Assessing the effect of costing on financial performance of businesses in Baidoa Somalia

Improved financial performance by businesses plays a crucial role in their survival. In the long-run, this contributes to a country’s economic growth which aligns with the UN sustainable development goals. This study sought to establish the effect of costing on financial performance of businesses in Baidoa in Somalia. Descriptive, correlational and cross-sectional designs were applied. using a questionnaire data was collected from a sample of 104 respondents working at Caafi Water Supply Company in Baidoa Somalia. Results revealed a positive coefficient correlation (R = .607) between costing and financial performance, this indicated a moderate relationship between the study variables. An R-Square of .369 indicated that 36.9 of the changes in financial performance was accounted for by costing which implied that the remaining 65.1% was accounted for by other factors that were not studied by this current study. It is evident that effective costing systems play a crucial role in enhancing the company's financial health. These results suggest that investing in improved costing practices can yield substantial benefits for financial performance of businesses. This study recommends that, businesses should implement Active Based Costing (ABC) to ensure more accurate allocation of indirect costs to services and products. Also, businesses should establish strict policy framework for cost management to ensure that cost control is effectively enforced, allowing for better financial performance through improved decision-making and resource allocation.