Relevance Of Financial Management To Business Growth In Nigeria

Relevance Of Financial Management To Business Growth In Nigeria
Abstract
The prerequisite of this extended essay is to know the Relevance of Financial Management to Business Growth in Nigeria.
Financial management is relevant to business growth for a well balanced operation. As businesses in Nigeria are made up of small, medium and large scale enterprises need financial management to operate well. The ultimate aim of financial management is to plan and forecast the profit making and sourcing of fund for business growth. Money is needed in financial management and used in making plans work. It serves as a measuring device that can be used in measuring the plan in terms of naira, and outsiders, such as bankers and other lenders, will do the same.
In starting new business or expansion loan is required. The burden of proof in borrowing money is upon the borrower. You have to show the banker or other lenders how the money borrowed will be used and more important how and when you will repay back the loan.
The extended essay also look at budgeting, as organisation, whether economic, social, or political makes plans for an organisation. Without plan there is no longer an organisation but an uncoordinated assortment of individuals. Some biz-owners/managers carry plans in their head, some make rough estimates on their business and others express their plans in orderly and systematic manner.
An important feature of this extended essay is that the methods taken are in form of data collection through primary and secondary sources. The primary includes questionnaires and oral interview and secondary source include work of authors which were acknowledged.
Finally, the main findings and recommendations are based on the information on the conclusions drawn up to cap the work.
Chapter One
1.0 Introduction
The Financial Function has always been important in business management. Irrespective of differences in structure, ownership and size, the Financial Organisation of the enterprise ought to be capable of ensuring that the various finance functions: – Budgeting and controlling are carried out with the highest degree of efficiency. The profit ability of any business depends largely upon the manner the financial functions are performed and related to other business function.
During the developing stage, financial management involves only the obtaining of funds to finance the business. Overtime, financial function has increased in its scope to include not only the planning of finance, but incorporate the management and control of the available resources within the firm. This also involves the external generation, flow and uses of funds and, the study and evaluation of the capital market.
When talking of the capital market, its operations within the economy cannot be over emphasized. Thus, the demand for and supply of funds for business organizations, become a fundamental management function. Therefore, financial management play an important role both in increasing operational efficiency within the firm and allocating funds to productive or investable sector within and outside the organization.
These functions can only be achieved when there is proper planning and controlling, coordinating and other elements of management combined effectively with the finance function.
1.1 Historical Background
Jomfol Investment Company Nigeria limited was incorporated in 1989. The main business of the company as contained in the memorandum and Articles of association amongst others is to carry on business as farmers, farm developers Livestock and poultry business, fisheries hatchery, producers and process or grains and all manners of crops, manufacturer of Livestock feed and concentrates etc.
The nature of the business activities includes; – manufacture, distribution and sales of poultry feeds and poultry raw materials and other related activities.
The raw materials concerns in the providing these activities includes; maize, soya beans, Soya cake, groundnut beans, and cake, wheat brain, maize brain, sorghum, palm kernel cake, spent grain, Bone meal, Fish meal, cottonseed cake, methionine, lysine, premixes, salt etc.
1.2 Statement of Problem
Financial management is a feature, which govern the whole process of organizational management. Emphasis is often on planning and control used within an organisation to strengthen area of potential weakness or to capitalize on more effective opportunity for the business. The purpose of undertaking this study is to identify the important role financial management practice can help in managing an organisation to greater height.
All organisations, be it public or private need financing to attain better positions. Hence, the problems of financing all business may include: High Cost of capital. Since the acquisition of capital by small business usually attract high financial interest rates these exposes them to risk and the unsatisfactory profits is another phenomenon which hinder small business from paying back.
Deficiencies in financial management are another problem encountered by small business as managers or owners lack experience in financial management. Only posses pool of expertise in production and sales. Also is the weakness in financial planning as they are always busy directing operations and satisfying customers having no time to keep adequate data to facilitate financial projections.
Other problem includes the inability of small business to save, plough back and obtains loans due to Nigeria factors and no collateral securities.
1.3 Objectives of the Study
- This study attempts to provide an orderly framework for “Financial Appraisal in Small Business Management”.
- It is aimed at inquiring on how Government has contributed to the progress of business activities.
- Inquire the possible causes of uncontrolled cash and management of resources, the techniques methods of evaluation and performance of financial policies, method being used in business organizations.
1.4 Significance of Study
A very good view at the appraisal of financing to small business organization in previous times, has show that managers within an organisation were more concerned with one matter or the other, and their environmental forces at different periods.
It is significant to know that in management financial, it requires the knowledge of certain functions which include:
Financial and Management Accounting, Law, Economics, Quantitative methods (like Mathematics and Statistics and Taxation). They are not part of Financial Management but support it in that, they provide useful information or give an understanding of the constraints within which the activity of the financial management takes place.
The specific functions of financial management are to ensure that funds are:
- Made available at the right time,
- Made available for the right length of time,
- Obtained at the lowest cost and
- Used in the most effective way.
The consequences of bad financial management can be very serious, if the above functions are not met at times.
In order to ensure that there is good financial management, we must develop sensible objectives, useful concepts, techniques for analyzing situations and principles for the guidance of action. The research will assist the management of the organization and provide a clear defined target output for each department.
Finally, this project will broaden the research knowledge of the topic and will serve as a platform for further development in these area of study.
To this end the research will be significant to management of small business for the following purpose:
- Formulating the policies of the organization.
- Planning the activities of the organization in long term medium and short –term planning
- Controlling the activities of the organization.
- Decision making.
1.5 Research Question
- What are the sources through which the organizations gets funds to finance its activities?
- Is Bank loan on of the sources of funds? if yes, how is the interest rate?
- What are the problems encountered by your organization in its effort to secure bank loan to finance it activities?
- What are the problems associated with other sources of funds to the organization?
- In the managing of it finances, do the organization use budgeting tools?
1.6 Statement of Hypothesis
- Ho: Effective and efficient management of a finance of a business will enhance its, profitability.
- Hi: Effective and efficient management of a finance of a business will not enhance its, profitability.
1.7 Scope of the Study
The scope of the study is limited to Jomfol investment company Nigeria Limited. Being a private organization (i.e. small scale business) that is funded by its sales revenue and other sources of fund. Its also on how to bring about business growth in Nigeria via appropriate financial planning and control.
1.8 Definition of Terms
Business Firm:
An Organization engaged in the production of goods or services.
Budget:
A statement of plans and expected results expressed in financial and quantitative terms.
Capital:
Money used to start a business or to produce more wealth.
Credit:
The ability or right to buy in return for a later payment
Control:
Correcting diverts to meet with actual plan.
Debt Capital:
Borrowing or loan, capital invested in the business that must be repaid.
Depreciation:
Allocation of cost of an asset which will be used over the asset service life.
Fixed Capital:
Long term capital invested in the business
Forecast:
An estimate of the form’s future sales or the probability of occurrence of future business.
Financial Institutions:
Are business organisation that lend money.
Chapter Five
Summary, Conclusion and Recommendations
5.1 Summary
The Relevance of financial management to business growth in Nigerian’s business organisation is very important. In view of this, business organizations should try to maintain all effective system of promoting and developing financial management in all kinds of business organizations. The purpose of this study is to find out, highlight some of the impact of financial management to all forms and size of business organisations in Nigeria.
The study looked into the followings:
- Financing the business
- Sources of finance
- Planning and control
- Budgeting
The study also viewed the impact of financial management in the part of decision making. In decision making, the impact of financial management is felt as it decides how to invest the sourced funds. The financial manager must know two important things:
- Must know something of impulse which govern the providers of the funds and also:
- In certain kinds of commercial activity, the financial manager will be investing on securities rather than in directly productive assets and will need to know how to evaluate the opportunities, which are available to him.
Financial Management helps in the management of working capital when there are debtors by establishing a policy over trade debts which will cover such matter like: –
- Cash discount to be offered for prompt or early payment
- Official period of normal credit offered;
- Assessing credit worthiness of customers
- Action to be taken regarding late payments
It also helps planning in advance for cash requirements, which is the cash budget that is a useful device to draw attention to future requirements as to enable proper preparations to be made. It is derived with reference to: –
- The master budget and
- The structure factors, which govern the timings of cash flows.
5.2 Conclusion
Having seen the relevance of financial management, the research carried out the following conclusions: –
That business organizations, having sourced funds needs the help of financial management.
In investment using the best opportunities and also in analyzing how these sourced funds flows. In fund flow as it has already been pointed out, that a business is a continuing entity and during the course of business operations, many changes take place in assets, equities, income and expenses. The funds, which are used in a business, must be constantly on the move. There must be an even flow through the cycle of operations with no bottlenecks or dead ends.
The initial injection of funds comes from the shareholders and from loan capital. Further injections may be made from time to time by short-term loans, e.g. bank overdraft. This initial injection of funds will be used to buy the necessary assets to enable the concerned to begin operations. And in addition there must be sufficient funds to finance production until the results of such production are sold and the cash is received by the business.
Once the cash from sales is received, the continuous cycle begins. The receipts may be used to finance further production, which in turn will result in new sales. The sales should exceed the cost of producing the goods, the difference being profit, which is of course available for distribution to the shareholders but a proportion of which would be retained in the flow to allow for further expansion and development of products.
It will be seen that sales are vital if the process is to be a continuous one. If the main supply, that is, sales, is reduced or stops altogether, there is likely to be little immediate effect on production, but unless action is taken to remedy the situation, there will soon be a breakdown in the system. There will be no fund available for paying labour and for purchasing materials. This will means redundancies and perhaps even liquidation of the company.
One can now see how important it is in maintaining the flow of funds through all the stages of operations. It is usual to prepare three basic flow statements from available financial data. These are
- The incomes statement, or profit and loss account,
- The statement of sources and application of funds,
- The statement of cash receipts and disbursements.
5.3 Recommendations
In the view of the above summary and conclusion, financial management is relevant to business organizations in Nigeria, that is, both small and large business, as it solves the problems of financing the business. In small scale business, it provides finance in two ways –viz
- Through Equity Capital
- Through Debt Financing
And in large business/company as mentioned previously.
Financial Management:
Solve the problem of financing as it provides adequate access to capital and use age of factoring in reducing the debtors of the organisation. It also provides funds from the Banks, Special Market which helps in the growth and development of the business.
Forecasting and Planning:
It is the impact of financial management in forecasting and planning. In doing these, there must be a clear distinction between them, both of which contribute to the preparation of a budget. Forecasts are made concerning matters outside management’s control and plans are made regarding matters within its control. In business organizations, forecasting entails sales forecast, as it is usually the foundation of any budget. The analysis of past records by moving average calculations.
A budget is constructed around the level of activity presupposed by the sales forecast. Its parts should be carefully integrated and allowance made for. Forecast and plan changes in costs and conditions. The budget consist of a budget process, it is a key part of budget as budget process is the monitoring of actual results against budget as these occur and the taking of appropriate steps to restrain departures from plan.
Budgeting Control:
Plans are prepared for a future period in financial terms. This ensures that responsibilities for expenditure and revenue are established and a continuous comparison may then be made of the actual with the budgeted figure. To enable the differences to be analysed into the controllable and the uncontrollable, suitable corrective action can then be taken as soon as necessary.
Generally, in any business or even in any non-profit making organization, the need to plan ahead is imperative. The very discipline of planning is in itself a vital component for success, since in formulating a plan or strategy it is necessary to bring to bear a critical appraisal of exiting conditions and this may result in economies at the outset.
To plan is to formulate a strategy, and this in turn gives the business a sense of direction. Once the business has set its goals, the tactical plans has been put in a operation, conditions prevail which tend to cause deviations from the plan, corrective action can take place to steer the business back on course.
Financial management is the main function of management. As its functions are to plan, co-ordinate, motivate and control, and the application of these functions is vital if a firm is to achieve its objectives. Since the very survival of a business depends ultimately upon its financial function, the technique of budgeting and budgeting control makes a vital contribution to the management function.
It might be said by people that if external environment is so unpredictable, why bother planning for the future?
Surely, however, it is far better to have a plan than no plan at all. Indeed, if one was embarking on a voyage or flight, one would surely plan the route and a prerequisite for such a plan would be to know the ultimate destination or goal and to correct deviations from the navigational plan in order to reach the goal.


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