The general objective of the study was to evaluate the relation between internal performance factors and external performance factors on the performance of MSEs that operate in Bahir Dar city administration. These were with a view to identify the internal and external related factors that have a favorable relationship with the performance of the MSEs in which total capital was used as a measure of business performances. Primary data, through structured questionnaire and interview, were collected from the samples of 188 MSEs. The enterprise was selected from those industries engaged in manufacturing, construction, urban agriculture, and service sector. Data was analyzed by using descriptive and inferential statistics with the help of Statistical Packages for Social Scientists (SPSS v.20). The analysis of the variance was carried out to evaluate the variation in the performance of the enterprises related to the variation in each of the independent variables of the study. The result shows source of finance, technology, marketing skill, management experience and educational level of the principal owner shows a significance variation on the performances of MSEs which is operated in Bahir Dar city.While infrastructure of owners, working premise and planning practice of owners did not show a statically significances variations. Based on the findings it was recommended that enterprise owners should focus on up grading themselves in education by using alternative programs. Also other stakeholders of the sector, especially Micro and Small Development Agencies should work on providing short term training that helps enterprises in their business work. In relation to the source of finance the Bahir Dar city government bodies should provide affordable alternative sources of finance for MSEs. This can be done by communicating with the banks and other credit institutions to lessen their requirements.