Effect of Financial Management Practices on Financial Performance of Small and Medium Enterprises in Kiambu Town, Kenya

Financial management is an important element of the management of any business. This study was therefore, designed to establish the effect of financial management practices on financial performance of small and medium enterprises in Kiambu town in Kenya. Three variables namely Working Capital Management, Investment decisions and financing decisions [independent variables] were used to measure financial performance [dependent variable]. The study used descriptive research design utilizing qualitative data captured using a self-administered questionnaire. The study showed that considered individually, there is a positive relationship between working capital management; investment decisions; financial decisions and financial performance. The study showed that the combined effect of financial management practices [working capital management, investment decision, financial decision] have a moderate positive relationship between financial management practices and financial performance. The study recommends that to enhance financial performance, the organizations [SMEs] should adopt credit policies to guide credit sales. The policies should create a balance between customer retention and adequate the cash flow. Secondly the study recommends that the government should ensure creation of favourable policy and economic environment through legislation that facilitate access to affordable sources of funding for SMEs and attract venture capitalist. Third, developing appropriate strategies and policies that enhance financial decisions will be critical for the SMEs in enhancing their financial performance. Fourth, a study that covers other parts of the country with unique business environments would be welcome