INFLUENCE OF FINANCIAL MANAGEMENT ON THE GROWTH OF SMALL AND MEDIUM SCALE INDUSTRIES
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INFLUENCE OF FINANCIAL MANAGEMENT ON THE GROWTH OF SMALL AND MEDIUM SCALE INDUSTRIES
Chapter one
INTRODUCTION
1.1 Background of Study
Small and medium-sized enterprises (SMEs) have long been seen as the foundation for long-term economic growth. According to UNDP (1974), developing countries, including Nigeria, have shown increased interest in the promotion of small and medium-sized enterprises for three reasons:
the failure of previous industrial policies to generate efficient self-sustaining growth; an increased emphasis on self-reliance in development; and recognition that dynamic and growing SMIs can contribute significantly to a wide range of developmental objectives.
These goals include efficient resource utilisation, job creation, mobilising domestic savings for investments, encouraging, expanding, and developing indigenous business and technology, and income distribution, among others.
As a result, the government developed programmes of assistance in the areas of finance, extension and advisory services, training, and infrastructure provision to help SMEs achieve their goals. However, due to a variety of restrictions, the full potential of SMIs in the developmental process has yet to be realised.
Financial management is one of numerous management functions that are critical to the success of any small firm (Meredith, 2006). Financial management is the process of managing a company’s finances in order to achieve its financial goals. McMahon et al. (2008) describe financial management as mobilising and exploiting sources of funds:
Financial management is concerned with raising the cash required to finance the enterprise’s assets and activities, allocating these funds among competing uses, and ensuring that the funds are used effectively and efficiently to achieve the enterprise’s aim.
Financial management as employed in this study is made up of five (5) constructs, including working capital management, which is further separated into cash management, receivables management, and inventory management.
Other aspects of financial management include investment, finance, accounting information systems, and financial reporting and analysis. Ross et al. (2009) identified three types of business decisions that a firm’s financial manager must make: financing decisions, short-term finance decisions concerning net working capital, investment, and financial reporting.
Similarly, Ang (2002) identified three major financial decisions: investment, financing, and dividend selections. According to Meredith (2006), financial management encompasses all aspects of management that involve finance, including not only the sources and uses of finance in businesses
but also the financial implications of investment, production, marketing, or personnel decisions, as well as the enterprise’s overall performance. However, such sectors are not currently being adopted by Kenyan SMEs, and immediate attention is required.
Lack of good management during the early phases of SMEs is also a key reason of business failure for small enterprises, as owners try to handle these businesses themselves to reduce operating costs.
Inefficient financial management can harm corporate efficiency and have a long-term impact on the growth of small and medium-sized businesses. However, efficient financial management is likely to assist SMEs in increasing their business efficiency, and as a result, these challenges can be partially overcome.
According to Kazooba (2006), while Kenya has a high rate of SMEs starting up, it also has a high rate of non-performing SMEs and SMEs closing down. However, the research did not demonstrate how the components of financial management affect the total company effectiveness of SMEs.
A substantial percentage of business failures have been ascribed to finance managers’ incapacity to appropriately plan and oversee their companies’ existing assets and liabilities (Mbaguta, 2002).
As a result, this study focuses on the impact of financial management on the success of small and medium-sized enterprises, with Adeyemi oil palm PLC serving as a case study.
1.2 Statement of the Problem
Currently, small-scale businesses in Nigeria encounter challenges that impede their growth and development. This supports the saying that the success of any organisation, whether small, huge, or mega, depends heavily on the performance of people in management, finance, and multiple and high taxes.
To attain this management purpose in small-scale businesses, this research has been presented to solve the following challenges:
1. Management issue created by inadequate planning.
2. Financial issue caused by a lack of financial assistance and inadequate finance
3. Multiple and High Taxes.
According to Wanjohi (2009), founding and maintaining a small business has the potential for both success and failure. Because of their tiny size, a minor management error is likely to result in the death of a small firm, leaving no opportunity to learn from previous mistakes.
This can be linked to a lack of planning, bad finance, and poor management, which have been identified as the primary causes of small business failure. Though it is apparent that small and medium-sized enterprises (SMIs) play an important role in economic development, the rate at which newly founded SMIs fail is disappointing.
Against this backdrop, the current study seeks to explore the impact of financial management methods on the expansion of SMIs. These issues highlight the importance of doing research on the impact of financial management on the success of small and medium-sized enterprises.
1.3 Objectives of the Study
The overall goal of this research is to investigate the impact of financial management on the growth of small and medium-sized businesses, utilising Adeyemi oil palm PLC as a case study. The precise aims include:
1. Determine the impact of investing techniques on the growth of Adeyemi Oil Palm PLC.
2. Determine the impact of working capital management practices on the growth of Adeyemi Oil Palm PLC.
3. Determine the impact of financial reporting and analysis techniques on the growth of Adeyemi Oil Palm PLC.
4. Determine how financial planning techniques affect Adeyemi Oil Palm PLC’s funding need.
5. To research how accounting information systems affect the growth of Adeyemi Oil Palm PLC.
1.4 RESEARCH QUESTIONS.
The relevant research issues for this project are:
1. How do investing techniques affect the growth of Adeyemi Oil Palm PLC?
2. How do working capital management methods affect the growth of Adeyemi Oil Palm PLC?
3. How do financial reporting and analysis processes affect the growth of Adeyemi Oil Palm PLC?
4. What impact do financial planning techniques have on Adeyemi Oil Palm PLC’s funding shortage?
5. How do accounting information systems affect the growth of Adeyemi Oil Palm PLC?
1.5 Significance of the Study
The study’s findings will help small-enterprise owners understand the need of doing a thorough feasibility study and developing a business plan before establishing a business for easier administration.
The study will help the government, the private sector, and prospective small-scale business owners develop policies to improve small-scale business management.
The findings of this study are significant because they shed light on the impact of financial management on the success of small and medium-sized businesses. Proper financial management is essential to any business’s sustainability.
This study will add to the existing body of literature by considering sections of the literature that have not yet been examined or explored, and adding these aspects into the current study. As a result, the findings will serve as the foundation for future research in the sector.
1.6 Scope of the Study
The scope of this study is limited to investigating the impact of financial management on the growth of small and medium-sized enterprises, with Adeyemi oil palm PLC as a case study.
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