THE IMPACT OF FINANCIAL STRUCTURE ON FINANCIAL SUSTAINABILITY OF SMALL AND MEDIUM SIZED ENTERPRISES IN MUKONO TOWN.
Loading...
Date
2024-09-05
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
Uganda Christian University
Abstract
Financial structure refers to a mix of debt and equity that a company uses to finance its
operations whereas financial sustainability refers a business's ability to consistently have enough
reserves to cover unexpected expenses without relying on borrowing or compromising essential
services. This study aimed at to find out the impact of financial structure on financial
sustainability of SMEs in mukono town. The objectives of the study were, To examine the
impact of short-term debt levels on financial sustainability of small and medium sized
enterprises, to assess the relationship between long-term debt levels and financial sustainability
of small and medium sized enterprises and to examine the influence of equity on financial
sustainability of small and medium sized enterprises. The sample size of the study was about 60
SMEs and the following were discovered the following, a significant majority 90% find equity
financing preferable to debt financing, with 28%. While 46% of respondents acknowledge that
equity investors bring valuable expertise, a notable 38% weren’t too sure. In terms of financial
risk, 60% believe equity financing helps reduce it, though 20% disagree. Finally, 42% of
respondents feel that equity investors demand significant control over business operations, with
32% expressing neutrality and a small minority 24% were not agreeing. A majority 64% agree
that their business has experienced revenue growth over the past three years, with 22% strongly
agreeing. Some of the conclusions included Short-term Debt, while its essential for daily
operations and liquidity management, short-term debt is a double sided, it provides necessary
funding but also poses significant risks to financial sustainability of SMEs in mukono town,
long-term debt has been beneficial for business expansion and stability, but its associated costs
and risks prove to be challenging to SMEs, making it a less favourable option for some
businesses, equity financing is preferred by SMEs as it reduces financial risk. However, the
potential for loss of control due to the involvement of equity investors is a notable drawback and
some of the recommendations included, short-term Debt Management, SMEs in mukono should
carefully assess their reliance on short-term debt, balancing the need for liquidity with the
associated risks and Implementing strict financial management practices can help mitigate these
risks and the long-term Debt Strategy, SMEs in mukono should consider long-term debt for
business expansion and stability but should be cautious of the costs involved. It is recommended
that businesses negotiate favourable terms and conditions to minimise the financial burden