Budget Planning, Organization Size and Financial Performance of the Top 100 Small and Medium Enterprises in Kenya

Budget planning is widely promoted as a foundation of sound financial management in small and medium enterprises (SMEs), yet the strength of its payoff may depend on the scale at which an enterprise operates. This study examined the effect of budget planning on the financial performance of the top 100 SMEs in Kenya and determined the moderating effect of organization size on this relationship. The study was anchored on Incremental Budgeting Theory and Activity-Based Costing Theory and adopted a descriptive research design. A census of the 100 SMEs on the Ministry of Trade 2021/2022 list was attempted, with the Chief Accounting Officer of each firm as the respondent. Data were collected using a structured questionnaire on a five-point Likert scale, and 83 questionnaires were returned (83.0% response rate). The instrument was reliable in a pilot study (Cronbach’s alpha: budget planning 0.810, organization size 0.731, financial performance 0.713). Data were analysed in SPSS using descriptive statistics, Pearson correlation and regression with an interaction term. Budget planning was moderately practised (mean = 2.81, SD = 1.054), with strong strategic alignment and budget reviews but weak forecasting accuracy, departmental participation and contingency planning (means below 2.00). Financial performance was moderate (mean = 2.90). Budget planning correlated positively with financial performance (r = 0.678, p < 0.01) and had a positive and significant effect (β = 0.325, t = 3.779, p < 0.001). The interaction between budget planning and organization size was also positive and significant (β = 0.146, t = 2.393, p = 0.019), indicating that organization size strengthens the effect of budget planning on financial performance. The study recommends investment in forecasting capability, participatory budgeting and contingency planning, and size-appropriate budgeting frameworks for SMEs. Future studies should use longitudinal designs and objective financial indicators.