Full Project – The impact of financial records on the management of small businesses organization
1.1 Background to the Study
Financial record keeping is about the maintenance of a history of one’s activities, as financial dealings, by entering data in ledgers or journals, putting documents into files. The importance of financial record keeping can therefore not be overemphasized both in our contemporary lives and particularly in our businesses. From properly kept financial record a person can at any time ascertain: what property he possesses, what amount he owes and to whom, what profit he has made or what loss he has sustained for any given period and the manner in which the profit and loss has risen, and the amount of his capital or deficiency. If no records are kept, it will be difficult to find accurate net profit. Under such circumstances, tax authorities may overestimate the profits and thus a trader will suffer for not having kept the business records. In absence of proper business records, the trader will find it difficult to submit the true position to the court in case he becomes insolvent. Keeping of records help the trader to make future business plans and policies,also, it will be difficult to ascertain and fix the price of business to be sold or disposed off if no records are kept.
In spite of the best memory, it is beyond the capacity of a trader to remember all the business dealings with back references (Williams et al, 2018). Small and medium enterprises (SMEs) comprise the largest proportion of businesses in most economies and frequently offer the greatest potential for job creation(Asquith et al, 2017). The Nigerian government has placed a lot of emphasis on the development of SMEs as a means of encouraging self – employment, poverty reduction and accelerating economic growth. SMEs contribute to the employment opportunities in Nigeria and over 40% of the GDP. Despite their significance, recent studies show that 60% of the SMEs fail within the first few months of operation (National Bureau of Statistics,2017). It is hard for SMEs to access finances from the financial institutions since they lack financial records as a requirement (Williams et al,1993). Murray (2016) argues that “many small and medium enterprises owners either do not understand the significance of these warnings or tend to optimistically believe that things will get better on their own”. Poor performance of SMEs results into high failure rates: 75% of them fail within the first two years(Flusche et al, 2001) and 95% fail within the first five years (Gerber,2003). While Samson et.al (2017)further note that most small businesses in Nigeria fail in the short run: one out of every two fails within the first two years of operation. While the performance levels of small businesses have traditionally been attributed to general managerial factors, such as manufacturing, marketing and operation, accounting systems may have a strong impact on the survival and growth of SMEs.
However, financial reporting is not commonly practiced in SMEs. Consequently, in practice, relevancy and reliability measurement of financial information in SMEs is based on financial record keeping( type of, adequacy and update of financial records). SMEs are less capital intensive in Nigeria likewise in some parts of Africa which is provided by the informal sector of the economy.
It is against this background that the researchers picked interest in carrying out a study about the impact of financial records on the management of small businesses.
1.2 Statement of the Problem
A number of Small Scale Enterprises have not given much attention to book keeping in relation to their business transaction, despite its importance in the success of businesses. This could be lack of sound knowledge in book keeping practices by owners or respective managers. Also, there was difficulty in ascertaining whether comprehensive accounting records that satisfied the laws under which it was incorporation had been kept. It was hard to determine to what extent no adherence to laid – down accounting procedure and constituted in the wheel of implementation of good accounting system. Difficult exist in ascertaining how far non – recognition of the necessity of accounting to continued existence and growth, low educational background of owners and the employment of unskilled accounting staff had affected the production of unreliable accounting or financial statement.
1.3 Objectives of the Study
The main objective of the project is to examine on the impact of financial records on management of small business. Other specific objectives are:
- To ascertain how financial records can improve profitability of the business.
- To examine how financial record keeping can contribute to the growth of small business organization.
- To examine the relationship between financial records and performance.
- To make recommendations for improvement.
1.4 Research Hypotheses
Hypothesis can be defined as a prediction or expectation about the difference or relationships between variable identified in the problem to be studied. In an attempt to research, it is useful to make assumption or guess about the population involved.
The type of hypothesis to be used are null and alternative hypothesis; Null or zero or non directional hypothesis is represented by Ho, while alternative hypothesis is represented by Hi.
The following hypotheses is put forward to serve as a guide to this study
Ho: That financial record does not improve the profitability of the small business organization
Hi: That financial record improve the profitability of the small business organization
Ho: Financial records donot contribute to the growth and expansion of the business.
Hi: Financial records contribute to the growth and expansion of the business.
Hi: There is no relationship between financial records and the performance of small business organization.
Ho: There is no relationship between financial records and the performance of small business organization.
1.5 Significance of the Study
The major significance attached to this research work is to enlighten the needs to keep effective records of their business.This research work will show the benefits and importance of effective records keeping on management of small business to the owners, government and the general public.
Through affective records keeping, the small business owners will be know their financial position i.e. whether making profit or running at loss, that assist him in effective decision making.
The government will benefit from effective financial records management, has it show clearly the amount of tax to be levied on the business of which increase the government revenue, thereby contributing to the growth of national income.
The general Public through effective records keeping, the small business owners will be able to determine its financial position i.e.whether making profit or running at loss, that assist him to effective decision making.
The government will benefits from effective financial records management, has show clearly the amount of tax to be levied on the business of which increase the government revenue, thereby contributing to the growth a national income.
The general public will also benefit because through effective financial records the stakeholders will know how the business has fared in a given period of time.i.e. publication of annual profit and loss account.
Lastly the future researcher will find the findings of this research a valuable source of reference.
1.6 The Scope of the Study
This study examines the impact of financial records on the management of small businesses with particular reference to some selected firm in Lokoja. It covers basics features of good record keeping system, accounting record keepings procedure, benefit of financial records on small business enterprises, and relationship between accounting records and performance.
1.7 Limitation and Constraints of the Study
In carrying out a research study of this nature, a number of problems are associated or encountered and the degree of severances varies from one research to another. The obstacles face by the research during this work is the level of confidently disclosing the financial records related to day to day activities of their business.
Time is very essential in any research work when considering the time span given to this work is very short in related to the program as well as class work going and with the project and there was not given extra time for the work.
Money is equally another problem encounter in a research work. Nothing could be done successfully without the use of money,transporting from one place to another.Lastly, there were difficulties in getting related materials, for the research work.
1.8 Definition of Terms
- Accounting records or Financial Records:-This is the documentation of business transaction in compliance with the accounting expansion.
- Ploughing back profit: – This is a method of re – invested the business capital expansion. The profit made will not be shared out but re-invested back into the business for more growth and expansion.
- Banks: – This is a lending institution which offers different types of credits to entrepreneurs
- Fund:-It means and cash or credit used in financing personal or business venture. It could be inform of credit facilities like banks credit, trade credits or discount.
- Bad Dept: – This is regarded as dept that is not capable of being recovered and in consequence of this has to be written off from the boos of account.
- Fraud:- According to Adebisi (2018)is used to refer to irregularities involving the use of criminal deception to obtain an unjust or illegal advantage.
- Sole Proprietorship: – According to Alonge (2016). This is a form of business which solely owned and controlled by one man of the business is successful, he alone real the reward in form of profit and if it lose he alone bear the loses.
- Goal: – Goal is a statement of an expected result to be achieved in the future. It is usually formulated to be achieved within the period of 1-5 years.
- Objectives: – Objective is derived from goal. It is a statement of expected result
- Partnership:Partnership is a type of business organization in which two or more individual (not exceeding twenty) make a legal agreement to own and operate a business with a view of making profit.
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Full Project – The impact of financial records on the management of small businesses organization