Micro and Small Enterprises (MSEs) play an important role in economic growth, innovation, and competitiveness. Entrepreneurial competencies have been viewed as vital to the survival and performance of micro and small enterprises. One of the major issues that have been constraining the growth and development of micro and small enterprises is the lack of entrepreneurial competencies. Thus, the purpose of this study was to analyze the effect of entrepreneurial competency on micro and small enterprises performance in Bahir Dar city. After a literature review, four key entrepreneurial competencies (opportunity competency, conceptual competency, strategic competency, and organizing competency) were identified as predictors of micro and small enterprises performance. The study deploys explanatory and cross-sectional design and adopts a quantitative approach. Primary data was collected through a self-administered questionnaire issued to the respondents. From the total populations of the 4890 existing MSEs enterprises, 370 samples enterprises were selected in the six sub-cities of the city administration using stratified and simple random sampling technique. The data was collected from 328 micro and small enterprise’s owner/managers. Descriptive and inferential statistics were used to analyze the data. Multiple regression analysis was used to test the hypothesis formulated for the study. The finding revealed that opportunity competency, conceptual competency, organizing competency, and strategic competency have a significant and positive effect on the performance of MSEs in Bahir Dar city. The study recommends that governmental and non-governmental organizations should combine their efforts towards initiating management training and development programs for the enterprise owner/managers in order to enable them to enhance and develop their abilities.