THE EFFECT OF BUDGETING ON THE FINANCIAL PERFORMANCE OF SMALL AND MEDIUM SIZE ENTERPRISES IN THE BUEA MUNICIPALITY.

ABSTRACT

This study sought to analyse the effect of budgeting on the financial performance of small and medium size enterprises (SMEs) in the Buea municipality. The study was carried out using questionnaires administered to owners and employees of these enterprises. Theories that supported this study were the resource base view, institutional theory and the signalling theory. Statistical technique for data analysis like descriptive and inferential statistic based on the mean, standard deviation, skewness, correlation matrix, with a linear regression analysis to draw the conclusion of the study were applied. The financial performance of SMEs was capture in terms of sales growth and budgeting in terms of the budgeting process as budget planning, budget implementation, budget monitory and budgetary performance review. We found that budgeting has a strong effect on the financial performance of SMEs in Buea municipality. This is depict by the model summary which gives us a probability value less than the alpha value of 0.05 the strong positive relationship is seen at the level of our R2 with a value of 0.7096 which signifies that 70.9% of variations in sales growth is as a result of variations in budgeting. Another major finding of this study is the effect which budget planning and budgetary performance review has on the sales growth of these SMEs. Budget planning and performance review have a correlation coefficient of 0.408 and 0.480 respectively which is higher than that of budget implementation and budget monitoring. The findings recommend that they should be two way flow of information and other facets of a properly organized budgeting system to help in promoting a coalition of interest and to increase motivation.