WORKING CAPITAL MANAGEMENT PRACTICES OF SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA ( A CASE STUDY OF SOME SELECTED SMES IN UYO)

WORKING CAPITAL MANAGEMENT PRACTICES OF SMALL AND MEDIUM SCALE ENTERPRISES IN NIGERIA ( A CASE STUDY OF SOME SELECTED SMES IN UYO) 

ABSTRACT

The main thrust of this study is to unveil the working capital management practices of small and medium scale enterprises in the Akwa Ibom State of Nigeria. A well-designed and implemented working capital management is expected to contribute positively to the creation of a firm's values.

The study used descriptive and analytical sample surveys for the representation and the analysis of the findings. The result shows that 87.4% of the entrepreneurs functioned as sole proprietors, whiles 14.1% as a partnership and the remaining 1.5% as cooperative societies.

The results again show that 46.1% received credit from suppliers and the average credit period given by SMEs to their credit customers ranged between seven to sixty days(7-60days). From the study, two main problems faced by SMEs in dealing with credit customers are late payment and bad debts.

The results show that 52.8% of the respondents use notebooks to represents cash books while non(0%) of the respondents use computer inventory control. 65.3% of the respondents have bank accounts for their businesses. Personal savings accounted for about 35.7% of the start-up capital and SMEs consider inflation /price increases to be more problematic than even high debtors turnover period and low stock turnover.

The SMEs should establish organizations and groups like civil society organizations, regional, district, community, and interest groups to jointly organize and sponsor training programmes for their accounting personnel. There is also the need for SMEs to identify their investment priorities particularly those that are crucial in sustaining their businesses in the long run. They should sacrifice a chunk of their funds to finance and achieve these priorities that will enable them to generate extra cash or profits to plow back into other sectors of their industries.

It is also recommended that SMEs should prepare a budget for each time they intend to embark on major expenses. This will forestall unnecessary, unwanted, overestimated, and underestimated expenses. There is also the need for SMEs to formulate credit policy for their enterprise and to create a re-order level policy for their institution that will create an enabling environment for them to request for their supply of moderate and high-quality stocks.

 

TABLE OF CONTENT

DECLARATION    IIDEDICATION    IIIACKNOWLEDGMENT    IVABSTRACT    VTABLE OF CONTENT    VILIST OF FIGURES    VIILIST OF TABLES    VIII

CHAPTER 1: GENERAL INTRODUCTION    1Background of study    1Statement of the problem    31.1    Objectives of study    31.2.1 General objectives    31.2.2 Specific objectives    31.3  Research Questions    41.4  The scope of study    41.5  Significance of study    41.6  Limitation of study    51.7  Organisation of study    7

CHAPTER 2: LITERATURE REVIEW    82.0  Introduction    82.1  Brief History of Uyo    82.2  Theoretical Framework    82.3  Definition of SMEs    102.4  Importance of SMEs in developing Countries    112.5  The Concept and Definition of Working Capital    122.6  Working Capital Management    172.7  Working Capital Policy    182.8  Working Capital Cycle    202.9  Cash Management    222.10  Management of Receivables    242.11  Inventory Management    262.12 Management of Account Payable    29

CHAPTER 3 RESEARCH METHODS    303.0  Introduction    303.1  Research Design    303.2  Population Sampling and Sampling Procedure    323.3  Research Instruments    323.4  Data Collection and Analysis    33

CHAPTER 4 RESULT AND ANALYSIS    344.0 Introduction    34

CHAPTER 5 SUMMARY,  CONCLUSIONS AND RECOMMENDATIONS    595.0  Introduction    595.1  Summary    595.2  Conclusion    625.3  Recommendations    63REFERENCES    65APPENDICES    69

CHAPTER ONEGENERAL INTRODUCTION1.0    BACKGROUND OF THE STUDY There exist lots and lots of business ventures that are run by individuals, group of people orassociation, firms, industries, and government with the aim of maximizing profits.  Theyrange from small scale to medium and large firms. In the Nigerian economy the small scaleenterprises are the most common form of business.  The  aim  of  any  economy  (eitherindustrialized or nonindustrialized) depends largely on how well organized the small andmedium scale enterprises are (for instance if we look at the standard of practices of small-scale industries in the economically developed countries). The small enterprises in Nigeria seem too stagnant, less adventurous than developed countries because the successivegovernments have not appreciated their significance to the national economy.Firstly,    most  of  the  small  businesses  are  escompanies sole proprietorship business venture.Small firms play critical roles in providing job opportunities, nurturing a culture of entrepreneurship, and opening up new business opportunities. They are recognized and acknowledged worldwide as vital and significant contributors to the economic development, introduction, and diffusion of new technology, ability in generating potential entrepreneurs and skilled workers for the industrialization process both nationally and internationally (Ch ng Hakng Zephkee-Yun &1986:25)Cha.Small and Medium-Scale enterprise's development can encourage the process of both inter-and intra- regional decentralization, and they may well countervail the economic power of larger enterprises.More generally, the development of SME s is seen as accelerating economic objectives, including poverty alleviation (cook & Nixson, 2000).Small and Medium enterprises are a new and growing business which (for any number of reasons) do not grow beyond a certain size (Thomson & Martin 2005). The Nigerian Bureau of Statistics (NBS) considers firms with fewer than ten employees as small-scale enterprises and their counterparts with more than ten employees as medium and large-sized enterprises. The GSS in its national accounts considered companies with up to 9 employees as SMEs. (kayanula & Quartey 2000).SMEs account for a significant share of the economic activity in Nigeria and can play an important role in achieving the Millennium Development Goals (MDGs). The long termgoals are for SME s to maximize their contr development with respect to production, income distribution, and employment and the closerintegration of women and people in rural areas within the national economy (NBSS, 1981).One of the significant characteristics of a flourishing and growing economy is booming small and medium enterprises (SMEs).Small and Medium Enterprises play an important role in the development of Nigeria in various ways by creating employment for the rural and urban growing labour force, providing desirable sustainability and innovation in the economy as a whole.Small and medium scale enterprises have obvious advantages for a developing country like Nigeria because it provides the means of entry for new entrepreneurial talent.Small and medium scale business sectors serve as a seedbed from which new large companies will grow but lack of managerial know-how places significant constraints on SME's development. Even though SMEs tend to attract motivated managers, they can hardly compete with large firms.The scarcity of management talent, prevalent in most countries in the region, has significantimpact on  SME  s  (ParkerThelack of NetSupport,services1995) or the irrelatively. higherunit cost can effort hamper to improve their management SMEs of working capital (ibid). Inview of their sizes and complexities of their operations, most small and medium scale enterprises fail to keep proper records of financial activities which affect their working capital. This has taxation, credit management, and security implication. The lack of proper business records makes most small and medium scale businesses become practically constrained in managing their working capital very well.1.1 STATEMENT OF THE PROBLEMWorking capital management is poorly understood by most small and medium scale enterprises in many parts of the developing world of which Nigeria is one.The dynamic role of small and in developing medium countries scale have been identified as the means through which rapid industrialization and other development goals of these countries can be realized.Many small and medium scale enterprises which are profitable are forced to cease their operations due to the inability to meet their short-term debt obligations. Not that they do not have funds to operate, but the problem is how they manage their working capital. Blunt and vague ideas about a phenomenon will be a misnomer.To gain empirical insight into this state of affairs, there is a need to conduct an investigation into the management practices of small and medium scale enterprises insofar as their working capital is concerned and why small and medium scale enterprises that

are profitable collapse.1.2 OBJECTIVES OF THE STUDYGeneral Objectives:Holistically, the study examined the working capital management practices of small and medium scale enterprises in the Uyo Local Government Area.Specifically, the study sought to:31.    ascertain methods that were used / bookkeeping practices of SMEs 2.    examine strategies SMEs used in the administration of accounts receivables. 3.    determine the inventory management system of SMEs with respect to working capital management 4.    explore the credit management mechanisms that are being used by SMEs 5.    examine the impediments obstructing the appropriate management of working capital by SMS investors 1.3    RESEARCH QUESTIONS The following research questions guided the study: These include;1.    What are the attitudes of management towards working capital management practices in the small and medium scale enterprises in Nigeria? 2.    What techniques do SMEs in Nigeria use in managing their accounts receivables and accounts payables? 3.    How are matters on inventory management  approached with respect to Working Capital Management?4 How do SMEs in Nigeria manage their cash flows?5 What are the flaws witnessed by SMS investors in managing their working capital?1.4 THE SCOPE OF THE STUDYIt is worth mentioning that, the study was limited to Uyo Local Government Area because of proximity and cost-saving. The selection was also based on the fact that it has a number of industrial units in the Western Region.The small-scale enterprise in structures or nonpermanent include kiosk, container, and related premises.the Local Government Area operates under either physical structure. The nonpermanent physical structures garage. The permanent physical structures are part of ownThe study design adopted was the descriptive survey, it was chosen in view of the fact that this small-scale study of relatively short duration and its involves a systematic collection and clear picture of a particular situation.It was aimed at getting relevant information related to working capital management practices of small-scale enterprises in the Uyo Local Government Area.1.5 SIGNIFICANCE OF THE STUDYIt is hoped that the result of this study concerning working capital management in the Uyo Local Government Area would contribute to current knowledge on the growth of small-scale enterprises at the National Board for small-scale industries(NBSSI), the Business Advisory Centre (BAC), and other promotion agencies.Secondly, the finding unearthed will be useful not only to small-scale businesses in the UyoLocal Government Area but also to all small-scale businesses throughout the country. This would also help stakeholders in the business to formulate and implement policies that will help them to effectively manage working capital. Determining ways management can effectively improve their working capital management.To improve the bookkeeping and accounting to help p the SMEs gain access to finance and improve their financial management skills. Help SMEsto adopt prudent managerial policies as well as professional expertise for efficient managerial works.Finally, this study would provide useful information for designing strategies to influence the growth of small-scale enterprises. The information would also assist officials of the Ministry of Trade and Industries in formulating small-scale industries growth policies and programmeswhich are responsive to entrepreneur useful to non-local governmental organizations playing vital roles in small-scale entrepreneurial skills anddevelopment in Nigeria and the UyoLocal Government Area.1.6 LIMITATIONS OF THE STUDYIt is worth mentioning that the study covers a small portion of the small-scale enterprises in the Uyo Local Government Area due to time and financial constraints. The problem is compounded when dealing with small-scale enterprises. These firms do not keep records and one would have to constantly deal with estimates and guesses to arrive at a conclusion as regard purchases, sales, services, and borrowing.1.7 ORGANISATION OF THE STUDYThe thesis was organized into five chapters;Chapter one provides an introductory overview of the full study comprising the statement of the problem, objectives of the study, research questions, and relevance of the study. Delimitation of the study, operational definition of terms, and how the thesis was organized are also captured in this chapter.Chapter two follows with a review of relevant literature on working capital management practices of small and medium scale enterprises.Chapter three presents the methodology used for the study and gives a detailed overview of the population sampling technique, the research design, research instrument, the data collection procedures, and data analysis procedures. It also provided an analytical framework and the relevant variables that were included in the model to be used in the study.Chapter four focuses on the characteristics of the respondents and the analysis of the data.Chapter five summarises, concludes, and offers recommendations for the study.

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