Financial Management Strategies And Debt Control In A Small Scale Enterprises (A Case Study Of Selected Manufacturing Firms In Owerri Imo State)

Project and Seminar material for Banking and Finance

Project and Seminar material for Banking and Finance


Abstract


This study is aimed at evaluating the extent to which public enterprises manage their finance and control their debt as well.

The chapter two which is the literature review of this work discussed the concept of financial management strategies and debt control in public enterprises.

Chapter three talks about the research methodology which primary and secondary sources of data were used. This involves developing research instrument and sampling plan. The instrument includes questionnaires, textbooks, journals and personal interview.

Furthermore, in chapter four a total number of 80 questionnaires were retrieved from 120 administered staff and customers each. Chi square and percentage was also used to analyze the data collected. The findings in this chapter revealed that, there is a significant relationship between the financial management tools in daily operations in small scale enterprises.

The chapter five talks about the summary of findings, conclusion and recommendation. I recommend that qualified financial mangers should be employed to handle these enterprises.


Table Of Contents


Preliminary Page(s)

  • Title page
  • Approval page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of contents

Chapter One

1.0 Introduction

  • 1.1 General overview of the study
  • 1.2 Statement of the problem
  • 1.3 Objectives of the study
  • 1.4 Statement of hypothesis
  • 1.5 Significance of the study
  • 1.6 Scope of the study
  • 1.7 Limitation of the study
  • 1.8 Definition of terms

Chapter Two

2.0 Review of Literature

  • 2.1 The concept of Financial Management strategies
  • 2.2 The Environment for Financial Management Strategies
  • 2.3 Financial Management tools and Functions
  • 2.4 Risk and Return trade-off framework of Financial Management
  • 2.5 An overview of Financial Management Strategies debt control in public enterprise
  • 2.6 Financial Management Strategies in Government companies (ITC and RTC)
  • 2.7 Debt Management tools and guidelines in ITC and RTC
  • 2.8 Public Debt Management Objectives and Coordination
  • 2.9 Transparency and Accountability in Imo Transport Company (ITC) and River Transport Company (RTC)

Chapter Three

3.0 Research Methodology

  • 3.1 Sources of data collection
  • 3.2 Method of data collection
  • 3.3 Procedure of data analysis
  • 3.4 Analysis of hypothesis

Chapter Four

4.0 Data Presentation and Analysis

  • 4.1 Data presentation
  • 4.2 Data Analysis
  • 4.3 Testing of hypothesis

Chapter Five

5.0 Summary of Findings, Conclusion and Recommendation

  • 5.1 Summary of findings
  • 5.2 Conclusion
  • 5.3 Recommendation
  • Bibliography
  • Appendix

Chapter One


1.0 Introduction

1.1 General Overview Of The Study

The issue of Financial Management Strategies and debt control in a small scale enterprise is a very sensitive and serious business. It requires a close and detail look into the terms involved in an independence approach so that the consumer of this study would at the end of reading it be able to know all about finance, management strategy, debt control and public enterprise and how they are related in this context so as to give recommendation and conclusion about the managerial methods used by those at the helm of affairs in most public enterprises towards management of finance and debt control. Based on this, we can take the word earlier mentioned one by one in a brief manner.

Management

According to Estraz “Management as a process represents the tool by which executives of a given organization or company combine the factors of production under a single root designed to attain stated goals or objectives”. For this reason, it involves organization, direction, controlling and planning. It is important to mention that Claude .S. George Jr. defines management as “the functions that deal with getting things done through others” while Jose P. Leveriza defines management as “the function of planning, coordinating and directing activities in industry, business and government. In other word, it combines people’s talents, abilities and services with material resources of the organization in the production of the desire goods and services. This implies that the management of public enterprise affects the economy of a nation.

Strategy:

According to Oxford Advanced Learner’s Dictionary, it is the process of planning something or putting a plan into operation in a skilled way or plan that is intended to achieve a particular purpose. Public enterprise uses this to achieve their organizational goal.

Finance

According to Webster’s third international Dictionary, the system that includes the circulation of money, the granting of credit, the making of investments and the provision of banking facilities refers to finance. The English Law Dictionary defines finance as “Money used by a company, club etc. to pay for something”.

However, the encyclopedia of Banking and Finance defines it broadly as, to raise money necessary to organize, re-organize or expand on enterprise whether by sales of stocks, bonds, notes, etc.

On the other hand, Financial Management can be defined as the forecasting, planning, organizing, directing, co-coordinating and controlling of all activities relating to the acquisition and application of a financial resources of an undertaking with the keeping of its financial objectives or the series of management task which are directed to the provision used and disbursement of the economic resources of an entity in ways consistent with the function of the entity (Hamber 1995:61).

Small Scale Enterprises

Although small scale businesses plays a vital role both in the economic and social life of any dynamic society. It is not all surprising that it was only recognized recently. It is also not surprising that till dates, there has been standard definition of small scale business. Different countries define it differently based on the level of development, perspective, environment and requirements. The third National development plan defined small scale business as nay manufacturing establishments employing less than ten people or whose investment in machinery and equipment do not exceed N600,000,00 .

The central bank of Nigeria in sits credit guide-lines defined small scale business as “those business with as annual turnover of less than half a million Naira (500,00,00) But the recent definition made by the central bank of Nigeria state that small scale industries are for merchant bank lending and distributing enterprises with limited of capital investments(including land and working capital) does not exceed N25 million annually. Furthermore, small scale business cold be seen as nay organization operating with less capital and small qualities of other factors of production.

Nigerian Bank for credit and commerce regard business with capital up to N750,000.00 excluding the cost of land as small scale industries.

Public law 83-536 (USA), as amendment to the small scale business Administration Act, states that, “a small business concern shall be deemed to be one which is independently owned and operated and which is not dominant in its field of operation”. In general, a small business has few employees, limited capital and low scales.

In addition, the small scale business administration (SBA) define small business “as any business that is independently owned and operated, and it is not dominant in its field, ownership, management and the position it occupies in that society. For example, a business in the manufacturing sectors if it employs not more than 1,500 employees depending on the industry and if it meets employment or set standard development by the agency, it include sales volume of not more than 22,000.00 dollars.


1.3 Objectives Of The Study

The crux of this study is to examine the strategic roles of the management of some selected manufacturing firms in owerri as regards Management of Finance and the control of debt. In specific terms, the study will identify the areas that the company’s financial activities leads to indebtedness, the management procedures and tolls aimed at protecting the finance of the company, pay back period of the invested finance reduction of debt occurrence tendencies and methods of claiming the existing debts. The study has so many areas to identify and they are as follows:

  1. The study will justify the management tools procedures of some selected manufacturing firms and their method of debt control as small scale enterprise. The issue of transparency and accountability will also be treated by this study.
  2. In the same vein, the study being mindful of the fact that the company may not find it easy and possible to operate without being owned by some other companies or individuals, all in the effort to achieve its corporate goals, objectives, missions and visions in a country like ours (Nigeria).
  3. The result of finding/recommendations of this study will be only enlarge the quality of this work but will act as a blueprint for public administrators, students in school of Business, Governmental bodies and other private and public enterprises as well as the society at large.

1.4 Statement Of Hypothesis

This study for obvious reasons will be carried out based on the following hypothesis

  • H1: There is correlation between the government legislation and the operation of the small scale enterprise.
  • H2: There is no correlation between the government legislation and operation of the small scale enterprise

1.5 Significant Of The Research

This is aimed at giving an insight in the Financial Management Strategies and debt control in the public enterprises with reference to some selected manufacturing firms in Owerri.

  1. To the researcher, this work is essential or beneficial hence it is a learning process and also an insight of the need for finance, its management, debt and its control in a small scale enterprise.
  2. To my successors, the research topic is adequate for the education on the way small scale enterprises manage their finance as well as the control of its debt for public interest.
  3. The study will also be a good guide to many future researchers who would wish to improve on what the present research has done such as parishioners’ ands Chartered Institute of Bankers of Nigeria (CIBN) as it will serve as a guide for future research work.

1.6 Scope Of The Study

This topic is a wide one as Financial Management Concerns almost if not all companies, but the researcher is limited to a selected manufacturing firm in owerri imo state). For the purpose of this study, measures of financial management strategies and debt control of small scale enterprise shall be examined using the available information to fully explain it.

One cannot do away with the fact that it is in fact impossible to go round every private sectors in the country, hence selected manufacturing firm in owerri will be used to analyze the financial Management Strategies and debt control in small scale enterprises as a whole. It is then hoped that the result shall be generalized.


1.7 Limitation Of The Study

There are some factors due to their nature and attendant effect on this research, which limited the researcher from carrying out deeper research work on the area;

  1. Financial constraints due to present economic hardship.
  2. The cost of printing, distributing and collecting of questionnaires were enormous likewise the cost of typing and binding the project.
  3. The respondents were not willing to release some pertinent information for the research work.
  4. Time was equally a constraint to this work.
  5. The production of power point was also limitation to this research work.

1.8 Definition Of Terms

Break-Even Analysis:

This is an analytical technique for studying the relationship between profit and sales volumes.

Budget:

This may be simply defined as the financial statement of expected performance and cost for a future out with a particular period of time (usually one year) by the Government.

Budgetary Control:

This is a tool, which shows the realistic terms and the effect of adopting particular policy in carrying out plans.

Cost Accountancy:

It is the comprehensive term used to describe the particular conventions techniques and systems, which are employed in a business to plan and control in detail, the utilization of its resources.

Debt Servicing:

This is the process of payment of the principle and interest, which is due in, borrowed funds.

Debt Rescheduling:

It is the process of shifting the repayment of bank to a future date instead of an agreed date.

Decision Tree:

An approach towards seeing risk and probabilities in a problem involving uncertainty or change of event by sketching in the form a true decision profit chance.

Direct Service Cost:

This comprises of interest charges, fee, dividend, payment of principal and capital gain repatriation of external debt.

Financial Control:

This deals with the establishment of standards and then makes provision for reporting any derivation from the norms.

Project/Program Cost:

These are the direct cost of implementation, management and maintaining the external financial project of program with a particular country.

Short Term Loan:

Loans which repay periods are longer (up to 50 years) and the interest rate are lower.

Public Enterprises:

An emprise owned and controlled by the government, maximum contribution for efficient operation of the organization.

Financial Manager:

This is one who plans for the acquisition and utilization of funds to make maximum contribution for efficient operation of the organization.

Shareholder:

This means an owner of shares in a business/company.

Public Services:

Government parastates that provide civil services, which are not owned at profit maximizing.

Financial Institution:

This is a place where loans can be obtained (long or short-term) they include banks etc.

Funds:

This is the sum of money saved or made available for a particular purpose.

Loan:

This means things especially sum of money that is being given out or lent out to be repaid with time and interest.

Financial Management:

To manage activities which is concerned with the planning and controlling of the firms financial resources.

Risk:

The exposure of something to danger or the possibility of something bad happening.

Budgeting:

This is the process of continuous but conscious plan of government towards actualization of set targets for a period of one year.

Monetary Policy:

This refers to the combination of measures designed to regulate the value supply and cost of money in an economy (through CBN).

Fiscal Policy:

This is concerned with manipulation of the financial operations of the government with a view of furthering certain economic policy objectives. The instruments used are tax, expenditures, transfer payment etc.


Chapter Five


5.0 Summary Of Findings, Conclusion And Recommendation.

5.1 Summary Of Findings

This study revealed the financial management strategies and debt control in public enterprise. The chapter one of this work revealed the background of the study, where the researcher tried as much as possible to discuss or say what financial management strategies is all about as well as debt control in small scale enterprises using some selected firms in owerri.

Here, it was discovered or seen that financial management strategies and the control of debt has always be important in any firm irrespective of any difference in structure, ownership and size. The financial/finance department of any firm should be capable of ensuring that the various financial functions are high degree of efficiency and equally ensure an effective control of their debt, both those owed to them and the debt they owe to others.

This study equally attempted looking into the problems envisaged in the financial management and the collection of debt.

The topic is a wide one as financial management concerns almost, if not all companies but the researcher limits her study to only two firms, that is RONIM BEVERAGES OWERRI and EISMAN FOODS.

The chapter two, which is the literature review of this work, tried to discuss the concept of financial management strategies. Financial management is that management activity which is concerned with the planning and controlling of the firms financial/resources.

Practicing managers are interested in this subject because among the most crucial decisions of the firm are those which relate to finance and the understanding of the theory of financial management strategies provides them with the conceptual and analytical insights to make those decision skillfully.

In looking at the overview of financial management strategies and debt control in public enterprises on how they manage their finances authorization and internal credit or impress expenditure. In the management of their debt, it should encompass exercise with monetary and fiscal be policies, transparency and accountability and institutional framework.

Chapter three of this work takes about the research methodology. This study is patterned on the normal techniques of carrying out research work. Research design involves the techniques and procedure for collecting and analyzing data. This involves developing research instrument and sampling plan. The instrument used by the researcher for collection of data includes, questionnaires, textbooks, journals and personal interview. The methods of data collection include primary and secondary sources.

The results of the research carried out with the aid of questionnaire were analyzed using tables. In testing the hypothesis formulated, the researcher related each of the above questions analyzed to the relevant hypothesis tested and then a chi-square (x2) technique was used to test the reliability and validity.


5.2 Conclusion:

Indeed financial management strategies and the control of debt in small scale enterprises cannot be over emphasized because they play significant role. It must be within the circumference of regulation as stipulated by government. The management of these funds or finance of the public enterprise is the paramount function of the financial manager.

The main function of the financial manager is the anticipation, acquisition and the allocation of funds to make maximum contribution for efficient operation of the organization. The function requires the knowledge of the financial market for which funds were drawn.

In chapter two, the researcher looked at the management of finance and control of debt in public enterprises. This is to ensure that these small scale enterprises do not mismanage their funds so that they’re debt and the risk cost inherent in debt management are maintained at the minimal. The researcher equally looked at the debt management objectives and the main objectives of this public debt management, is to ensure hat the government’s financing needs and the payment obligation are met at the lowest possible cost. Debt managers should convey to fiscal authorities their views on the cost and risk associated with government financial requirement and debt levels.

Furthermore, the findings in chapter four revealed that the small scale enterprises Appling various financial management tools in their financial management in order to achieve financial management objective. It was seen here that there is a significant relationship between the financial management tools in daily operations in small scale enterprises.


5.3 Recommendation

The importance of financial management in any organization cannot be overemphasized in order to achieve efficient and effective management goals; the various financial management tools must be effectively employed or used. After a carefully presentation and analysis and the financing of these financial tools in the management of finance tools in the management of finance and control of debts in the private sector/small scale enterprise have not reached its peak. Consequently, this has resulted to some problems. Based on the findings, the following recommendations are made;

  1. The various financial management tools should effectively used or applied in the management of finance and control of debts in Nigerian public enterprises where the tools are not used or are not working properly. The more effective ones should be used. This will go a long way to ensure that debts and other financial resources are effectively managed.
  2. Qualified financial managers should be employed to handle these enterprises. Good incentives should be given to financial manager as a motivation to effectively apply or use these financial management tools.
  3. The financial performance of these enterprises cannot be assessed without the report of their audited accounts regularly to the legislature or any other authority if many be accountable to, this will go a long way to ensure that these tools of financial management are effectively used.
  4. Clear objectives should be established for public enterprises to pursue, any of these enterprises that fails to achieve the objectives should be closed down. This means that these enterprises, which perform below expectations, should be privatized and commercialized for effective performances.
  5. Majority of funds in these public enterprises can be traced to the lapses in the internal control system and the existence of a poor control environment. I therefore suggest that effective internal control system should be set up for these enterprises to prevent or for early detection of frauds.
  6. The management of finance and control of debt in public enterprises should be taken care of. This is to ensure that these public enterprises do not mismanage their funds so that their debt and the risk and cost inherent in debt management are maintained at the minimal.
  7. Effective supervision in the enterprises is another essential ingredient for proper implementation of policies aimed at stabilizing the system; this is to say that the authorities should design effective supervision mechanism very timely in with traces of failure in the enterprises.
  8. There should be a stable, political and constant economic policies, this will proffer economic growth and development.
  9. I recommend that before any personnel or department makes any expenses on behalf of the organization such personnel or department must seek approval from proper financial authority. This authority can be executive secretary of the units.
  10. Above all, debt management, fiscal and monetary authorities should share information on the government’s current and future liquidity need with he aim of controlling debt in public enterprise for economic development.

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