ABSTRACT
The
Nigeria Economy has a lot of turbulence in the 1980’s. The period witnessed unemployment, inflation,
dwindling oil revenue; the need has risen for the government to take serious
steps to change the direction of the economy through policies which are aimed
at restructuring and making better use of available resources.
However,
this study was conducted to examine the impact of financial planning in the
profitability and efficiency of small scale industries in Orumba North Local
Government Area of Anambra State. The
results of the study showed that financial planning has to be interpreted and
used.
After
an analysis of data, the study came out with findings of financial planning
propels the level of performance of small scale firms.
It
was found that small scale firms in Orumba North Local government was
identified to be absence of proper financial records, illiteracy, bad attitude
to change and high inflation and interest rate.
In
other to exploit the optional benefits of this study, the researcher offered
the following recommendations for the improvement of financial planning in
small scale firms in Orumba north local government area of Anambra state.
1. Considering
the fact most small scale firms lack necessary managerial know-how, experienced
and qualified staff should be employed on fulltime basis to design a good
accounting system, draw up maintenance plans for such records and help relate
them to profitable operations.
2. Good
records should be kept. While a business owned is not expected to be an accountant,
he should at least be able to keep memorandum of records to assist the
accountant in preparing his financial records or reports.
3. Small
scale industrialists should be enlightened through the use of seminars and
government enlightment policies.
TABLE OF
CONTENT
PAGE
Title page i
Certificate ii
Dedication iii
Acknowledgement iv
Abstract v-vi
Table of Content vii-viii
CHAPTER
ONE:
1.1 Introduction
1
1.2 Historical
background of Orumba North L.G.A 3
1.3 Objectives
of the Study 5
1.4 Statement
of the Problem 6
1.5 Research
Hypotheses 7
1.6 Significance
of the study 8
1.7 Scope
and Limitation of the study 8
1.8 Limitation
of the Research 9
1.9 Definition
of Relevant Terms 9
1.10 Summary 14
CHAPTER
TWO: Literature Review
2.1 Introduction
to Finance 15
2.2 Importance
of Finance on Management
Decision Making 16
2.3 Financial
Planning for Decision Making 17
2.4 Components
of Financial Plans 18
2.5 Business
Organization: General Overview 29
2.6 What is
a Small Scale Industry 32
2.7 Role and
importance of the small scale
Industry in developing country 35
2.8 Problem
of the small Scale Industry 36
CHAPTER
THREE: Methodology
3.1 Introduction 41
3.2 Population
and Sample 42
3.3 Method
of Data Analysis 42
CHAPTER
FOUR: Presentation, Analysis and Interpretation of Data
4.1 Introduction 45
4.2 Tabular
Presentation and analysis of Data 45
4.3 Hypotheses
Testing and Verification 56
CHAPTER FIVE:
Summary of Findings, Recommendations and Conclusion
5.1 Summary
of Findings 65
5.2 Recommendations 67
5.3 Conclusion 69
Appendix 71
Bibliography 75
Questionnaire
CHAPTER ONE
1.1 INTRODUCTION
The
Nigeria
economy has witnessed a lot of turbulence in the 1980s. The period witnessed
unemployment, dwindling oil revenue. The need has arisen for the government to
take serious steps to change the direction of the economy through the use of
policies, which are aimed at restructuring and making better use of available
resources. Among these policies, one should aim at increasing the awareness, as
regards the positive impact which emphasis on small scale industries could have
on the economy.
For
the purpose of this research, a small scale industry because of ambiguity in
the definition, can toe defined as a continuum starting from the informal sole
propertorship and extending to an upper limit defined by the law of the country
concerned. In Nigeria
for example, various agencies have different classifications - Nigeria Bank for
Commerce and Industry, Federal Ministry of Industries etc.
One
of the earliest definitions of small scale industry was established in 1952 by
the United Economic Commission for Asia and
the far East (ECAFE). The commission defined a “Small Scale Industry” as
operated 50 workers if no motive power was used, or 20 workers if motive power
was used. In Nigeria,
the small scale division of the Federal Ministry of Trade Industries and
cooperative defined a ‘small scale industry’ as any manufacturing, processing
or service industry with investment not exceeding N150,000 in machinery and
equipment only. The central Bank of Nigeria insist that any business
whose whole turnover is less than N500,000 is a small scale industry or
business.
World
Bank defines a ‘small scale industry as one having capital base of N10 million
repayment of ½ - 3 years MR B.E Osaze, a finance analyst sees ‘small scale
industry’ as one which is owned, managed and controlled by one or two persons,
is family influenced in decision making, has undifferentiated organizational
structure, has a relatively small share of the market and employs less than so
people.
In
Nigeria,
majority of the business organization or industry fall under the small scale
category. Thus the survival of the economy can be said to depend to a large
extent on the organizations.
The
small scale industry is growing all the time.
Accordingly,
government effort should be directed at providing assistance to already
existing small scale industries and to individuals willing to embark on such
small scale industries. This project is base on the impact of financial planning
on the profitability and efficiency of the small scale industries with
particular reference to those in Orumba North Local Government Area of Anambra
State. Before I proceed, it is therefore necessary to give a historical back
ground of Orumba North Local Government Area.
1.2 HISTORICAL BACKGROUND OF ORUMBA
NORTH LOCAL GOVERNMENT AREA OF ANAMBRA
STATE
Orumba
North local government Area was originated from Awka district, which started
with colonial Administration sometime in 1960. Awka district was then
considered two large and it was converted into two as Njikoka and Aguata
district council. Aguata was made up of 45 towns and Orumba was in Aguata district.
And during the end of civil war, the district was named ‘Division’. By 1989,
Aguata was splited into Aguata local
government area and Orumba local government area. The Orumba local government
was again splited into Oruba North and South, so the North local government was
originated and came into existence in 1991 as one of the local government
created by formal Head of state president Obasanjo Regime. At inception, the
Headquarters was situated at Umunze, but later transferred to Ajalli for
political reasons
Geographical Location
Orumba
North Local government Area was bounded on the south by Ideato Local Government
Area of Imo state in the North Anaocha local
government of Anambra East by Awka south of Anambra and some part of Oriji River
local government in Enugu
state. The local government have people heavily up to a population size of over
80,000 and it is made up of 16 towns which include – Awgbu, Okepeze, Amaetiti,
Nanka, Oko, Amaokpala, Ndiowu,
Ndikelionwu, Omogbo, Ndokolo, Ndiojkpalake, Ndiokaplaze, Ufuma, Awa Ndiokwuenu
and Ajalli.
Culture
The
roles played by their masquerades during the “Nmanwu” festival in the state
still lingers human memories. The Okocha masquerade, the Ogbonma, the Agaba and
Ugobedie cultural dance all from Awgbu featured prominently in cultural
festival of the state. The habitants of Orumba North local government are
prominent farmers. Those who are traders and others who ventured in other
professions keep small farm in front of there houses to demonstrate that they are
not afraid of hoes, so they have love for agriculture. They are also known for
craft making. The Awgbu wine and pot made out of clay soil is one of the
evidence that abound. The Local government also have number of areas of centre
of tourism. In terms of politics, the
people of Orumba North local Government are politically conscious and practice
the tenet of participatory democracy. Orumba local government is therefore the
centre of administrative, culture and commerce of the Anambra state.
1.3 OBJECTIVE OF THE STUDY
Financial
planning involves the selection from among alternatives of a firm’s objectives,
places, procedures and programmes in the area of finance. It also involves
finding answers to questions such as:
(i)
What is the capital requirement of the
firm?
(ii)
What are the different sources of fund,
and how should such fund be raised from each source?
(iii)
How would the Funds raised be used
effectively?
Financial
planning is very important in all human endeavours. It involves the movement of
resources especially resources that are liquid in nature.
Hence,
financial planning can be seen from the individual view points and that of the
corporate personality.
The
objective of this research study therefore is to determine if plans, especially
financial plans are properly made by small scale firms and if so, to ascertain
the level of significance such plans have on the overall operations of the
firm.
The level of significance of such financial
plans will thus enable us to examine the effectiveness of these plans as they
relate to small scale firms.
1.4 STATEMENT OF THE PROBLEM
Small
scale industries are faced with numerous problems which effect the efficiency
of their operations. These problems could rage from – unavailability of
reliable accounting information on which to base their managerial decision to
manage ignorance of these factors, knowledge of which could have otherwise enhanced
the operations of the business, especially as regards to planning of financial
transactions both in the present and in the near future. – Also, most entrepreneurs
do not have training experience in financial management and are reluctant in
seeking expert advice and assistance. This often leads to business growth and
development restriction and business failure.
As
a result of these factors, they are not able to project or even give an
estimate in successive future periods.
These
constraints make it impossible for small scale entrepreneurs to take advantage
of available investments (both long and short term investments) and alternative
sources of capital which could improve the entire scope of the business.
Basically the problem is that most small scale businesses do not draw financial
plans as regards to their activities. This research will therefore attempt to
ascertain to what extent financial planning is effective when properly
utilized.
1.5 RESEARCH HYPOTHESES
1. Ho: There is no relationship between professional
financial advice and the small scale firm’s activities.
2. Ho: There is no relationship between equity
capital and the small scale firms financing.
3. Ho: There is no relationship between availability
of capital and the profitability of small scale business.
1.6 SIGNIFICANCE OF THE STUDY
As
mentioned earlier, small scale business entrepreneurs (managers) generally lack
managerial knowledge. Thus, this research will to some extent enlighten and
broaden their business perspective as to the importance and significance of
making financial plans and implementing such plans on a continual basis. This
work will also aid small scale entrepreneurs to weigh the effects of planning
on their businesses.
Also
it is significant to note that this study rests on the presupposition that the
finding and recommendations will help prospective investors and managers know
the relevance of financial planning and to forthwith involve financial
management, planning as an important aspect of the financial management
function of the organization accounting system.
1.7 SCOPE AND LIMITATION OF THE STUDY
The
scope of the study will cover four small scale businesses located within Orumba
North local Government of Anambra state. The types of businesses would involve
saw milling, block moulding, trading, and business centres. The scope is
restricted to short term financial plans whose horizon is rarely longer than
the next 12 months. But for the purpose of this research, we could extend the
horizon to range between 12 months to 5 years. Short term financial planning
would relate to cash flow analysis which takes into consideration sales
forecast and estimated recurrent expenses and purchases.
1.8 LIMITATION OF THE RESEARCH
Every
research work is undeniable subject to some limitations. During the course of
this particular research work, limitations that would be encountered are time,
cost of the research, of these small scale firms, literacy of management and
lack of cooperation on the part of management and finally, the unavailability
and inaccessibility of proper records.
1.9 DEFINITION OF RELEVANT TERMS
During
the course of this work, basic terms would be of continuous use. Therefore it
is necessary to define some of this key terms. Financial planning: for the
purpose of defining the subject matter “financial planning”, it is necessary to
define the term “finance” and “planning” finance is the life blood of business
It
is required to bring a business into existence (its promotion and
incorporation) to keep it alive and growing.
The need for finance in business is such stronger today than ever
before, and its importance too great.
Since finance is the life blood of any business, its management is of
great importance for survival and growth of a business enterprise. The financial manager plans, directs and
controls the utilization of funds in such a way as to ensures maximum
efficiency of operations and a fair return on investment. Inshort, the finance plays a crucial role in
the operation of a business firm and it assumes still greater significance in
the case of large organizations.
“Planning”
is the beginning of the management process.
It is the process of determining what to do during a given period in an
organization, how to set about doing it, organizing responsibilities and authority
and determining what to be achieve during that time frame.
“Planning”
according to Lang and Gillespire (1981:5) is the process of setting goals and
identifying actions to achieve goals. This process would involve the
formulation of objectives and strategies to the implemented to meet these
objectives. It is process of shaping future events. It is careful plotting of goals
in relation to available resources and expected returns. It involves the
determination of where an organization is heading to and how it intends to
arrive there.
A
successful entrepreneur uses planning to bridge the gap between today and
tomorrow. The known and the unknown planning involve decision about:
a. what to do in the future.
b. how to do it
c. when to do it.
Under
the present economic, technological, social and political environment, planning
has become requisite for the survival of organizations. Thus the purposes of
planning in an organization are:
i. To decide objectives for the organization.
ii. Identifying alternative ways of achieving
them and
iii. Selecting
from among these alternatives for both the organization as a whole and also for
individual departments, sections and groups.
Generally,
planning will involve the process of using facts about the past and present to
project future actions. Having defined planning and finance “Financial
planning” as defined by Lang and Gillespire (1981:7) is the process of
concentrating on how to manage income and expenditure both in the short-run and
long-run so that specific goals will be met. Financial planning is an integral
part of overall management of the organization. Another definition is given by
Breaqley and Myers (1994:679). They defined “financial planning” as the process
in which smart financial managers consider the overall effect of financing an
investment decision.
Generally,
financial planning can be referred to as the process of using past and present
facts to project future financial matters. It involves long and short term financing
towards the allocation of resources, looking at the source of income and
expenditure and establishing a sound and reliable financial base for the
organization. It is important to note at this point the tangible product of the
financial planning process i.e the financial plan which describes the firm’s
financial strategy and project its future consequences by means of balance
sheet, income statement and statement of sources and application of funds.
PROFITABILITY: it means success in producing a result. Profitability
is used to formulate target in planning and therefore to provide a yard stick
of performance to judge actual performance. Profitability as used in the title
of this research work means the extent to which financial planning has been
successfully implemented in the small scale industry to produce the desired
profit.
EFFICIENCY: This means producing a satisfactory result
without wasting of time or resources. It is therefore necessary to note that an
organizational goals and objectives can be achieved but not efficiently. This
means that the time spent in the achievement of the goals and objectives is
more than the required time and there is also a waste of resources. This will
result to high cost of the organizations product (output). Efficiently as used
in the title of this research work means the extent to which financial planning
has been successfully implemented in the small scale industries or firms to
achieve the desired result which is the organization goals and objectives
without wastage of time and resources.
1.10 SUMMARY
The
emphasis which the federal Government of Nigeria is laying on small scale
industries as an important tool for economic development is one to which a
great deal of resources (financial and other wise) has been directed towards to
ensure its successful implementation. This being the case, the survival of such
small scale industries is being given priority to ensure that the economy gains
from these investment resources.
Accordingly,
the mechanism for the survival of such small scale industries would involve
ways of ensuring that resources entrusted to those small scale industries are
effective utilized to achieve the objectives set by the government for the
individual entrepreneur and the Nigeria
economy at large. The provision of labour and establishment of individual
business does not necessarily require formal education, and the restructuring
of the Nigeria
economy to provide a sound base for investors willing to invest their funds in
the economy.
Hence,
financial planning as an activity when included in the operation of these small
scale industries would ensure that some, if not all these goals are achieved
whether as primary objectives or as secondary objectives.
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