IMPACT OF FINANCIAL PLANNING ON THE PROFITABILITY AND EFFICIENCY OF SMALL SCALE FIRMS
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IMPACT OF FINANCIAL PLANNING ON THE PROFITABILITY AND EFFICIENCY OF SMALL SCALE FIRMS
Chapter one
1.1 Introduction
The Nigerian economy saw a lot of instability in the 1980s. Unemployment and declining oil revenues were common during this time period. The government must take major steps to change the trajectory of the economy by implementing policies targeted at restructuring and better using current resources.
Among these initiatives, one should strive to raise knowledge about the good influence that focusing on small-scale industries may have on the economy.
Because of the vagueness in the definition, a small-scale industry can be characterised as a continuum beginning with an informal sole proprietorship and extending to an upper limit determined by the law of the country in question.
In Nigeria, for example, many agencies are classified differently, such as the Nigeria Bank for Commerce and Industry and the Federal Ministry of Industries.
The United Economic Commission for Asia and the Far East (ECAFE) issued one of the first definitions of small-scale manufacturing in 1952. The commission defined a “Small Scale Industry” as having 50 workers if no motive power was utilised and 20 workers if motive power was used.
In Nigeria, the small scale division of the Federal Ministry of Trade Industries and Cooperatives defined a’small scale industry’ as any manufacturing, processing, or service sector with an investment of no more than N150,000 in machinery and equipment.
According to the Central Bank of Nigeria, any business with a total revenue of less than N500,000 is considered a small scale industry or enterprise.
The World Bank defines a small scale industry as having a capital base of N10 million and a repayment period of ½ – 3 years. MR B.E Osaze, a finance analyst, defines a’small scale industry’ as one that is owned, managed, and controlled by one or two people, is family influenced in decision making, has an undifferentiated organisational structure, has a limited market share, and employs fewer than so people.
In Nigeria, the bulk of businesses and industries are small size. Thus, organisations play a significant role in the economy’s survival.
The small-scale industry is constantly increasing.
As a result, the government should focus its efforts on assisting existing small-scale industries as well as individuals interested in starting such businesses. This research focuses on the impact of financial planning on the profitability and efficiency of small-scale companies, specifically those in Anambra State’s Orumba North LGA. Before I start, it is vital to provide some historical context for Orumba North Local Government Area.
1.2 Historical Background of Orumba North Local Government Area in Anambra State
Orumba North Local Government Area was formed from the Awka district, which began with colonial administration in 1960. Awka district was then judged too large, therefore it was divided into two councils: Njikoka and Aguata. Orumba was part of the Aguata area, which had 45 municipalities.
At the end of the civil war, the district was renamed ‘Division’. By 1989, Aguata was divided into two local government areas: Aguata and Orumba. The Orumba local government was once again divided into Oruba North and South, with the North local government being established in 1991
as one of the local governments established by the nominal Head of State, President Obasanjo Regime. Initially, the headquarters were located in Umunze, but were later relocated to Ajalli due to political considerations.
Geographical Location
Orumba North Local Government Area was flanked on the south by Imo state’s Ideato Local Government Area in the North Anaocha Local Government of Anambra, and on the east by Awka south of Anambra and a portion of Enugu state’s Oriji River Local Government.
The local government has a population of over 80,000 people and is divided into 16 towns: Awgbu, Okepeze, Amaetiti, Nanka, Oko, Amaokpala, Ndiowu, Ndikelionwu, Omogbo, Ndokolo, Ndiojkpalake, Ndiokaplaze, Ufuma, Awa Ndiokwuenu, and Ajalli.
Culture
The roles played by their masquerades at the state’s “Nmanwu” festival remain vivid in human memory. The state’s cultural celebration featured the Okocha masquerade, the Ogbonma, the Agaba, and the Ugobedie traditional dances, all of which originated in Awgbu.
The residents of Orumba North local government are notable farmers. Those who are traders and have delved into other professions have little farms in front of their homes to indicate that they are not frightened of hoes and have a passion for agriculture.
They are also noted for their craftsmanship. One of the several pieces of evidence is the Awgbu wine and pot made of clay. The local government also has a variety of tourism centres.
In terms of politics, the inhabitants of Orumba North Local Government are politically conscious and adhere to the principles of participatory democracy. As a result, Orumba local government serves as the administrative, cultural, and commercial hub for Anambra state.
1.3 The Study’s Objectives
Financial planning is deciding between choices for a company’s financial objectives, locations, procedures, and programmes. It also entails determining responses to queries like:
(i) What are the firm’s capital requirements?
(ii) What are the various sources of funding, and how should such funds be raised from each one?
(iii) How will the funds raised be used efficiently?
Financial planning is essential in all human pursuits. It involves the flow of resources, particularly those that are liquid in nature.
Thus, financial planning can be viewed from both individual and corporate perspectives.
The goal of this research is to investigate if small-scale enterprises make proper plans, particularly financial plans, and, if so, what impact such plans have on the firm’s overall operations.
The significance of such financial strategies will allow us to analyse their effectiveness in relation to small-scale enterprises.
1.4 Statement of the Problem
Small-scale industries encounter a variety of challenges that have an impact on their operational efficiency. These issues could stem from a lack of reliable accounting information on which to base their managerial decision to manage
as well as ignorance of these factors, knowledge of which could have otherwise improved the business’s operations, particularly in terms of financial transaction planning both now and in the future. –
Furthermore, the majority of entrepreneurs lack financial management skills and are hesitant to seek expert counsel. This frequently results in restrictions on corporate growth and development, as well as failure.
As a result of these issues, they are unable to anticipate or even provide estimates for future years.
These limits prevent small-scale entrepreneurs from taking use of available investments (both long and short-term) and alternative sources of cash that could broaden the scope of their business.
Essentially, the problem is that most small-scale enterprises do not develop financial plans for their operations. As a result, the purpose of this study is to determine how beneficial financial planning is when used appropriately.
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