ !~≤!.~~ ~.‘

Date:
 DEDICAflON

I dedicate this dissertation to my beloved parents Mr.Isiko Christopher and, Mrs.

Kagoya Robinah.
To my pastors mr. Mugoya James, Kibwika Christopher, and apostle Daniel
Mw&gwa

To my sisters, Klsakye Suzan, Klsakye Esther, Kirabo Martha, Kwagala Angel,

Namuyodl Kisakye Jamawa and Mlrembe Hellen.

To my brothers TaMka Joel, Mutwanyl David, Muwanguzi Anthony and Kawesa

Joseph. To all my relatives like Mugoya Samuel,Mugoya Steven and to my friends
like Auma Sarah who used to help with the laptop, Twoll Joel, Nandera Judith,
Wambuzi Tadeo, for the support and courage rendered to me during all the times of
hardship.

iii
 ACKNOWLEDGEMENT
My sincere gratitude is due to the Almighty God for the gift of life that He has given
me throughout my studies, may all the glory and honor go back to Him.
I would like to acknowledge and extend my sincere and hearty gratitude to my
supportive supervisor DrJOSEPH B.K KIRABO for his critical reviews, expert
advice, and regular availability to me throughout the course of my research work.
Special thanks and gratitude goes to him for his remarkable advice and suggestions
during the process, I say thank you very much for the time sacrificed.

I cannot forget my exemplary lecturers at the College of economics and

management for their great assistance and excellent academic pieces of advice. I
owe a special debt of gratitude to all of them.
I acknowledge the authors whose works have been cited in this study.

I acknowledge with gratitude the contributions and co-operation made by the

owners of SSB5 in Jinja District more especially Mr. Wafula David for their willingness
to provide the necessary information when I visited their offices and residences
during the research process. Without their cooperation, this study would have been
impossible to accomplish.

Finally, I also thank my beloved parents Mr. Isiko Christopher and Mrs. Kagoya
Robinah, brothers, sisters Namudira Hajira, Suzan Esther and close friends like Twoli
Joel, Auma Sarah, Nandera Judit for both their emotional and financial support. It is
through them that I successfully completed this piece of work.

iv
 TABLE OF CONTENTS

DECLARATION
APPROVAL
DEDICATION Ii

ACKNOWLEDGEMENT iv
TABLE OF CONTENTS v
ABSTRACT Viii

CHAPTER ONE 1
INTRODUCTION 1
1.0 Introduction 1
1.1 Background to the Study 1
1.1.1 Historical perspective 1
1.1.2 Theoretical perspective 2

1.1.3 Conceptual perspective 3

1.1.4 Contextual perspective 4
1.2 Statement of the Problem 5
1.3 Purpose of the study 5
1.4 Research objectives 5
1.5 Research questions 6
1.6 Hypothesis 6
1.7 Scope of the study 6
1.7.1 Geographical scope 6

1.7.3 Time scope 7

1.8 Significance of the study 7

1.9 Operational definition of key terms 7

CHAPTER TWO 9
LITERATURE REVIEW 9

2.0 Introduction 9
2.1 Theoretical review 9
2.2 Conceptual framework 10

V
2.3. Review of related literature 11

2.3.1 Effect of reviewing interest rates on performance ii

2.3.2 Effect of negotiating with suppliers on performance 12

2.3.3 Relationship between debt management and performance 13

2.4. Performance of small scale businesses 14

2.4.1 Profitability 15

2.4.2 Sales growth 16

CHAPTERTHREE is
METHODOLOGY 18

3.0 Introduction 18

3.1 Research design 18

3,2 Research population 18

3.3 Sample size 19

3.4 Sampling procedure 19

3.5 Research instrument 19

3.5.1 Questionnaire 19

3.6 Validity and reliability of the instrument 20

3.6.1 Validity 20
3.6.2 Reliability 20

3.7 Data gathering procedure 21

3.8 Data Analysis 21

CHAPTER FOUR 24

DATA PRESENTATION, ANALYSIS AND INTERPRETATION 24

4.0 Introduction 24

4.1 Demographic characteristics of the Respondents 24

4.2 Debt management policies 25

4,3 Performance 27
4.4 Objective one; effect of reviewing interest rates on performance of small scale
businesses in Jinja district 29

vi
4.5 Objective two; the effect of negotiating with suppliers on performance of small
scale businesses in Jinja district 31

4.5 Objective three; relationship between debt management policies and financial
performance of small scale businesses in Jinja district 32

CHAPTER FIVE 34

DISCUSSIONS, CONLUSIONS AND RECOMMENDATIONS 34

5.0 Introduction 34
5.1 Discussions 34
5.1.1 Objective one; the effect of reviewing interest rates on performance 34
5.1.2 Objective two; the effect of negotiating with suppliers on performance 35
5.2 Conclusions 36
5.2.1 Objective one; the effect of reviewing interest rates on performance 36
5.2.2 Objective two; the effect of negotiating with suppliers on performance 36
5.2.3 Objective three; relationship between debt management policies and financial
performance 37
5.3 Recommendation 37
5.5 Areas for further research 37
REFERENCES 39

APPENDIX I: QUESTIONAIRE 43

vii
 ABSTRACT

The study sought to assess the effect of debt management poilcies on performance
of small scale Businesses in Jinja-Uganda. It was guided by three specific objectives,
that included I) to determine the effect of re viewing interest rates on performance of
small scale businesses in Jinja district~, to establish the effect of negotiating with
suppilers on performance of small scale businesses in Jinja district and to establish
the relationsh4~ between debt management policies and financial performance of
small scale businesses in Jinja district. This research employed cross~-sectiona,~’,
survey and descriptive research design to describe the variables and the
questionnaire and interview guide were used as the research instruments.
Descriptive statistics were used in this study included frequencies, means and
regression analysis on variables. The findings revealed the following; The findings
indicated that reviewing interest rates siqnificantly affects the performance of small
scale businesses in Jinja district, this effect therefore implies that reviewing interest
rates hiqhly contribute to the performance of Small scale businesses in Jinja district
Uganda, the findings revealed that there is a siqnificant effect negotiating with
suppilers has on performance of small scale businesses in Jinja district, findings of
this study proved a positive siqnificant relationsh,~ between debt management
policies and performance of small scale businesses in Jinja district. Still the
conclusions were that; there is a positive siqnificant effect reviewing interest rates
has on performance of small scale businesses in Jinja district, effective negotiating
with suppllers significantly improves performance of small scale businesses in ]iiija
district. debt management policies is h/ql?/y related to the performance of small scale
businesses in Jinja district Uganda. The researcher recommended that the; owners
of small scale businesses should develop a good system to monitor debt payments,
record and track all the debt payments so that there is effectiveness in payment of
debt and ensure to cover loopholes in the system to enhance performance, owners
and managers of small scale businesses should develop negotiating with suppliers
system for example alternatives ways of collecting cash from customers which
makes negotiating with suppllers easy and flexible so as to boost performance, and
finally owners of small scale businesses should develop a debt management system
and make sure they always have a debt plan that enables them have minimum cash
balances at all times, this will help them control debts and hence increase in the
performance of their businesses. Contribution to knowledge; the following are the
debt management techniques used in maintaining the performance of small scale
businesses in Jinja district; reviewing /17 terest rates and negotiating with suppliers.
The following are the measurements of performance in small scale businesses in
Jinja district; profitability levels and sales growth.

VIII
 CHAPTER ONE

INTRODUCTION

LO Introduction

This chapter presents the background of the study, problem statement, purpose,
research objectives, research questions, scope, hypothesis and Significance of the
Study.

Li Background to the Study

The background of the study was presented in four perspectives which included
historical perspective, theoretical perspective, conceptual perspective and contextual
perspective;

1.1.1 H~storica~ perspective

Larsson (2010) noted that willingness and ability of the borrower to repay the loan
were the primary factors to be considered in any appraisal of credit risks. Applicants
who could attempt to fraud were clearly undesirable, as are those who, though not
strictly dishonest, could appear to be irresponsible. The second criterion was the
ability to repay, could be tested by several standards: by personal characteristics
such as age, sex and family status; and by the borrowerTs occupational or economic
position, income and net worth, In general, then, the commercial banks were
interested in the moral, personal, vocational and financial characteristics of the
applicant for a personal loan. The would be borrower could be asked to supply credit
references, banking connections and information concerning his charge accounts,
since these give some evidence of his probity. Age, sex, marital status, number of
dependents and permanence of residence, were pertinent personal characteristics,
the nature of the applicants occupation, his tenure of employment, and the industry
in which he was engaged were clues to his ability to pay. His income, assets (real
estate, household goods, automobiles, stocks and bonds) and debts (mortgages,
charge accounts and installments accounts) served to indicate the financial capacity
(Larson, 2010).

1
Conversely, Wolfenson (2011) observe that debt has the ability to cause the non-
performance of small scale enterprises. Most empirical studies on the impact of debt
management on the performance of businesses have focused basically on large scale
businesses in developed countries (Coleman and Cohn, 2001; Eriotis et al., 2002).
Yet, of recent, there has been an increase in the recognition of the role played by
small scale firms in national economies. The contribution of small scale enterprises
to job creation, revenue mobilization and poverty alleviation has been recognized by
many governments in developing countries to the extent that small scale enterprises
are now included in their development plans (Coleman and Cohn, 2001). Through
such plans, support structures are provided for the growth of the small scale firms’
including funding and concessional loans, usually at concessionary rates. Meanwhile,
Harris et al, (2014) questions whether the use of such debt improve businesses’
performance and hence enhancing sustainability (Fabayo, 2013).

In Africa, despite the recognition and support in Ghana, Akabueze, (2011) asserts
that small scale enterprises faces several constraints including lack of power supply,
capacity under-utilization, insufficient research and development, poor access to
credit facility, price controls since 2001, shortage of foreign currency and fuel.
Therefore, servicing debt has become imperative due to insufficient capital in the
running of many small scale enterprises in Ghana. Managing the debt of such
businesses has become a necessity if these businesses desire growth. This means
that the management of such firms needs to appreciate the implication of the use of
debt in financing their business operations. They need to deploy appropriate
financing strategy to drive better organizational performance (Akorsu and Agyapong,
2012). The use of debt management becomes imperative in small scale enterprises
in developing countries such as Ghana.

L1.2 Theoretical perspectives

This study was guided by the Signaling theory of business performance developed
by Myers-Majluf (1984) which rests on the transfer and interpretation of information
at hand about a business enterprise to the capital market, and the impounding of
the resulting perceptions into the terms on which finance is made available to the
enterprise. In other words, flows of funds between an enterprise and the capital
2
maricet are dependent on the flow of information between them (Emery et ai, 1991).
For example management’s decision to make an acquisition or divest; repurchase
outstanding shares; as well as decisions by outsiders like for example an Institutional
Investor deciding to withhold a certain amount of equity or debt finance. The
emerging evidence on the relevance of signaling theory to commercial banks
performance performance is mbced (Masonson, 2010).

1.1.3 Conceptual perspective

According to Gupta (2013), argues that debt management Is any approach that is
adopted to guide an Individual or business organisatlon to manage its debt. This
definition Indudes debt settlement, bankruptcy, debt consolidation, personal loans as
well as other techniques that assist businesses to service outstanding debts.

According to David (2010), performance In business refers to the act of performing

financial activity. In broader sense, performance refers to the degree to which
financial objectives being or has been accomplished. It Is the process of measuring
the results of a firm’s policies and operations in monetary terms. It is used to
measure firm’s overall financial health over a given period of time and can also be
used to compare similar firms across the same Industry or to compare Industries or
sectors In aggregation.

According to Kennon (2010) performance can be defined as a subjective measure of

how well a firm can use assets from Its primary mode of business and generate
revenues. Further this term is used as a general measure of a firm’s overall financial
health over a given period of time, and can be used to compare similar firms across
the same Industry or to compare Industries or sectors In aggregation. Performance
of companies can be measured by use of accounting Information or stock market
values In a financiai management practices context. When applying stock market
values as a measure of performance, one Is Interested in analyzing the change In
market value. Firm performance is measured over time by using the average stock
market change per year.

3
According to David (2014), performance in business refers to the ability to make
profit from all the business activities of an organization, company, firm, or an
enterprise. It shows how efficiently the management can make profit by using all the
resources available in the market. Small businesses range from fifteen employees to
fifty employees according to the definition used by the European Union (World Bank
report, 2015). According to Uganda investment authority (2008), small scale
businesses employ 5-50 employees under the government act.

LL4 Contextua~ perspective

According to Stevens (2013), more than 50 percent of Small scale businesses (SSB)
fight an uphill battle from the start and fail in the first five years. This is a common
scenario for Uganda’s small scale businesses, as most of them never celebrate their
first anniversary. That is to say, in Uganda Small scale businesses account to 99%
of private business. However, in every year, for over 10,000 people who start a
business, 40% fail within a year and 80% of the business within five years. This is
attributed to poor of managerial training and experience whereby many Small scale
business owners or managers have poor managerial training and inadequate
experience, poor infrastructures, technological change, lack of sufficient market
information poses a great scanty markets information (Daily Monitor June 12th,
2011). Many owners of the small scale businesses do not plan for their debt
requirements. They have slow debt inflow generation procedures with high rate of
debt outflow, limited skills of handling debt balances and do not strategically invest
surplus debt (Joseph, 2011). Many of small scale business owners do not understand
the significance of proper management of business resources and tend to believe
that the business will get better on its own. There is a low performance of small
scale business in Jinja district. Small scale businesses face constraints in the
availability of production inputs. For instance, better quality raw materials are
generally exported or are available only to larger firms and their suppliers tend to be
oligopolies. Inadequate infrastructure and weak provision of basic services such as
transportation, energy, urban planning and production sites represent particular
impediments for small scale businesses.

4
1.2 Statement of the Problem

A large number of small scale businesses have failed and closed after incurring a lot
of losses (New vision, 2016). Poor performance is a frequent problem among small
scale businesses (SSB) in Jinja district. Peter indicated that most SSBs die within
their first five years of existence; a smaller percentage goes into extinction between
the sixth and tenth year while only about five to ten percent survive, thrive and grow
to maturity. The result of such poor performance is claimed to be due to not using
the appropriate techniques of managing businesses. Small scale businesses (SSBs)
suffer difficulty in accessing appropriate technology, skills, financing, business
information and land. These constraints make it difficult for SSBs in Jinja district to
develop their productive capacities, maximize their sales and contribute to
sustainable financial growth. Hence poor performance of small scale businesses in
Jinja district. This study will look into how far SSBs have gone in Jinja district in
particular. This will reveal the performance and gaps in SSBs in the district, with the
main purpose of offering options for enhancing their performance competitiveness in
Jinja district.

1.3 Purpose of the study

The study aimed at establishing the relationship between debt management policies
and performance of small scale businesses in Jinja district-Uganda.

L4 Research objectives

(i) To determine the effect of reviewing interest rates on performance of

small scale businesses in Jinja district.

(ii) To evaluate the effect of negotiating with suppliers on performance of

small scale businesses in Jinja district.
(iii) To evaluate the relationship between debt management and
performance of small scale businesses in Jinja district.

5
L5 Research questions

(i) What is the effect of reviewing interest rates on performance of small

scale businesses in Jinja district?

(ii) What is the effect of negotiating with suppliers on performance of

small scale businesses in Jinja district?
(iii) What is the relationship between debt management and performance
of small scale businesses in Jinja district?

L6 Hypothesis~

Ho1: There is no significant effect of reviewing interest rates on performance

of small scale businesses in Jinja district.

Ho2: There is no significant effect of negotiating with suppliers on

performance of small scale businesses in Jinja district.
Ho3: There is no relationship between debt management and performance of
small scale businesses in Jinja district.

L7 Scope of the study

L7~1 Geographical scope

This study was carried out Jinja district, it is bordered by Kamuli District to the
North, Luuka District to the East, Mayuge District to the Southeast, Buvuma
District to the South, Buikwe District to the West and Kayunga, District to the
Northwest

L7~2 Content Scope

In terms of content, debt management policies (independent variable) was

conceptualized in terms of reviewing interest rates and negotiating with suppliers.
Yet the dependent variable (Performance of small scale businesses) was measured
in terms of profitability, sales growth.

6
1.7.3 lime scope
ThIs study was conducted from March 2018 to June 2018, whereby proposal writing
will take place from March 2018 to AprIl 2018, data collection and analysis was done
in May 2018, and then the final report was written and submitted in June 2018.

1.8 Significance of the study

The study will assist the government to support and plan for the finance of Small-
scale businesses which will help them to save, grow and carry out innovative
activIties.

The findings and conduslons resulting from the study also will contribute to the body
of knowledge on the relationshIp between debt management policies and
performance & small scale businesses. Future researchers and academidans may
use the study findings to further their research.

The study will benefit the managers and owners of small scale businesses who are
experiendng nowadays debt management policies problem and improving their
understanding towards the role of debt management policies on business
performance.

The study will contribute additional knowledge to the previously existing facts about
the role of debt management polldes on business performance to future researchers
who are Interested debt management policies for further research.

Still the study will generate new Information from the edsting theory to which this
study is based and It will bring gaps Identified In literature.

1.9 Operational definition of key terms

Debt management policies; this referred to the princlpies used by the

management of an organization In achieving the management’s objectives of
ensuring efficient conduct of debts.

Performance; this referred to the primary objective of the business and its
measurements of performance such as profitability and sales growth.
7
Profitability: this referred to what is left of the revenue a business generates after
it pays all expenses directly related to the generation of the revenue, such as
producing a product, and other expenses related to the conduct of the business~
activities,

8
 CHAPTER TWO

LITERATURE REVIEW

2~O Introduction

This chapter covers all reviews of literature related to the study. It is from studies
and observations made by other scholars! researchers with more concrete
understanding of the subject. It also discusses the literature on debt management
policies and performance of small scale businesses.

2.1 Theoretical review

This study was guided by the Signaling theory of business performance developed
by Myers-Majluf (1984), which rests on the transfer and interpretation of information
at hand about a business enterprise to the capital market, and the impounding of
the resulting perceptions into the terms on which finance is made available to the
enterprise. In other words, flows of funds between an enterprise and the capital
market are dependent on the flow of information between them (Emery et al, 1991).
The theory considers the role of financial management (with regard to presently held
assets and investment opportunities) between banks and capital markets. According
to Myers-Majluf, banks use internal funds that are less costly than external funds.
When outside funds are necessary, banks prefer debt to equity because of lower
information costs associated with debt issues, while equity is rarely issued. Later,
these ideas were refined into testable predictions and conbanked by Vogt (1994)
who finds that internal funds have an important influence in bank’s investment
decisions; signaling behavior is most pronounced in banks that have low long-run
dividend payout policies (Salkind, 2009).
Myers-Majluf shows how debt could be used as a costly signal to separate the good
from the bad banks. Under the asymmetric information between management and
investors, signals from banks are crucial to obtain financial resources. It is indicated
that managers (the insiders) know the true distribution of bank returns, but
investors do not.
Signaling of higher debt by managers then suggests an optimistic future and high
quality banks would use more debt while low quality banks have lower debt levels.
9
In this way, a good bank can separate itself by attracting scrutiny while the bad
bank will not mimic because the bad bank will not want to be discovered (Sampson,
1999).
Siddika (2007) indicated that the signaling theory talks about financing tactics,
where good banks try to distinguish themselves from bad quality banks by using
different financing device. Bank owners also have incentives to get external
financing by adopting such financing strategies. The signal instruments for farm
business can be its profitability, farm income, the historical good performance record
(return on assets) bank leverage, risk management documentation, operating
products etc. An important econometric issue that needs to be addressed is that
signaling theory considers the financing deficit to be exogenous. Bank’s profits and
leverage simultaneously affect each other and both are influenced by banks’
investments. When banks face a good investment opportunity, they first use cash,
followed by credit, and last they will issue equity (Ssuuna, 2008).

2~2 Conceptual framework

Figure 1: Conceptual framework

A conceptual framework showing the relationship between debt

management policies and performance of small scale businesses

I Debt management policies

L Performance of SSBs (DV)

V Review interest rates V Profitability

V Negotiate with suppliers V Sales growth

Source: Zimmerer (2012)

The conceptual frame work shows that the independent variable in this study is debt
management policies which is conceptualized as reviewing interest rates, and

10
negotiate with suppliers. Yet the dependent variable (Performance of small scale
businesses) will be measured in terms of profitability and sales growth.

2~3. Review of related literature

2.3i. Effect of reviewing interest rates on performance

According to Chandra (2011), small scale enterprises just like other organisations
need capital to run their operations. As earlier alluded to, generating capital through
credit systems has become a necessity for the growth of small scale enterprises.
This creates debt for such businesses.

Allis (2010) noted that advances that debt is the amount of taxes incurred during a
tax period which are payable to some type of governmental jurisdiction. Aspen Law
and Business (2004) defines debt as an amount owed to a person or organization for
funds borrowed. For the purposes of this study, debt is defined as any amount due
to any authority for which payment has not been effected. Debt take many forms
and can be represented by a bond, loan note, mortgage as well as other repayment
terms and, when necessary, interest requirements. These different forms are
indications of the intent to pay back the amount owed at an agreed date as is set
forth in the repayment terms (Arinaitwe, 2014).

A study by Kwame (2007) contends that, debt management is an act of trying to get
one’s debt under control and become responsible for repaying associated
obligations. It can therefore be inferred that debt management is a conscious
measure taken by a debtor or agents hired on their behalf to reduce the debt burden
or strategize to eliminate the debt through acceptable payment terms.

Kotut (2003) observe that a reasonable debt level improves welfare and enhances
growth but high level debts can lead to a decline in growth of a firm. Reinhart et al.
(2009) reinforces this assertion by arguing that debt impacts positively to the growth
of a firm only when it is within certain levels. He opines that a firm becomes
vulnerable to financial crisis when the ratio goes beyond certain levels. Stern Stewart
and Company shares a similar view that high level of debt increases the probability
11
of a firm facing financial distress. Ross et al. (2011) contends that over borrowing by
a firm can cause bankruptcy and financial ruin. Accumulating high levels of debt by a
small scale enterprise will constrain its ability to undertake project that are likely to
be profitable. This is because it would not be able to attract new debt from financial
institutions.

A study by Yuan and Kazuyuki (2012) using a sample of Chinese listed companies
showed that total debt ratio had a negative impact on fixed investment. This implies
that high proportion of debt in the capital structure of a firm can harm investment
using internal funds. This is because a firm with a high debt ratio can potentially
channel most of its income towards debt servicing thereby forgoing investment
through internal funds. Therefore the risk of a small scale enterprise increases when
more debt is employed in its capital structure. It will become increasingly difficult to
attract more debt for investment purposes as creditors will charge high interest rates
to compensate for the high business risk. Yuan and Kazuyuki (2012) therefore
argued that creditors will be reluctant to lend more funds to a highly indebted firm
which resulting in underinvestment, As such, firm operations can be affected if
insufficient investment is undertaken.

2~3~2 Effect of negotiating with suppliers on performance

Chandra (2011) examined the optimal level of capital structure which enables a firm
to increase its financial performance. The study found that there was a negative
relationship between the firm’s debt ratio and financial performance measured by
return on assets and return on equity (Mashestwari, 2012).

Fosu (2013) also conducted a similar study in South Africa to investigate the
relationship between capital structure and corporate performance with focus on the
degree of competition. The study established that there was positive relationship
between capital structure and corporate performance. Ogebe et al. (2013)
investigated the impact of capital structure on corporate performance in Nigeria from
2000 to 2010. The study paid particular attention to macroeconomic variables (Gross
Domestic Product and inflation) on firm performance. The study concluded that

12
there was a strong relationship between leverage and corporate performance. The
negative relationship was also confirmed by Mumtaz et al. (2013) In their study in
Pakistan that sought to establish the relationship between leverage and firm
performance. The study showed that financial performance of firms is significantly
impacted by their capital structure (Chandra, 2013).

A similar study by Denise (2011) concluded that a firm’s profitability and liquidity are
Influenced by its debt management strategies. The study used pooled data between
2006 and 2008 to evaluate the companIes listed in the Vietnam Stock Exchange
focusing on cash conversion cycle and related elements to measure debt
management It found that the relationships among these variables were strongly
negative. This implies that profit is negatively influenced by an increase in cash
conversion cycle. It further established that profitability increases as the debtor’s
collection and Inventory conversion periods reduce. The study also assessed debt
management strategies in terms of aggressive financing and aggressive investing
debt management approaches. Mathuva applied the Pearson and Spearman’s
correlations, the pooled ordinary least squares, and the fixed effects regression
models In analyzing the data. The study found a highly significant negative
relationship between profitability and the time It takes for firms to collect cash from
their customers. It also found a highly significant posItive relationship between
profitability and the period taken to convert Inventories to sales and the time it takes
for firms to pay creditors (Fabayo, 2013).

2.3.3 RelationshIp between debt mai.agement and performance

A study by Gillooly (2010) In Malaysia which sought to investigate how capital
structure impacts on a firm’s performance by analyzing the relationship between
return on assets (ROA), return on equity (ROE) and short-term debt and total debt
established that short-term debt and long-term debt had significant relationship with
ROA. It was also established that ROE had significant relationship with short-term
debt, long-term debt and total debt A similar study by Rosemary (2013) partially
agreed with the findings of Ahmad et al. (2012). In the study Ebaid sought to
establish the nexus between debt level and financial performance of companies
listed on the Egyptian Stock Exchange. The study used return on assets, return on
13
equity and gross profit margin as dependent variables. It also used short-term debt,
long-term debt and total debt as independent variables. The study found that the
relationship between short-term debt and total debt on return on assets (ROA) is
negative. It therefore concluded that there was no significant relationship between
long-term debt financing and ROA.

Frank (2012) studying the nexus between capital structure and corporate
periormance in Jordanian shareholdings firms used multiple regression models by
least squares (OLS) to establish the link between capital structure and corporate
performance of firms over a period of 5 years. The study found that capital structure
was negatively and statistically associated to the performance of the firms. The
study concluded that there is a negative relationship between capital structure and
firm performance for both high and low growth firms (Van, 2011).

2.4. Performance of small sc&e busin~sses

Mirvisr (2012) noted that performance involves the measure of the amount by which
the company’s revenues exceed its expenses. Whether you are recording
performance for the past period or projecting performance for the coming period,
measuring performance is the most important measure of the success of the
business, a business that is not profitable cannot survive (Hall, 2012). Conversely, a
business that is highly profitable has the ability to reward its owners with a large
return on their investment. Increasing performance is one of the most important
tasks of the business managers. Managers constantly look for ways to change the
business to improve performance. These potential changes can be analyzed with a
pro forma income statement or a Partial Budget. Partial budgeting allows you to
assess the impact on performance of a small or incremental change in the business
before it is implemented (Hofstrand, 2014).

Profit Margin measures how much a company earns relative to its sales. According to
Lesonsky, (2010), there are two profit margin ratios; sales volume and net profit
margin. A company with a higher profit margin than its competitor is more efficient,
Gleim (2010) however argues that profit margin is a k indicator that describes the

14
profit generating capacity of the flow of revenue, but does not tell much aboLit the
actual efficiency of its employees.

Kennon (2010) argues that organizations that generate high returns relative to their
shareholder’s equity are organization that pays their shareholders off handsomely,
creating substantial assets for each dollar invested. Such organizational are more
than likely self-funding companies that require no additional debt or equity
investments. By relating the earnings generated to the shareholder’s equity, an
investor can quickly see how much cash is created from the existing assets.

Marie (2011) suggested that there should exist minimum resource inputs to achieve
a given quantity and quality of output, or a maximum output with a given quantity
and quality of resource inputs. Effective refers to the accomplishment of objectives
or to the extent to which the outcomes of an activity match the objective or the
intended effects of that activity. “Performance and performance goals as well as
safeguarding of resources are the major objectives to be attained by effective and
efficient operations. This implies that operations are performed so as to attain their
intended effect; such objectives can be accessed through biannual or quarterly
performance audits (Abdul, 2011).

Performance objectives in small scale businesses are designed to maintain efficiency

and effectiveness in the operations of a company. Included in operational objectives
are procedures that promote companies’ use of assets and resources properly. There
are two types of internal controls. Preventative controls are procedures used to
avoid potential problems before they happen. Operational objectives are designed to
serve this purpose. Procedures developed to meet operational objectives include
things such as the separation of duties and the requirement of proper authorization
and password usage to control access to important company information (Bushman,
2011).
2.4~i Profitability
Profitability is the ability of a business to earn a profit (Marie, 2011). A profit is what
is left of the revenue a business generates after it pays all expenses directly related
to the generation of the revenue, such as producing a product, and other expenses

15
related to the conduct of the business’ activities. Profitability is the primary goal of
all business ventures. Without profitability the business will not survive In the long
run. So measuring current and past profitability and projecting future profitability Is
very Important In determining sales performance (KIno, 2010).

According to (Stevens, 2013), whether you are recording profitability for the past
period or projecting profitability for the coming period, measuring profitability is the
most important measure of the success of the business. A business that is not
profitable cannot survive. Conversely, a business that is highly profitable has the
ability to reward Its owners with a large return on their investment. Increasing
profitability Is one of the most Important tasks of the business managers. Managers
constantly iook for ways to change the business to Improve profltabiilty. These
potential changes can be analyzed with a pro forma income statement or a Partial
Budget. Partlai budgeting allows one to assess the impact on profltabiilty of a smail
or Incremental change In the business before It Is Impiemented (Tong, 2011).

Profits are necessary for survival In the iong run in a competitive environment, but
SSB management may choose not to grow. Long-term profitability derives from the
relations between cost and revenue; it Is a necessary but not sufficient condition for
growth. Revenues may be held up by entry barriers and costs pushed down by
management ingenuity (Amoid-, 2013). A low-profit firm will iack the finance for
expansion, but a high-profit business may conclude the risk and rewards of
expansion are Inadequate. In a ‘life styie’ SSB, an owner may trade profltabliity
today against profitability tomorrow. Dynamic pricing or sequential investment
projects may require lnitiaily iower profits in order to obtain higher future pay-offs
from greater market penetration. An SSB managers time preference is likely to
determine the intertemporai profit trade-off (Glelm, 2010).

2.4.2 Sales growth

Saies growth Impiles an increase of a company’s saies when compared to a previous
quarter’s revenue performance (Fabayo, 2013). The current quarter’s sales figure
can be compared on a year-over-year basis or sequentially. This helps to give
analysts, Investors and participants an idea of how much an SSB’s sales are

16
increasing over time. When looking at an SSB’s quarterly or annual financials, It Is
not enough to just look at the revenue for the current period. When Investing In a
SSB, an investor wants to see It grow or improve over time. Looking at the financlals
In comparison to a previous quarter will give participants a much better Idea of how
well an SSB is doing (MIs, 2010).

Sales Growth Is used to measure how fast a company’s business Is expanding. The
figures give analysts, investors and participants an Idea of how much a company’s
sales are Increasing over time. While sales growth tends to fluctuate from fiscal year
to fiscal year and fiscal quarter to fiscal quarter, investors look for trends in revenue
growth as a means of gauging the company’s growth over proscribed periods of
time. All other things being equal, a company that is able to continually grow Its
revenue should see equivalent increases in net income (Soidofsky, 2014).

2.5 IdentIfying the gap

The literature review above did not give a comprehensive coverage on the effect of
debt management policies on performance of small scaie businesses Jinja district in
Uganda. The study Intends to cover this content gap and since this study of debt
management policies on performance of small scale businesses Jinja district In
Uganda has never been carried out In Jinja district therefore this study intends to
cover the geographical gap.

17
 CF.A~TER THREE
M ~TdODOLOGY
3.0 Introduction

This chapter presents the research design, the research population, and the sample
size, sampling procedures, research instruments, validity and reliability of
instruments, data gathering procedures, data analysis, ethical considerations and
limitations of the study.
3.1 Research design

This study employed a cross-sectional research design. Cross-sectional design allows

the study of the population at one specific time and the difference between the
individual groups within the population to be compared. It also provide br the
examination of the co-relationship between the study variables (Mugenda and
Mugenda, 2003). The study also used Survey design, this was used to collect data
from a large sample of respondents. This study also followed a descriptive research
design, whereby qualitative and quantitative research approaches were used to gain
insight to and it was descriptive in that it described the characteristics of
respondents.
3.2 Research population

The study population of 6273 small scale business owners was considered in this
study (Jinja town council business manual, 2017). The study considered businesses
which have been in existence for the last one year. The researcher believed the
targeted population had the relevant knowledge and information necessary for this
study (Jinja town council profile, 2017). In each SSB only one person was selected
to fill the questionnaire therefore, the unit of inquiry was the individuals running the
business who were either the owners or the managers.

18
33 Sample size

The Slovene’s formula was used to determine the minimum sample size.
N
1+N (e)2
Where;

n: Sample Size

N: Population Size

e: Level of significance
n= 6273
1+6273 (0.0025)

6273
16.7

n=376
34 Sampling procedure

Simple random sampling was used to select the SSBs. From which all top employees
and lower level employees were represented in the study and all had a chance to be
selected to participate in this study as respondents.
15 Research instrument
3.5~1 Questionnaire

A questionnaire was the major method used for data collection. The questionnaire
was preferred for this study because it enabled the researcher reach a larger
number of respondents within a short time, thus made it easier to collect relevant
information. The first section in the questionnaire was the face sheet, to collect data
on profile of respondents. The second section in the questionnaire was debt
management policies. The third set was performance of small on scale businesses,
the third section of the questionnaire had questions on performance of small scale
businesses. All the questions were Likert Scaled on four points ranging from 1=
19
strongly disagree, 2 = disagree, 3 = agree, and 4 = strongly agree. The
questionnaires contained close-ended questions to collect quantifiable data rele~’ant
for precise and effective correlation of research variables. They were also preferred
to save time, enabled respondents to easily fill out the questionnaires and keep them
on the subject and relatively objective.

3.6 Validity and reliability of the instrument

3~6.1 Validity

Here the questionnaire was given to experts to judge the validity of questions
according to the objectives. After the assessment of the questionnaire, the
necessary adjustments were made bearing in mind the objectives of the study. A
minimum of 0.75 of CVI was used to test validity of the research instrument. Then a
content validity index (CVI) will be computed using the following formula:
NOfquesr~OnscJeciars:h;a1id
rvi =
cotalNo.ofques tionsin t1ieq~es rioi~ no ins

CVI 27
30
CVI= 0.9
3.6.2 Reliability

To ensure the reliability of the instrument, the researcher used the test-retest
method. The questionnaire was given to 10 people and after two weeks, the same
questionnaire was given to the same people and the Cronbatch Alpha was computed
using SPSS.
Table 3.1: showing reliability teSt results
Construct variable Cranbach’s alpha Number of ftems~
Reviewing interest rates .798 5
Negotiating with suppliers .548 5
Profitability .508 — 5
Sales growth .533 5

20
3.7 Data gathering procedure

Before the administration of the ques~onnaires

Before the administration of the questionnaires the researcher took an introductory
letter from the College of Economics and Management (GEM), the researcher had to
first seek authorization from the proposed respondents to conduct research and
review the questions to avoid errors and ensured that only qualified respondents are
approached.

During the administration of the quescicnnaires

The respondents were requested to sign and answer the questionnaires. The
researcher emphasized retrieval of the questionnaires within three days from the
date of distribution. And lastly, all returned questionnaires were checked if all were
answered.

After the administration of the questic~nnaires

The data gathered was collected, coded into the computer and statistically treated
using the Statistical Package for Social Sciences (SPSS).

3.8 Data An&ysis

The frequency and percentage distribution were used to determine the demographic
characteristics of the respondents. The mean and standard deviations were applied
for the extent of debt management policies and performance of small scale
businesses.

And regression analysis was used to determine the significant effect between the
variables. Whereas Pearson Linear Correlation Coefficient (PLCC) was used to
analyze the relationship between variables,

21
 Tab~e 3.2: For debt management policies

Mean Range Response Mode Interpretation

3.26-4.00 Strongly agree Very satisfactory

2.51-3.25 Agree Satisfactory

1.76-2.50 Disagree Unsatisfactory

1.00-1.75 Strongly disagree Very unsatisfactory

3.9 Ethical considerations

To ensure confidentiality of the information provided by the respondents and to

ascertain the practice of ethical in this study, the following activities were
implemented by the researcher:

i. Acknowledged the authors quoted in this study and the author of

standardized instrument through citations and referencing.
ii, Presented the findings in a generalized manner.

3.10 Limitations of the study

In view of the following threats to validity, the researcher allowed 0.05 level of
significance. Measures are also indicated in order to minimize if not to eradicate the
threats to the validity of the findings of the study.

1 Extraneous variables which were beyond the researcher’s control such as

respondent’s honesty , personal biases and uncontrolled setting of the study The
.

researcher mitigated this by encouraging the respondents to be truthful since the

results of the study if released would help them understand the loopholes in their
businesses.

22
 CrU~?TER FOUR
DATA PRESENTATION, Al\ALYSIS AND INTERPRETATION
4.0 Introduction
This chapter presented, analyzed and interpreted data collected from the field, Data
analysis and interpretation was based on the research objectives. Below are the data
presentations and analysis of research findings;

4.1 Demographic characteristics of the Respondents

The objective of this study was to show the profile information of respondents as to
age, gender, level of education and years spent in a business.
Tab’e 4.1: Demographic characteristics of the Respondents

____ ~Freq uency Percent

Gender
Male 209 5~6
Female 167 44
~ — —~ ~ -—rnt —-

Age
18-30 years ~~i36 36.2
31-40 years - 117 —~ 31,1
41-50 years 80 ~21.3~
5iOyea rsand above 43 114
Tota~ - 376
Education level —~

Primary 113 30J. -

Secondary 165 43.9

Post secondary 98 26,i~
Tota’ ~
Years spent in a business
2 years and below --
- 85 22.6
3-5 years - 130 -~ 3~1.6
6-8 years — 69 18.4~
9 years and above 245
~:
Tot&

Sources: Primary Data 2018

24
Results In table 4.1 indicated that majority of the respondents represented in this
study were between 18-30 years (36.2%), followed by respondents’ age between
31-40 years (31.1%), 21.3% were between 41-50 years and finally 11.4% were 51
years and above. According to gender, results showed that 55.6% were male and
44.4% of the respondents were female. This dearly implied that majority of small
scale businesses in Jinja district are run and dominated by men. Table 4.1 also
showed that majority of the respondents had attained secondary education level
(43.9%), the second group of the respondents were (30.1%) had only attained
primary education level as far as education Is concerned and the third group
(26.1%) had attained post secondary. In terms of years spent in a business,
majority of the respondents (34.6%) had carried out their businesses for 3-5 years,
foilowed by those of 9 years and above (24.5%), 22.6% had for 2 years and below,
finally 18.4% had worked for 6-8 years. This indicated that majority of these
respondents had enough experience in their businesses, and therefore they could
provide the researcher with the information required.

4.2 Debt management potides

The independent variable in this study was debt management policies, this variable
(IV) was broken into two constructs and these were; reviewing interest rates (with
five Items/questions) and negotiating with suppliers (with five questions) and debt
management polides (with five questions). Each of these questions was based on a
four point Ukert scale whereby respondents were asked to rate the debt
management polldes by indicating the extent to which they agree or disagree with
each question.

25
 Table4.2: Debt management poilcies
Items f’iean Std~ Interpretation
Reviewing interest rates
A higher credit score is always an indication of successful 2 88 995 Satisfactory
financial management L_Z~_
Before meeting with a lender, you always review your credit~ 2 55 1 017 Satisfactory
report to make sure there are no blemishes —~

Debt servicing has become imperative due to insufficientr 2 51 1 081 Satisfactory

capital in the running of many small scale businesses
Generating capital through credit systems has become a 2 47 1 069 Unsatisfactory
necessity for the growth of your business ‘~

If the interest rate on your small-business loan is significantly Unsatisfactory

higher than current rates, you always consider refinancing to 2~93
obtain a loan with lower monthly payments -
Average mean 2~54 ~78129 Sat~ sfa~~1
Negotiating with supp~iers
If you are not using all of your square footage, you always Satisfacto~J
consider subleasing unused space ______ __________
3, 26 993
Support structures are always provided for the growth of the Satisfactory
small scale firms’ including funding and concessional loans, 2.59 .974
usually at concessionary rates
You always consider partnering with other small-business Satisfactory
owners to make bulk purchases at lower prices 2.55 .994
You always draw on your good payment history or on quotes
from other suppliers when negotiating flexible or extended 2.52 1.137
r Satisfacto~
payment terms with suppliers ____________

You always hesitate to ask suppliers for discounts, especially if

you order in bulk 2.48 1.087 Unsatisfactory
Average_mean 2.68 ~57756 Sedsfactory
Overall mean
Sources: Primary Data 2018
Results in table 4.2 indicated that debt management policies among small scale
businesses in .Jinja district Uganda was rated satisfactory and this was indicated by
the overall mean of 2.61, implying that the owners of small scale businesses in Jinja
district fairly manage their debts well. With respect to reviewing interest rates;
results indicated that reviewing interest rates was rated high and this was indicated
by the average mean (mean=2.54), implying that the interest rates are fairly eviewd
well by small scale business owners in Jinja district. Results still indicated that a
higher credit score is always an indication of successful financial management

26
2 Testing the use of research assistants brought about inconsistency In the
administration of the questionnaires in terms of time of administration,
understanding of the items in the questionnaires and explanations given to the
respondents. To minimize the threat, the research assistants were oriented and
briefed on the procedures to be done in data collection.

3 Attrition/Mortality: Not all questionnaires were returned completely answered now

even retrieved back due to circumstances on the part of the respondents such as
traveis, sickness, hospitalization and refusal/withdrawal to participate. In anticipation
to this, the researcher reserved more respondents by exceeding the minimum
sample size. The respondents were also reminded not to leave any item in the
questionnaires unanswered and were dosely followed up as to the date of retrieval.

23
(mean=2.88), before meeting with a lender, you always review your credit report to
make sure there are no blemishes (mean=2.55), debt servicing has become
Imperative due to insufficient capital in the running of many small scale businesses
(mean=2.S1), however generating capItal through credit systems has become a
necessity for the growth of your business (mean=2.47), and if the interest rate on
your small-business loan is significantly higher than current rates, you always
consider refinancing to obtain a loan with lower monthly payments (mean=2.30).

With respect to negotiating with suppliers; results in table 4.2 indicated that five
items were used to measure this construct and it was aiso rated satisfactory and this
was indicated by the average mean of 2.61, Implying that negotiating with suppliers
is fairly carried well among small scale business in Jinja district, Uganda. The
respondents still responded that; If you are not using all of your square footage, you
always consider subleasing unused space (mean=3.26), support structures are
always provided for the growth of the small scale firms’ including funding and
concessional loans, usually at concessionary rates (mean=2.59), they always
consider partnering with other small-business owners to make bulk purchases at
lower prices (mean=2.55), always draw on your good payment history or on quotes
from other suppiiers when negotiating flexible or extended payment terms with
suppliers (mean=2.52), but however the always hesitate to ask suppliers for
discounts, especially if you order in buik (mean=2.48).

4.3 Performance
Performance is the dependent variable In this study and was broken Into two
constructs and these are; profitability (with five questions) and sales growth (with
five items). Each of these questions was based on a four point Ukert scale and
respondents were asked to rate performance by Indicating the extent to which they
agree or disagree with each question, their responses were analyzed using SPSS and
summarized using means and standard deviations as indicated in tables 43;

Ti
 Tab~e4.3: Performance
Items Mean $td. Interpretation
ProfitabiNty
You always plan to increase profitability in the business. 2.87 .959 Satisfactory
Your business revenue have always exceeded the Satisfactory
2.82 .968
expenditure
~always plan and meet the desired profits 279 1.089 Satisfactory
Survival of this business has been due to the profits you Sa cisfactory
2.69 1.056
always earn.
~he returns on capital employed is appropriate to the Satisfactory
2,57 1.033
expectations of the owner(s)
Average mean 2.75 [.59201 Satisfactory
~lesgrowth
Your sales have steadily been increasing in past periods. 2.7~Ti~4 Satisfactory
You always give discounts to clients to encourage more 56 Satisfactory
1.111
purchases
Your business has enough stock to meet the customer Satisfactory
2.55 1.055
demands
Your business always carries out sales forecasting to meet~ Unsatisfactory
2.49 1.092
the targets.
Your business always sells in bulk to its customers 2.48 1.058 Unsatisfactory
~Average mean 2.55 .59410
~overaN mean 2.55 ~.492Oij
Sources: Primary Data 2018
Results in table 4.3 indicated that the level of performance is high and this ‘.ias
indicated by the overall mean of 2.65, which implies that small scale businesses in
Jinja district, Uganda have resources whicti can make them financially perform wefl,
With respect to profitability; this was the first construct on the dependent variable
and was measured using five items/questions and it was rated satisfactory (average

28
mean=2.75), implying that the small scale businesses in Jinja district always receive
relatively high returns. Still results indicated that the srnalf scale business owners
always plan to increase profitability in the business (mean=2.87), their business
revenue have always exceeded the expenditure (mean=2,82), always plan and meet
the desired profits (mean=2.79), survival of the business has been due to the profits
always earned (mean=2.69), the returns on capital employed is appropriate to the
expectations of the owner(s) (mean =2.57).

Concerning sales growth; results in table 4.3 indicated that this construct was rated
satisfactory on and this was indicated by the average mean of 2.55, implying that
the small and medium scale businesses in Jinja district have tried to expand the
market base where to sell their products. Still results indicated that sales have
steadily been increasing in past periods (mean=2,70), always they give discounts to
clients to encourage more purchases (mean=2,56), the businesses have enough
stock to meet the customer demands (mean=2,55), however the small scale
businesses in Jinja district always do not carry out sales forecasting to meet the
targets (mean=2.49) and they do not sell in bulk to its customers (mean=2.48).

4A Objective one; effect of reviewing interest rates on performa~cd

of smaN scale businesses in 3h~ja district
Objective one; effect of reviewi~ interest rates on performance o~
smaN scale businesses in Jinja L~strict
Model Surnmag ~i
Adjusted R Std. Error of
Model R R Square Square the Estimate
1 .524a .27~ 272 .41854
-~ __

a. Predictors: (Constant), Reviewing interest rates

ANOV,~

Sum of Mean~
Model Squares Square F Sig.

1 Regression 23.992 1 ~9~~.963 MOO~

29
 Residual 63.41.

1~ta1 1 87.40!
a. Predictors: (Constant), Reviewing interest rates
b. Dependent Variable: performance

Coefficient?
Standardized i
Unstandardized Coefficients Coefficients
Model B Std. Error Beta T Sig.
1 (Constant) ~ 24.22& .000

REVIEWING
INTEREST 329 .028 .524 11.703~ .000
RATES
a. Dependent Variable: performance
Regression analysis results in the Model Summary taL~e revealed that re’~ewing
interest rates accounted for 27.4% on performance of small scale businesses in Jinja
district Uganda and this was indicated by r-squared of 0.274 implying that to small
extent reviewing interest rates contribute to the performance of small scale
businesses in Jinja district Uganda.

The ANOVA table indicated that reviewing interest rates significantly affects the
performance of small scale businesses and this was indicated by the F
value=136.963 and Sig-value=.000, since the sig. value (0.000) was less than 0.05
and which is the maximum level of significance required to declare a significant
effect. This implies that reviewing interest rates highly contribute to the performance
of small scale businesses in Jinja district Uganda.

33
The coefficients table indicated that considering the standard error, reviewing
interest rates significantly influence the performance of small scale businesses in
Jinja district Uganda (f3=0.329, Sig=0, 000).
4.5 Objective two; the effect of negotiating with suppliers on
performance of small scale businesses in Jinja osLrict

Model Summary

Adjusted R Std. Error of

Model R R Square Square the Estimate

i. 193a 037 .035}A7942

a. Predictors: (Constant), negotiating with suppliers

ANOV~
Mean
Sum of Squar
Model Squares Df e F Sig.
1 Regression 3.207 1 3.207 13.955
Residual 82.514 359 .230
Total 85.722 360
a. Predictors: (Constant), negotiating with suppliers
b. Dependent Variable: performance

31
 Coeff~cientsa

Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta t Sig.

1 (Constant) 2.239 113 19.761 .000

NEGOTIATING
.164 044 .193 3.736 .000
WITH SUPPLIERS
a. Dependent Variable: performance
Regression analysis results in the Model Summary table indicated that the
negotiating with suppliers accounted for 3,7% on performance of small scale
businesses in Jinja district Uganda and this was indicated by r-squared of 0.037
implying that negotiating with suppliers significantly contributes 3.7% on the
performance of small scale businesses in Jinja district Uganda.

The ANOVA table indicated that negotiating with suppliers significantly affects the
performance and this was indicated by the F-value=13.955 and Sig-value=000,
since the sig. value (0.000) was less than 0.05 and which is the maximum level of
significance required to declare a significant effect. This implies that negotiating with
suppliers highly affects the performance of small scale businesses in Jinja district
Uganda.

The coefficients table indicated that considering the standard error, negotiating with
suppliers significantly affects the performance of small scale businesses (13=0.193,
Sig=0. 000).

4.5 Objective three; relationship betv~een debt rnanaçernent policies and

financial performance of small scale ousinesses in Ji.ie district
The third objective in this study was to assess the relationship between debt
management policies and performance of small scale businesses in Jinja District, The
researcher correlated the means on both variables by using the Pearsons L;iiear

32
Correlation Coefficient as a way of achieving this objective and this was indicated in
table 4.6;

Tab~e 4~6: Pearson corrdatiort between debt management policies and

performance of small sca’e businesses
Variab’es corrdated r-value ~

Debt management policies 1

Vs .585 000 Significant Rejected

Performance of small scale correlation
businesses
Source: Primary Data, 2018
The Pearson’s Linear correlation Coefficient (PLCC) results in table 4.6 indicated a
relationship between debt management policies and performance of small scale
businesses in Jinja District, since the sig. value (0.000) was far less than 0.05 and r
value (0.585) which is the maximum level of significance required to declare a
significant relationship. Therefore this implies that improving in debt management
policies may highly improve on performance of small scale businesses in Jinja
District, Uganda.

33
 CHAPTER FIVE
DISCUSSIONS, CONLUSIJNS AND RECOzv~1vIEN DATIONS
5.0 Introduction
This chapter focuses on the findings, conclusions; recommendations based on the
conclusions of this study and suggested areas that need further research following
the study objectives;

5i. Discussions
This study was set to find out the effect of debt management policies on
performance of Small scale businesses in Jinja district Uganda, three specific
objectives guided this study and these were i) determining the effect of reviewing
interest rates on performance of smafl scale businesses in Jinja district; ii)
establishing the effect of negotiating with suppliers on performance of small scale
businesses in Jinja district and (iii) to establish the relationship between debt
management policies and performance of small scale businesses in Jinja district.

5,1.1 Objective one; the effect of re~I~ewing interest rates on performance

The findings indicated that reviewing interest rates significantly affects the
performance of small scale businesses in Jinja district, this effect therefore implies
that reviewing interest rates contribute to the performance of Small scale businesses
in Jinja district Uganda. This finding is in line with Allis (2010) who noted that
advances that debt is the amount of taxes incurred during a tax period which are
payable to some type of governmental jurisdiction, Aspen Lavv and Business (2004)
defines debt as an amount owed to a person or organization for funds borrowed. For
the purposes of this study, debt is defined as any amount due to any authority for
which payment has not been effected. Debt take many forms and can he
represented by a bond, loan note, mortgage as well as other repayment terms and,
when necessary, interest requirements. These different forms are indications of the
intent to pay back the amount owed at an agreed date as is set forth in the
repayment terms (Arinaitwe, 2014).

34
 Kotut (2003) observe that a reasonable debt level improves welfare and enhances
growth but high level debts can lead to a decline in growth of a firm. Reinhart at al.
(2009) reinforces this assertion by arguing that debt impacts positively to the growth
of a firm only when it is within certain levels. He opines that a firm becomes
vulnerable to financial crisis when the ratio goes beyond certain levels. Stern Stewart
and Company shares a similar view that high level of debt increases the probability
of a firm facing financial distress. Ross et al, (2011) contends that over borrowing ny
a firm can cause bankruptcy and financial win. Accumulating high levels of debt ny a
small scale enterprise will constrain its ability to undertake project that are likely to
be profitable. This is because it would not be able to attract new debt from financial
institutions. A study by Kwame (2007) contends that, debt management is an act of
trying to get one’s debt under control and become responsible for repaying
associated obligations. It can therefore be inferred that debt management is a
conscious measure taken by a debtor or agents hired on their behalf to reduce the
debt burden or strategize to eliminate the debt through acceptable payment terms.

5~1~2 Objective two; the effect of negototing with suppliers

performance
The findings revealed that there is a significant effect negotiating with suppliers ~as
on performance of small scale businesses in Jinja district, this also implied that high
negotiating with suppliers improves the level of performance of Small scale
businesses in Jinja district Uganda and poor negotiating with suppliers reduces it.
This finding agrees with Fosu (2013) who investigated the relationship between
capital structure and corporate performance with focLls on the degree of
competition. The study established that there was positive relationship between
capital structure and corporate performance, Ogebe at al. (2013) investigated the
impact of capital structure on corporate performance in Nigeria from 2000 to 2010.
The study paid particular attention to macroeconomic vahables (Gross Domestic
Product and inflation) on firm performance. The study concluded that there was a
strong relationship between leverage and corporate performance, The negative
relationship was also confirmed by Mumtaz et al, (2013) in their study in Pakistan
that sought to establish the relationship between leverage and firm performance.

35
The study showed that financial performance of firms Is significantly impacted by
their capital structure (Chandra, 2013).

5.1.3 ObjectIve three; relationship between debt management polides and

finandal performance
The findings Indicated that debt management policies has a significant relationship
on performance of small scale businesses In Jinja District, this was so due to the
significant correlation which existed between debt management policies and
performance of small scale businesses, this led to an implication that increasing on
the level of debt management policies it can highly improve performance of small
scale businesses in Jinja District, Uganda. This finding is in line with Frank (2012)
who studied the nexus between debt management and corporate performance in
Jordanian shareholdings firms used multiple regression models by least squares
(OLS) to establish the link between debt management and corporate performance of
firms over a period of 5 years. The study found• that debt management was
positively and statistically associated to the performance of the firms. The study
conduded that there Is a positive relationship between debt management and firm
performance for both high and low growth firms (Van, 2011)

5.2 Conduslons
5.2.1 ObjectIve one; the effect of reviewing Interest rates on performance
According to the findings revIewing interest rates has a positive significant effect on
performance of small scale businesses in Jinja district.

5.2.2 Objective two; the effect of negotiating with suppliers on

performance
According to the findings negotiating with suppliers has a significant effect on
performance of small scale businesses in Jinja district.

36
 5~2~3 Objective three; relationship be~weeri debt management poNciec and
financial performance
According to the findings debt management policies has a positive significant
relationship on performance of small scale businesses in Jinja district Uganda.

53 Recommendation
1. Owners of small scale businesses should develop a good system to monitor debt
payments, record and track all the debt payments so that there is effectiveness in
payment of debt and ensure to cover loopholes in the system to enhance
performance.

2. Owners and managers of small scale bLisinesses should develop negotiating with
suppliers system for example alternatives ways of collecting cash from customers
which makes negotiating with suppliers easy and flexible so as to boost
performance.

3. Owners of small scale businesses should develop a debt management system and
make sure they always have a debt plan that enables them have minimum cash
balances at all times, this will help them control debts and hence increase in the
performance of their businesses

5~4 Contribution to knowledge

The following are the debt management techniques used in maintaining the
performance of small scale businesses in Jinja district; reviewing interest rates and
negotiating with suppliers. The following are the measurements of performance in
small scale businesses in Jinja district; profitability levels and sales growth.

5~5 Areas for further research

Prospective researchers and even students are encouraged to research on the
following areas;

37
1) NegotIating with suppliers and profitability of small scale businesses in
Jinja district.
2) Debt management polides and profitability of small scale businesses In
Jinja district.
3) The challenges fadng the performance of small scale businesses In
Jinja district.

38
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 a-~ P P E ~\ DICES

APPENDIX ~: QUESTIONLJRE

RESEARCH INSTRUMENT

Section A: Demographic characteristics of Respondents

1. Age

a) 18-30 years, b) 31-40 years, c) 41-50 years and d)_51

years and above

2~ Gender

a) Male________

b) Female_____

3~ Level of education qualification

a) Primary_________________

b) Secondary _________

c) Post secondary___________

4~ Number of years exp~r~ce

a) 2 years and below_________

b) 3-5 years______________

c) 6-8 years_______________

d) 9 years and above______

43
 SECTION B: DEBT MANAGEMENT POLICIES

Direction 1: Please write your rating on the space before each option which
corresponds to your best choice in terms of Debt management poildes in
your business. Kindly use the scoring system below:

Response Mode Rating Description

Strongly Agree (4) You agree with no doubt at all.
Agree (3) You agree with some doubt
Disagree (2) You disagree with some douh~
Strongly disagree (1) You disagree with no doubt at all
~~
Reviewing interest rates
1 If the interest rate on your small-business loan is signilicantly higher than~~
current rates, you always consider refinancing to obtain a loan with lower
____ monthly payments ___________ —~

2 Before meeting with a lender, you always review your credit reporL to
make sure there are no blemishes
3 A higher credit score is always an indication of succe ulncial
management
4 Generating capital through credit sysuems has become a necessity for the --t~

growth of your business

5 Debt servicing has become imperative due to insufficient capital in the
running of many small scale businesses
6
Negotiating with suppliers
1 You always hesitate to ask suppliers for discounts, especially if you order
in bulk
2 You always draw on your good payment history or on qLiotes from other
suppliers when negotiating flexible or extended payment terms wiLh

3 You always consider partnering vvith other small-business owners to

make bulk purchases at lower prices — —

4 If you are not using all of your square footage, you always consider
-_ ipgn~edsac~ _ _

44
 5 Support structures are always provided for the growth of the small sca~ir~Ji
firms’ including funding and concessional loans, usually at concessionary
rates

SECTION C: PERFORM~cNC~ OF Si’IALL SCALE BUSINESSES

Direction 1: Please write your rating on the space before each option which
corresponds to your best choice in terms of perfor~er~ce in your business,
Kindly use the scoring system below:

Response Mode Rati n~ Descript~on

Strongly Agree (4) You agree with no doubt at all.

Agree (3) You agree vvith some doubt
Disagree (2) You disagree with some doubt
Strongly disagree (1) You disagree with no doubt at all
No 1 Performance 1
~tabilit~
1 You always plan and meet the desired profits —~

2 Survival of this business has been duetothe profits you a~ways earn. —

3 The returns on capital employed is appropriate to the expectations of the

owner(s)
4 You always plan to increase profitability in the business,
5 Your business revenue have always exceeded the expenditure
Sales growth
r1 You always give discounts to dients to encourageri purchases — ——

~~usiness has enough stock to meet the customer demands

3 Your sales have steadily been increasing in past periods.
4 Your business always sells in bulk to its customers ~

5 Your business always carries out sales forecasting to meet the targets.

45
 JINJA MIi~cip~~ cOUNcIL
WALUKUBAJMASESE DIVISION

256-043-121055
bile: 256-fl-430001 FINANCE DEPARTMENT,
256-043-123002
all: lme~~i~N P.OB~x /20,
Jinja
REF. NO. WMD!214/4. Date: 22nd May, 2018

Head of Department
Kampala International University

RE: MUKISA IVAN

This is to confirm that the above mentioned student from your University
undertook his research in our Division in the area of Debt Management policies
and performance of small scale Businesses.

During his research he interacted with several stakeholders in this Division who
gave him the ~ research.
J~NJA ?v~PAL COUNCL
22MAY2018 *
Wa1ukub~ I Masese Division