Nigeria’s economy is characterized very by a large number relative of micro-enterprises, and in between lie small and medium enterprises (SMEs). The unique feature of most SMEs is that they can be easily established since their requirement in terms of capital, technology; management and even utilities are not as demanding as it is the case of large enterprises. Consequently, the small enterprise sector is one of the leading employers (next only to peasant agriculture) in Nigeria and has been recognized as a significant sector in employment creation, income generation, poverty alleviation, and a base for industrial development. It is estimated that there are over 30 million enterprises in the sector employing between 15 to 16 million people. Despite the enormous potential of the private sector, poor record keeping is identified as a constraint hampering its growth in Nigeria. Businesses are unable to keep track of daily activities and banks are unwilling to lend to SMEs all due to lack of financial information. Hence, this study seeks to investigate whether SMEs practice bookkeeping or not, and the contributions of bookkeeping to the growth of SMEs in the Uyo in the Akwa Ibom State of Nigeria. The study considered a total population of 450 comprising SMEs, 15 Banks as well as SMEDAN offices in the Local Government Area. Out of this figure, a simple random sampling technique was used to select a sample size of 136 for the study. From the findings of the study, it was revealed that 80.8% of SMEs were practicing bookkeeping and the manual system was predominantly used. The recommendations, however, were that SMEDAN must be strengthened and well resourced by the government to offer support services in the area of organizing effective training programmes for SME operators. There must also be intensive publicity in the local dialect through the mass media to sensitize SME operators on the need to maintain proper books of records.


Content    Page

Title Page    i

Declaration    ii

Dedication    iii

Acknowledgment iv

Abstract    v


1.0    Background of Study    1

1.1    Statement of the Problem    3

1.2    Objectives of Study    5

1.3    Research Questions    6

1.4    Significance of Study    6

1.5    Limitation of Study    7

1.6    The Scope of Study    7

1.7    Methodology    7

1.8    Layout of Study    8


2.0    Overview    10

2.1    Definitions of Small and Medium Enterprises    10

2.1.1    Qualitative Definition    10

2.1.2    Quantitative Definition    12

2.1.3    The Nigerian Situation    12

2.2    Bookkeeping Definitions and Concepts    13

2.3    Basic Steps in Bookkeeping    14

2.4    Financial Management in SMEs    15

2.5    Financial Reporting and Analysis    16

2.6    Benefits of Financial Information    17

2.7    Costs of Financial Information    18

2.8    SMEs Contribution to Economic Growth and Development    19

2.9    Nigeria Government Policies in Promoting SMEs Development    20

2.10    The Conceptual Framework    22


3.0    Overview    25

3.1    The Study Area    25

3.2    Research Design    25

3.2.1    Population    26

3.2.2    Sampling and Sampling Size    26

3.2.3    Instrumentation    27

3.3    Method of Data Collection    28

3.4    Data Analysis    28


4.0    Overview    29

4.1    Demographic Features    29

4.1.1    Age Distribution    29

4.1.2    Gender    30

4.1.3    Educational Background    31

4.2    The Length of Period in Business    32

4.3    Forms of SMEs Business Organisation    33

4.4    Nature of Business    34

4.5    Number of Employees in SMEs    35

4.6    Organisations Dealing with SMEs    36

4.7    Training Programs for SMEs    37

4.7.1    Effectiveness of Training Programs to SMEs    38

4.8    Business Records    39

4.8.1    Reasons for not Practicing Bookkeeping    40

4.8.2    Bookkeeping Management    41

4.9    Availability of Credit Facilities to SMEs    41

4.9.1    Accessing Loans From Banks by SMEs    43

4.10    Difficulties Businesses Encounter in Bookkeeping    44

4.10.1    Reasons for no Bookkeeping by SMEs    45

4.10.2    Benefits of Bookkeeping    46

4.10.3    Difficulties Businesses Face for not Practicing Bookkeeping    47

4.11    Those Responsible for Bookkeeping    48

4.12    Analysis of Data From Banks    50

4.12.1    Banks Support to SMEs    50

4.12.3    Banks Criteria in Granting Loans to SMEs    50

4.13    Major Problem of SMEs in Accessing Loans from Banks    51

4.14    Lending Rate to SMEs    52

4.15    Role of Business Records in Granting Loans to SMEs    52

4.16    Analysis of Data From NBSSI    52

4.16.1    The Role of National Board for Small Scale Industry    52

4.17    The Specific Activities of NBSSI With SMEs    53

4.18    Challenges of NBSSI/BAC in Dealing with SMEs    53

4.19    Bookkeeping Practices of SMEs    54

4.20    Challenges Businesses Face for Failure to Practice Bookkeeping    54


5.0    Overview    55

5.1    Summary of Study    55

5.2    Summary of Findings    56

5.3    Conclusions    59

5.4    Recommendations    60

    References    62

    Appendix I    65

    Appendix II    74




Small and Medium-sized Enterprises (SMEs) play a major role in economic development through employment creation and income generation. SMEs are sometimes referred to as Micro, Small, and Medium Enterprises (MSMEs). They cover non-farm activities such as manufacturing, mining, commerce, and services. There are different criteria for categorizing SMEs. Commonly used criteria are a total number of employees, total investment, and sales turnover (Burns & Dewhust 1996; Bushong 1995; Holmes et al. 2003).

In the context of Nigeria, SMEs are those enterprises engaging up to 29 employees, in most cases family members, with capital amounting up to N100,000. Majority of SMEs fall under the informal sector. SMEs are formalized undertakings engaging between 1 and 29 employees, with capital investment from N100, 000.

According to World Bank (2006); Nigeria is characterized by low capital formation, SMEs are the best option to address this problem. SMEs tend to be more effective in the utilization of local resources using simple affordable technology. SMEs play a fundamental role in utilizing and adding value to local resources. In addition, the development of SMEs facilitates the distribution of economic activities within the economy

and foster equitable income distribution. Other relevance of SMEs to the socio-economic development of Nigeria includes innovation, contribution to the growth of GDP, job creation, and many others. Bookkeeping or financial recordkeeping, therefore, is an essential ingredient for the success or failure of SMEs in developing countries.

In spite of the significant gains from the growth of SMEs in the Nigerian economy, there are a number of challenges facing the sub-sector. Among many of these challenges in Nigeria is lack of access to finance and this has been largely due to lack of business records to enable them to access credit from banks. It is estimated that 25 to 30% of SMEs under 5 years collapse every year (Ministry of Trade and Industry 2004).

To address the challenge of lack of access to finance among SMEs, they must address the problem of bookkeeping. In Nigeria, credit facilities to SMEs are in the form of loans or debt financing offered by banks, which provide growth capital for SMEs. However, there are numerous obstacles to these SMEs in accessing credit facilities hence, the difficulty of access to capital, high-interest rates charges are partially the result of incomplete (or no) accounting records and the inefficient use of accounting information. Poor record-keeping and accounting information also made it difficult for financial institutions to evaluate potential risks and returns (World Bank 1978), making the banks unwilling to lend to SMEs. As a result, SMEs pay high-interest rates or fall back on the middlemen or money lenders, whose loans are costly and often restrictive.

Modern bookkeeping when practiced would provide the necessary information that will critically affect major business decisions and also facilitates effective monitoring of the financial development or failure of the business. For instance, the evaluation of financial

consequences takes a big part in every decision that the owner will make. Without reliable financial information and accurate records, it will be intricate to project the impacts of a certain course of action. It must be noted that profitability is revealed only with accurate records.

According to Stephen Thompson (2004), “proper bookkeeping business needs. He also indicated that a basic bookkeeping report, when done correctly, should be able to answer these questions”.

1.    How much income are you generating every month, and how much will you be expecting in the future?

2.    How much cash is under your list of receivables and when will they turn to actual cash?

3.    Which of your product lines or services are bringing in the most amount of profit, break-even, end/or draining your resources?

4.    How does the data compare with last year or the last quarter?

5.    How does the data compare with projections?

6 How does all this information compare with the competition? Are you leading or falling behind?

It is thus, the objective of this study to analyze the significance of bookkeeping and its effects on the growth of SMEs in Nigeria.


Even though SMEs are the base of the coun on their mode of recordkeeping in Nigeria. R

(BAC) of the NBSSI have shown that recordkeeping is a major problem facing the country. Their figures as of March 2004 suggest that 264 small and medium enterprises were contacted by their outfit in the Uyo. Out of these figures, only 145 were identified to be practicing basic bookkeeping and according to this report, the manner in which it is done could not support any effective financial management of these businesses (2004 NBSSI/ BAC, annual report).

Further studies in 2006 reveal similar trends and the problem is peculiar with small businesses which constitute about 90% of the informal sector in the Nigerian economy. The concern has arisen as to why such a significant number of SMEs fail to keep proper records of the various activities within their business. As indicated, records must be kept in such a manner that would enable the business assessable income and allowable deductions to be readily ascertained. Proper record keeping will enable tax officials to assess correctly the profit of the business to enable them to perform proper tax assessment of these businesses.

Generally, a business needs to keep sufficient records in order to run business efficiently and effectively. The lack of a proper recordkeeping system in Nigeria is affecting industrial statistics compilation for the country and this does not assist the government in planning for the sector.

It does not also support businesses to access loans from financial institutions because track record reveals the viability and profitability, hence the ability for repayment of the loans granted to these SMEs.

In spite of all these problems associated with lack of bookkeeping, many businesses still fail to keep proper records leading to a high failure rate of about 30% of businesses annually in Nigeria (Nigeria Bureau of Statistics report, 2003-2004).

In situations where they even survive, inaccurate records normally have an impact on businesses negatively and do not reveal the true stance of business.

In view of the above challenges faced by both the SMEs and the Government, and also have recognized the fact that SMEs remain is the need to do a thorough study to discover some of the reasons for lack of proper or no recordkeeping in the country. This project, therefore, is an effort to do an in-depth study

and analysis of various known and unknown reasons for lack of proper recordkeeping and the advantages in using modern systems in bookkeeping like computer support systems by SMEs in the Uyo.

1.2 Objectives of the Study

A.  General Objective

Does this study aim at assessing the significance of bookkeeping practices to the development of SMEs in the Uyo?

B.    Specific Objectives

1.    To assess whether SMEs in the Local Government Area were practicing bookkeeping.

2.    To examine methods of recordkeeping by SMEs.

3.    To determine how recordkeeping enhances the development of SMEs.

4.    To examine the challenges to proper record keeping.

1.3 Research Questions

1.    Does businesses in the Local Government Area practiced bookkeeping?

2.    What methods were used in bookkeeping by SMEs?

3.    Does recordkeeping enhances the development of SMEs?

4.    Are there challenges facing SMEs in recordkeeping?

1.4 Significance of the Study

The significance of the study is to draw awareness on the importance of recordkeeping in businesses. Lack of data hampers a comprehensive analysis, and would subject businesses to the risk of hitting cash flow crisis, misappropriation of funds and businesses may slip off many opportunities to grow and expand.

The significance of the study seeks to highlight such benefits as to:

1.    help businesses improve bookkeeping practices and to enable the Internal Revenue Service to evaluate their business activities

2.    help businesses keep accurate and updated records and financial activities

3.    help simplify records and summarized financial transactions into a usable form. That would provide the base for data compilation for the country.

To fill the existing gap in knowledge and act as a stepping stone for future researchers who would like to conduct studies on the same topic or similar topics.

Furthermore, the study will also enable the researcher to fulfill partial requirements for the award of Master Degree in Business Administration from Kwame Nkrumah University of Science and Technology (KNUST), where the researcher studies.

1.5 Limitations of The Study

The main limitation of the study was, the Small and Medium Scale Business Development Agency of Nigeria and the Ministry of Trade and Industry found it difficult to provide all the needed information for the study because there was no adequate information on records aspect on SMEs in the Local Government Area as well as the regional offices.

Again, inadequate finance and time to move around the Local Government Area to gather data and also to deal with the entire population were some of the challenges.

Also, 136 questionnaires were administered but only 126 were retrieved for the study. This was due to the fact that most of the respondents fail to return the questionnaire.

1.6 The Scope of Study

The scope of the study is to look at the general effects of proper bookkeeping how it can support the growth of SMEs and also the reasons for their failure to maintain good record keeping, in the Uyo.

1.7 The Methodology

Among the data, the research employed includes both primary and secondary data.

i.    Questionnaires were administered to business operators and their employees, banks, and NSSI to gather primary data.

ii.    In some cases personal interviews were conducted with the business operators/employees because not all of them were literates.

The secondary data compiled from the Small and Medium Scale Business Development Agency of Nigeria(SMSBDAN) was also used.

The population and sample size comprised 434 businesses registered by SMSBDAN the NBSSI and 15 banks in the Local Government Area totaling about 450. Out of which 136 was drawn to constitute the sample size. The selection employed simple random sampling to give all target SMEs, equal chance of being selected. However, the researcher adopted the purposive sampling technique for the banks and SMSBDAN because not all the banks were willing to provide information. So the researcher interviewed banks that were willing to be part of the study.

1.8 Layout of the Study

The entire study is in five chapters. Chapter one is the introduction which includes the background of the study, statement of the problems, purpose of the study, research questions, and the significance of the study. Chapter two looks at the literature review of the topic and its significance of the study. Chapter two looks at the literature review of the topic and its significance in the work and to the SMEs sub-sector. The review is basically on the description of basic bookkeeping, why businesses need bookkeeping, theories and models of bookkeeping, effects of poor or no bookkeeping on the growth of SMEs, and bookkeeping systems today.

Chapter three is basically about the study design, population, sampling technique, instrument, data collection, and method of analysis. Chapter four deals with the analysis of data while the final chapter covers the summary, findings, conclusions, and recommendations.



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