Small and medium scale enterprises have long
believed to be catalysts for economic growths and national development both in
developed and developing countries. In Nigeria where private sector is not well
developed SME is assumed to play the role of employment generation, facilitator
of economic recovery and national development. The paper examined small and
medium scale enterprises in Nigeria and in relation to those challenges which
affects SME’S from development capacity to realizing its full potentials as
well the prospect for improvement and development for employment generation,
economic growth and national development. It suggested therefore that invigorating
SME’S with strengthen committed to economic reform would offer a turning point
in facilitating the recovery of Nigeria economy and national development.
TABLE OF CONTENTS
of Contents vi
Chapter One: Introduction
1.1 Background to the study 1
of Challenge 5
1.4 Objectives of the Study 10
1.5 Statement of Hypotheses 10
1.6 Significance of the Study 11
1.7 Scope of the Study 13
1.8 Limitations of the Study 16
1.9 Definition of Terms 17
Two: Literature Review
Definition of Small and Medium Scale
of Small and Medium Scale
Frame Work 29
Roles of Small and Medium Scale
in Economic Growth and
Need FPR Accounting Information
of Accounting 38
Challenges of SME’s 39
of Accounting Information SME’s 40
Uses of Accounting Information to SME’s 44
2.12 Setting up
Accounting Records 48
Forms and Records 49
Control a Necessary tool
Safeguarding SME’s 50
2.13.1 Control over the Accounting System 51
Management System 51
Budgeting and Budgetary Control 52
2.15 Necessary Books to be kept by SME’s 55
Fund/Financing for Small and
Medium Scales Enterprise 58
2.16.1 Sources of Finance for SME’s 59
2.17 The Role
of Financial Institution in
2.18 Problem Limiting Access to Funds 67
2.19 Internal Challenges of SME’s 68
Chapter Three: Research Method and Design
3.2 Research Design 73
3.3 Description of Population of the Study 74
3.4 Sample size 75
3.5 Sampling Technique 75
Data Collection 76
of Data Presentation 77
3.8 Method of Data Analysis 78
Four: Data Presentation, Analysis and Interpretation
4.1 Introduction 81
Presentation of Data 82
4.3 Data Analysis 83
Hypothesis Testing 107
Five: Summary of Findings, Conclusion and Recommendations
5.2 Summary of Findings 115
Background to the study
has always been a strategic country in African with economic and political
power. Unfortunately a history of prolonged military rule left the nation civil
institutions in ruin the economy grossly mismanaged and individual valves
completely misplaced thus preventing Nigeria from attaining its full potential consequently due to this uncertainty,
quite a number of foreign investors have been wary of doing business in Nigeria
and with the successful transaction to a civilian government in 1999 the cloud
of uncertainty cleared up a bit .However, a significant number of foreign
investors are still not expected to rush into the country to do business
,probably until 2004, when Nigerian will test the sustainability of its
democracy as it goes to the polls to decide its leadership for the next five
years. As part of its strategy to review the economy and uplift the standard of
living of Nigerians the government has identified sectors taking the economy
with potential for rapid growth .one of such sectoral strategies is the
development of small and medium scale enterprises (SME’S). SME’S are know to
encourages people centered which help in alleviating poverty creating wealth
and employment and stemming rural urban drift. Aware that the challenged facing
SME’s in Nigeria are numerous, the government established the small and medium
industries development Agency (SMIDA) as an umbrella agency with a mandate to
coordinate and support the development of the SME’S sector in the country.
and medium scale business if property managed is a catalyst for industrial and
economic growth. In fact, successful and big multinational companies in Nigeria
today such as Guinness Nigeria PLC events Groups, UAC, John Holt group and
other from numerous to mention started small in their home countries
The importance of small and medium scare business
cannot be over emphasized. In Nigeria today SME’s faces serious management
challenge because most of the operators and owners [entrepreneur] are not well
educated our literacy level is still very low.
This study will focus
on the challenges of effective accounting system in Nigeria challenge is
something new and difficult which requires great effort and determination.
Experiences have shown
that most programme set up by both the federal and state government to
encourage entrepreneurial development do not bother to prescribed the type of
challenge to be maintained by SME’S. This approach has left most SME’S
(entrepreneur) operating without adequate challenges of effective accounting records
and information. The bankers on their part do not also prescribed the type of
accounting books to be kept by their clients, they rely on traditional method
of appraising business based on set of accounts prepared by SME’S in the
previous 3-5 years and projected income for the following 3-5years without
caring about the nature of the accounting system that produced such accounting
A business without an
accounting system at all or good accounting system cannot produce any
meaningful and reliable accounting information. It is not enough to advance
loans or credit to business based on the traditional approach of project
appraisal without some sort of monitoring such monitoring include:
a. Inspection of the books and the accounting
system at intervals-say quarterly.
b. Inspection of actual project for which the
loan had been granted also at intervals.
c. Periodic assessment of the technical and
accounting manpower needs of the client.
Such monitoring as
stated above will greatly improve the record-keeping habits of small and medium
scale business owners as study has proved that record kept by them are always
The importance of good
record keeping was confirmed by Awosika, (1979,p.29).when he said that studies
of small-scale business failure in the united kingdom and united state of
America show that the majority of them had to do with inadequate records.
Absence of records may
not be the only cause of challenges to a businessman but it certainly accounts
for his inability to see in advance the direction in which the business is
going, it is in view of the importance of good record keeping to the survival
and well being of SME’S that this project work is embarked upon.
1.2 Statement of Problem
countries (LDCS) have more small and medium scale enterprises (SEM’S) operating
within their economics than the developed nations and if these LDCS are to
match towards industrialization they have to ensure that their SME’S
manufacturing business are assisted to grow effectively hence it is working at
the different accounting challenges facing them and how these challenges could
be minimized entirely.
information for SME’S business and indeed any business at all is sine-quanon
for their survival. Accounting information show monetary terms. This makes it
pertinent for all business (Small or big) to maintain adequate record that will
make it possible for their performance to be assessed with relatives ease.
It is a common saying
in the accounting profession that financial management starts where accounting
ends. This signifies the importance of accounting to the management of funds.
If funds and financial transaction are not properly recorded, management of
funds will be impossible. Most of the accounting challenges of small and medium
scale business/enterprise in Nigeria are self inflicted because the operators
do not keep –proper book of accounts either due to ignorance or deliberate
attempt not to pay adequate tax by not showing the true performance of their
Some of this small and
medium scale business does not enjoy the benefit of capital allowance and
pioneering status because of lack of adequate records. Some suffer serious
fraud as a result of lack of good records and accounting control. What they
should have paid as taxes to remain good corporate citizen is usually lost to fraudulent
and unscrupulous employees. In some case the fraud is so much that the small
and medium scale business so affected dwindles financially and eventually goes
into voluntary liquidation. Without good accounting records piecing together
all necessary accounting information on adios basis for the purpose of raising
additional funds for the growth of the business may be seriously impaired.
According to Anao
(1975,p.28). “some business are
handicapped more by the fact that they do not keep good accounting records so
that they find it difficult to convince their
bank manager of their ability to
repay the loan”. Entrepreneur can also minimize their difficulties in obtaining
capital by conducting their business on sound and honest principles by
employing records of the business and conducting detailed feasibility studies
of all proposed project before embarking on them.
The question that
readily comes to mind is whether SME’S and indeed other business could be
properly managed without good accounting records from desired accounting information could be
gotten. The answer is anybody guess and
this was confirm by Osaze (1996,p.224).” the challenges of inadequate financing
of SME’S can be partially traced to the
poor accounting and financial control system designed to produce data and
information consistent with the
goals and operational character of the business, but that are also congruent
with the expectation of investors and lending financial institutions the small
business is liable and more importantly have challenge with obtaining expansion
and working capital from external sources.
It is in a view of the
above issue that this research work was embarked upon to find solution to the
various accounting challenges facing small and medium scale enterprise so as to
enhance their performance and so enable them grow into gigantic business
1.3 Research Questions
In order to achieve the
objective of this study the following questions will be asked
1. Is poor performance of SME’S in Edo state as a
result of improper accounting records being maintained?
2. In what extents does poor accounting
information access of raising funds by the SME’S?
3. Is there any relationship between the
failure of SME’S in Edo State and the poor accounting records and information?
4. Do SME’S managed by managers with
accounting knowledge performed better than others which is managed by managers
without accounting knowledge?
of the Study
In this research work
attempts will be made to examine the following;
1. To examine if the poor performance of SME’S
in Edo State is as a result of lack of proper accounting records being
2. Whether is it necessary for the chief
executive officer of small and medium scale business to have some training in
accounting so as to enhance the performance of their business?
3. The position of the institute of chartered
accounting of Nigerian(ICAN) as to
whether small and medium scale business should engage and retain accounting
personnel or make do with the service of accounting firms.
4. The ISAB regulatory framework for SME’S
Statement of Hypothesis
Ho: There is no significant relationship between SME’S
performance and accounting records being maintained.
Hi There is significant relationship
between SME’S performance and accounting
records being maintained.
Ho: There is no significant relationship between poor
accounting information and SME’S ability to raise funds.
Hi There is significant relationship between poor
accounting information and SME’S ability to raise funds.
Ho: SME’S business does not fail as a result of poor
accounting records and information.
HI: SME’S business fails as a result of poor accounting
records and information.
Significance of the Study
A business whether big
or small or medium comprises of people who work with materials and other
resources for the attainments of some set objectives including profit
maximization. The various transactions that take place day in day out within
the organization need to the recorded and the performance of the business need
to be measured.
Accounting is the only
means of recording transaction such as labour cost or wages cost of materials,
daily expenses and salaries cash in-flow and outflows need to be recorded also
as well as asset bought for operating the business. Accounting is the only
language of communicating the performance of any business at any given time to
third parties such as government trade, creditors, shareholders and investors.
This study is aimed at
determining the accounting information needs of small and medium scale
enterprises the need for entrepreneurs of SME’S to have some knowledge of
accounting as a means of improving the performance of such business. It will
also look at the importance of proper record keeping as a means of improving
and minimizing the frequent failure of SME’S in Nigeria. It is hoped that at
the end of the study, the different accounting challenges facing SME’S will be
identified and solution proffered. It is also expected that the study will be
and current entrepreneurs
The providers of
short term and long term funds such as banks, individual investors and bodies
set up by government to encourage entrepreneurial development.
analysis, professional accounting firms that provides financial and accounting
services to small and medium scale bodies.
Scope of the Study
This study is concerned
with the accounting challenges of small and medium scale enterprise. The study
used small and medium scale enterprise in Benin City as reference point. A
business concern is made up of people with different behavioural pattern due to
difference in their management cultures, perception and religion and the
effects of these on good management record keeping attitude have not been
considered in this study. It is in fact assumed that accounting challenges
facing small and medium scale business in Benin City, Edo State are also
applicable to similar business in other parts of the state including the far
According to this study
covers financial accounting cost and management accounting. What constitutes a
small and medium scale enterprise varies from place to place and from
institution to institution and from country to country depending essentially
and factually on the country’s level of development. Business before the introduction
of SAP and before the March 5th 1993 devaluation of the Naira can
readily be classified as cottage or small business in view of the presents
values of the naira. Business that will be classified as small or medium scale
in Nigeria can hardly be classified as such in the United Kingdom or United
State of America because of their level of development.
Taking cognizance of
these facts, small and medium scale enterprise/industry in this study is
defined by the National Council on industry as an industry where total cost
including working capital but excluding cost of land is over N1 million but not
more than N40 million and a labour size of between 11 and 35 workers (small
scale) while medium scale industry, is the industry where total cost including
working capital but excluding cost of land is about N150 million, with a labour
size of between 36 and 100 workers.
The study will cover
small business and medium business in:
Agro and Allied
Poultry feed and
Birds, doors and
Red and fencing
wires, others are
Timber and wood
Limitations of the Study
Although accounting is
the universal language of communicating business activities and important
limitation is the fact that the study is only based on small and medium scale
enterprise in Edo State. Another important limitation is the extent to which
respondents are willing to complete the questionnaires and the significance
they attach to this study after limitation includes:
non-maintenance of adequate accounting records by SME’S.
espionage and unwillingness of CEO’s of SME’S to dissolve certain information
they regard as vital and confidential.
of information given based on (a) and (b) above
Definition of Terms
a thorough understanding of the research, it is expedient for the following
terms to be defined:-
Is the process of identifying, measuring, recording, classifying and summarized
financial transaction or event to generate economic information and
communicating and interpreting economic information so as to aid informed
judgment and decisions by the end-users of the economic information. Anao,
Keeping: Book-keeping is an aspect of accounting; it is the
actual recording and summarizing of financial transaction. It provides the
information on both the current value (equity of an enterprise and on its
change in value due to profit or loss) over a given time period.
to Oxford Advance Learner’s dictionary of current English, enterprise means a
company or business. It could be state owned/public enterprise. It could also
be small and medium sized enterprise.
According to Oxford Advance Learner’s Dictionary, Business means the activity
of making, buying selling or supplying goods or services
for money or profit.
Records: Accounting record refers to the details of documentation
raised with respect to the economics transaction of an enterprise from the
point of initiation to the point of entry into the final accounts of the
enterprises. Such records include the documentary evidence of the transaction
and the various entries made in the books of the enterprise.
cannot possible define the term without defining a firm therefore, a firm is
simply an organization set up to produce a particular good
(or some goods) or services for sales to other organization, government or member
of the public. Economic refers to industry to mean all firm producing
the same products for example the foot wear industry in Nigeria would consist
of all firms engage in the production and marketing of footwear product in the
to the Oxford Advance Learner’s Dictionary, a challenge is difficulty or
something that is difficult to understand.
Dictionary business and management by Jerry M. Roseburg (1978) sees development
as “A gradual unfolding by virtue of which something comes to be. A criterion
of effectiveness that refers to the ability of an organization to increase its
capacity to react to existing or anticipated pressure.
According to Dictionary of American Government and politics (1988) the word
government is viewed in a four perspective viz.
i. The apparatus of state consisting of
executive, legislature and judicial branches.
A political entity that has taking
authority and jurisdiction over a defined geographical area of some specified purpose,
such as five, protection schools.
The individual who temporarily control
the institution of a state or sub national jurisdiction.
iv. The formal
institution and processes through which binding decisions are made for a society.
j. Policy: It refers to as what everything government decides to do or not to do
that is binding the society.