International Journal of Innovative Research and Development

Abstract

This study sought to determine the effect of financial risks on the performance SMEs in the hotel industry in Nakuru, Kenya.  The specific objectives included to: Characterize financial risks in the hotel industry and determine the effect of financial risks: cash flow, credit and profit risks on performance of hotels within Nakuru Municipality. The study employed causal survey research design. The study examined 36 SME hotels within Nakuru Municipality. To achieve the objective of the study, primary data were collected using structured questionnaires. The collected data was analysed using descriptive statistics: frequency distributions and means with the help of SPSS computer programme. Pearson correlation analysis was used to determine the relation between the variables. The study findings revealed that: Businesses in the hotel industry were yet to employ increased credit sales and still experienced bad debts; The percentage profits by hotels in the study area increased steadily over the period 2009-2011; The capacity of the existing hotels in the study area has not increased to meet the increasing demand for hospitality services while revenue from accommodation has reduced during the period 2009-2011.Generally, financial  risks negatively and significantly, influenced performance of small and medium hotels. The risks with a high effect include credit and cash flow risks which were found to negatively and significantly influence revenues from food and accommodation. The study therefore concludes that finance risks have had a significant effect on revenue and profitability of small and medium hotels in Nakuru Municipality. The study recommended the following measures: embrace cash sales and adopt effective measures for reducing the bad debts in order to attain increased revenues. The study also advises putting in place measures to minimize the effect of the financial risks on performance of hotels especially revenue from food and accommodation while addressing other factors that affect performance of the businesses. 

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