Risk Management and Financial Performance of Small and Medium Enterprises in Kabale Municipality, Uganda

Sarah Nakero, Emily Atukunda, David Muwaza &Simon Peter Bategedde
Kabale University
Email: snakero@kab.ac.ug/ eatukunda@kab.ac.ug/ davidmuwaza@gmail.com/ ssempiki2025@gmail.com

Abstract: This study examined the effect of risk management on the financial performance of Small and Medium Enterprises (SMEs) in Kabale Municipality, Uganda. Specifically, the influence of risk identification and risk assessment on financial performance, measured in terms of profitability, liquidity, and market share. A descriptive research design was adopted. The study targeted 244 registered SMEs, and a sample of 152 respondents was selected using Slovin’s formula, proportionate stratified sampling, and simple random sampling. Data were collected using structured questionnaires. Descriptive statistics,Pearson correlation, and multiple linear regression analyses were used to summarize the data and examine the relationship among the study variables. The findings showed that both risk identification and risk assessment had a positive and statistically significant effect on the financial performance of SMEs. Risk identification exhibited a stronger influence on financial performance (β=0.603, p < 0.001) than risk assessment (β=0.472, p < 0.001). The regression model explained 83.7% of the variation in financial performance (R2 = 0.837), indicating that effective risk management practices enhance SME profitability, liquidity and market share. Therefore, each Null hypothesis was rejected. The study concludes that strengthening risk identification and risk assessment practices significantly improves the financial performance of SMEs. It recommends that SME owners, managers, government agencies, and business development organizations provide continuous risk management training, technical support, and staff capacity building to enhance SMEs’ risk management capabilities, enterprise sustainability, and economic growth in Uganda.