ABSTRACT
Acquisition and allocation of funds is a central
function in all business organisations, hence financial management plays
considerable role in any organisations, any of the main problems facing
effective management of small-scale industries is lack of basic financial skill
needed to guide the business. These
skills include ability to raise capital, preparation of accounting records,
financial control, credit management, risk management to mention just a few.
Provision of these skills to small-scale industries
will assist in improving their performance.
The main purpose of this section is to briefly
discuss these important areas of financial management. Basically the section will address raising of
funds, accounting and financing control, credit management required by small
business operation.
A. RAISING OF
CAPITAL
All business firms have to be financed. Each enterprise must own some combination of
cash inventories, building, equipment and other properties called Assets.
Funds must be raised b a business to acquire
these assts. Before raising the required
capital, the entrepreneur must avoid under and over estimate of capital
requirements. Too much capital will lead
to unnecessary high cost and inadequate capital affects the growth of a
business. Hence, an entrepreneur must
seek for realistic capital needs.
The U.S. small
business Administration has suggested the need for entrepreneur to answer the
following question when deciding on realistic capital requirement.
·
Why do I need this capital?
·
How much do I need?
·
When do I need it?
·
How long will I need it?
·
How can I obtain it?
·
How can I repay it?
When a firm commences business, it requires funds
to purchase assets, fixed and current assets.
Such funds are from its owners and later loan from creditors.
As the business commences operation, profit its
made and it may be returned in the business for further expansion.
The types and source of capital are many and
varied. Meanwhile, we may outline the
main type of capital as:
a.
Permanent or long-term capital.
b.
Medium term capital
c.
Short term capital
As a general rule, the book of financing should be
of permanent nature. Temporary shortages
in working capital can be made from borrowing and similar short-term funds.
Although, the main concern of this research work is
external financing, there is also internal financing by means of retainer and
earnings or ploughed bank profits depreciation and various forms of reserves
that enable the business to borrow without recourse to external borrowing.
These firms of financing have been recognised to be
the cheapest.
TABLE OF CONTENT
Title page
Certification i
Dedication ii
Acknowledgement iii
Abstract iv
Table of Content
vi
CHAPTER ONE
1.0
Introduction 1
1.1
Statement of the Problem 3
1.2
Objectives of the Research Work 4
1.3
Significance of the Study 4
1.4
Scope of the Study 5
1.5
Limitation of the Study 5
1.6
Research Methodology 5
1.7
Hypothesis 5
1.8
Definition of Terms 6
CHAPTER TWO
LITERATURE REVIEW
2.0
Small Business Organisation 8
2.1
Definition of Small Business 8
2.2
Reasons for Owing/Starting a Small Business 9
2.3
Ways of Owing a Business 12
References 22
CHAPTER THREE
3.0 RESEARCH METHODOLOGY 24
3.1 Introduction 24
3.2 Method
of Data Collection 24
3.3 Method
of Data Analysis 27
References 30
CHAPTER FOUR
4.0 PRESENTATION AND ANALYSIS
OF DATA 31
4.1 Introduction 31
4.2 Analysis
of Bio-Data 31
CHAPTER FIVE
5.0
SUMMARY, CONCLUSION AND RECOMMENDATION
40
5.1 Summary
of the Findings 41
5.2 Conclusion 44
5.3 Recommendation 44
References 46
Appendix
CHAPTER ONE
1.0
INTRODUCTION
There are so many misconceptions about finance or
capital, some thinks that when they get the fund and all will go well. There is
nothing so disappointing as this. Too much emphasis has been laid on money
capital than other forms of capital. Most people who engage or desire to engage
in business start-up hardly look well or think deep or carry out sound
feasibility studies. There are several approaches
that can be tapped in financing start-up or existing one’s without
overburdening the business. Sources to
start-up or expanding existing one’s may vary in some instances.
In recent yeas, there has been growing awareness of
the importance of new business start up for long-term economic growth and
employment creation. This is reflected
in the active role individuals, organisations and even some governments play in
promoting small business start-ups.
FINANCING
It is widely recognised that a key element of
successful start-ups is adequate financing (Bates, 1997]. However, success in business is a function of
many factors. Finance happens to be one
of such factors. Availability of finance
does not guarantee success in a business start-up or even expansion. Lack of finance is bad but excess of finance
is even worse. Without any argument,
finance is a strong requirement for a successful business start-up and even for
any contemplated expansion or running of an existing business outfit. In most developed countries, new business
finance takes the form of bank loans while the next largest source of fund is
family members. The picture is slightly
different in developing countries. It is
heart running today that many people especially young men and women now dream
of starting and managing their own business.
Some, actually do start a business and achieve
their dream, while other keep on dreaming.
What separates the successful entrepreneur from the unsuccessful? In
many case, the general excuse seems to be centred on the ability of the prospective
business owner to access sufficient funds to turn the dream into reality. Some times, business failure can be traced to
either lack of finance or even excess of it.
Too man people hardly know the various sources of financing and their
equipments.
Only few meet the requirements. Obtaining the funds to stat or expand a
business can be confusing, frustrating and time consuming. Whether a business is starting or expanding, sufficient
capital or working capital is essential.
It is not enough to simply have sufficient finances but sound financial
intelligence and effective planning are required to manage it well (Jones, Mc
Evoy and Barrett, 1994). It is advisable that entrepreneurs should avoid common
mistakes like:
a.
Securing the wrong type of financing
b.
Miscalculating the amount required.
c.
Underestimating the cost of borrowing money.
WHAT IS SMALL SCALE BUSINESS
There is no internationally accepted definition of
small business or small-scale industries because the term “small” is a relative
concept. What is considered small in one
community may in fact be a large one in another country.
Indeed, a common definition is impracticable
because of the use of different variables describing the small business in
different countries.
However, some common variables used by researchers
and writers or authors include:
a.
The number of employees.
b.
Sales turnover.
c.
Quantum of assets
d.
Investment
e.
A combination of some or all of these.
In United
States, the size of a business is measured
using several criteria including the number of employees, total sales volume
and total assets. Any business that
employs less than one hundred people or grosses less than one million dollar is
considered small in United
States.
Whereas in Nigeria, this
could perfectly fit into medium scale business.
1.1 STATEMENT
OF THE PROBLEMS
The following problems will be analysed during the
course of the research work.
a.
The lack of funding of small business of banks and financial
institutions.
b.
The lack of funding of small business by the government.
c.
Lack of technical and expert skill in running small and medium business.
d.
Lack of venture capital program to assist in funding small business.
e.
Lack of basic infrastructure and collateral.
1.2
OBJECTIVES OF THE STUDY
a.
To highlight the various sources of funds to small and medium scale
business.
b.
To proffer solution to the difficulties experienced in the process of
raising capital.
c.
To evaluate managerial effectiveness in the use of capital raised to
meet objectives.
d.
To analysis and give suggestions to the right source to raise capital
under given situation in the business.
e.
To make necessary recommendation.
1.3 SIGNIFICANCE
OF THE STUDY
a.
Managers or owners of small and medium businesses should be able to know
the right source to raise capital under different circumstances.
b.
The study will make the owners to be more prudent in utilising capital
raised.
c.
It will serve as a guide to owners on how to plan the repayment of the
principal sum raised including the interest.
d.
It will serve as a reference to students and in the business environment
in planning small business financing.
e.
It will serve as a framework for further research work to be carried
out.
1.4 SCOPE OF
THE STUDY
This research will focus on small and medium
businesses (a typical supermarket at Yaba Market) the methods of financing and
challenges faced by owners in the process of raising capital.
1.5 LIMITATION OF THE STUDY
The following factors are perceived to be capable
of affecting the quality of work to be carried out on the project
a.
Time limitation
b.
Insufficient capital to meet all clerical duties.
c.
Insufficient information for the whole write-up
1.6 RESEARCH
METHODOLOGY
In the course of this study, questionnaires,
literature review, personal interview and visitation will be adopted to conduct
the research work.
1.7 HYPOTHESIS
The Ho and HI hypothesis approach will
be adopted.
Ho: Finding
of small and medium businesses in Nigeria is not possible taking the
Nigerian business environment into consideration.
HI:
Finding of small and medium businesses in Nigeria is possible taking the
Nigerian business environment into consideration.
1.8
DEFINITION
OF TERMS ENTREPRENEUR
Someone who takes initiative, organises some social
and economic mechanisms and accepts the risks of failure. Someone who has taken the challenges to
create new exchange of goods services, factors of production, technological
capital ideas.
SOURCES OF FINANCE:
These are
various means through which the small and medium scale businesses can get their
funds.
PERSONAL SAVINGS: Money kept
aside for business purpose by the entrepreneur.
BORROWING OF LOAN FROM COMMERCIAL BANK: Commercial banks do provide loans to begin and run businesses on
presentation of realistic and acceptable business plan.
BORROWING FROM NIGERIAN
EXPORT: IMPORT BANK (NEXIM)
NEXIM was established in 1991 to provide export
financing and export related services such as rediscounting and refinancing
facilities and stocking facilities to export firms.
SMIESIS: Small and
Medium Industries Equity Investment Scheme (SMIESIS). It was established by the Bankers committee
in 2000 and it requires each Bank to set aside 15% of its annual pre-tax,
profit for equity investment in small and medium scale enterprises.
MICRO FINANCING:
Assistance
rendered by the community banks and other banks through giving of loans to
small scale and medium enterprises.
VENTURE CAPITAL:
Joint venture
form of business between the Banks and small and medium business so as to aid
in financing, managing and controlling the business.
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