Working Capital Management Practices Of Small And Medium Scale Enterprises In Nigeria (A Case Study Of Some Selected SMEs In Uyo)

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Working Capital Management Practices Of Small And Medium Scale Enterprises In Nigeria (A Case Study Of Some Selected SMEs In Uyo)


Abstract


This study was carried out to examine working capital management practices of small and medium scale enterprises in Nigeria using some selected SMEs in Uyo as a case study. The study was specifically carried out to determine whether there is a significant relationship between working capital management practices and the performance of SMEs in Uyo, determine the working capital management practices which promotes the performance of SMEs in Uyo, determine the effectiveness of working capital management practices of SMEs in Uyo, and determine the impact of working capital management practices on the performance of SMEs in Uyo. The survey design was adopted and the simple random sampling techniques were employed in this study. The population size comprise of owners of some selected SMEs in Uyo. In determining the sample size, the researcher conveniently selected 57 respondents and 50 were validated. Self-constructed and validated questionnaire was used for data collection. The collected and validated questionnaires were analyzed using frequency tables, and mean scores. While the hypotheses were tested using Pearson Correlation statistical tool, SPSS v23. The result of the findings reveals that there is a significant relationship between working capital management practices and the performance of SMEs in Uyo. The study also revealed that working capital management practices is very effective in SMEs in Uyo. Therefore, it is recommended that SMEs should put emphasis on proper cash management practices. They should also improve their cash management policies by adopting appropriate policies like banking, investing, budgeting and planning for cash requirements. To mention but a few.


Table of Content


  • Title Page
  • Certification
  • Dedication
  • Acknowledgement
  • Table of Content
  • List of Tables
  • Abstract

Chapter One:

Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Objective of the Study
  • 1.4 Research Questions
  • 1.5 Research Hypothesis
  • 1.6 Significance of the Study
  • 1.7 Scope of the Study
  • 1.8 Limitation of the Study
  • 1.9 Definition of Terms
  • 1.10 Organisations of the Study

Chapter Two:

Review of Literature

  • 2.1 Conceptual Framework
  • 2.2 Theoretical Framework
  • 2.3 Empirical Review

Chapter Three:

Research Methodology

  • 3.1 Research Design
  • 3.2 Population of the Study
  • 3.3 Sample Size Determination
  • 3.4 Sample Size Selection Technique and Procedure
  • 3.5 Research Instrument and Administration
  • 3.6 Method of Data Collection
  • 3.7 Method of Data Analysis
  • 3.8 Validity of the Study
  • 3.9 Reliability of the Study
  • 3.10 Ethical Consideration

Chapter Four:

Data Presentation and Analysis

  • 4.1 Data Presentation
  • 4.2 Analysis of Data
  • 4.3 Answering Research Questions
  • 4.4 Test of Hypotheses

Chapter Five:

Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • References
  • APPENDIX
  • QUESTIONNAIRE

Chapter One


Introduction

1.1 Background of the Study

There exist lots and lots of business ventures that are run by individuals, group of people or association, firms, industries and government with the aim of maximizing profits. They range from small scale to medium and large firms. In the Nigerian economy the small scale enterprises are the most common form of business. The aim of any economy (either industrialized or non industrialized) depends largely on how well organised the small and medium 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 successive governments have not appreciated their significance to the national economy. Firstly, most of the small businesses are es companies sole proprietorship business venture.

They facilitate poverty reduction through fiscal transfers and income from employment and firm ownership(Prasad et al. 2001). Comparatively, most SMEs are not registered as corporate bodies but as sole proprietorship. This makes registration procedures quite simple and a bit easier than the other forms of business registration. Partly due to this phenomenon, SMEs has outnumbered all the other forms of business and could be found almost everywhere across the country.

In spite of their numbers and significance, recent studies showed that 60% of the SMEs fail within the first five years of operation(Boachie et al. 2005). Majority of them face unique problems which affect their growth and profitability and hence diminish their ability to contribute effectively to sustainable development. These problems include lack of access to credit, inadequate managerial and technical skill, low level of education, poor marketing information, inhibitive regulatory environment, lack of access to technology and poor financial management especially inefficient working capital management(Kaya et al. 2015).

Okpara(2015), reported that most SME operators do not have sufficient financial management skills such as bookkeeping, cash and inventory management skills, hence they end up losing track of their daily transactions and cannot account for their expenses and profits at the end of the month which can even threaten their survival(Kaya et al. 2015). Also, most of them do not engage their working capital in such a way as to enjoy maximum profit.

Working Capital is the flow of ready funds necessary for the working of a business. It comprises funds invested in current assets, which in the ordinary course of business can be turned into cash within a short period without diminishing in value and without disruption of the organization(Mohanty, 2013). It is a vital element in any organizational setting that requires cogent attention, proper planning and management(Owolabi, 2012). Therefore, it is imperative for every business unit to assess its Working Capital Management (WCM) practices to unearth its performance.

The main objective of WCM is to ensure the maintenance of satisfactory level of working capital in a way that will prevent excessive or inadequate availability of working capital(Filbeck et al. 2005). It is important to note that inefficient WCM may not only reduce profitability but also lead to financial crises and its associated effects. According to Padachi(2006), management of working capital is important for the financial health of all businesses, irrespective of type and size.


1.2 Statement of the Problem

WCM provides critical insight into the state of company’s financial position and its importance to the success of SMEs cannot be under estimated. One of the serious challenges faced by most financial managers is how to effectively and efficiently manage working capital in order to maximize their profits. This is because working capital comprises a number of different items and its management is difficult since these are often linked. Hence, altering one item may impact adversely upon other areas of the business.

Poor Management of working capital results in attendant cash flow problems which reduces SMEs profitability and invariably leads to financial crises coupled with its associated effects. However, all the efforts and interventions by financial managers and owners of SMEs to halt the problems affecting their growth and profitability proved abortive(Okpara, 2015). Therefore, this research work shall fill the gap by examining working capital management practices of small and medium scale enterprises in Nigeria.


1.3 Objective of the Study

The primary objective of the study is to examine working capital management practices of small and medium scale enterprises in Nigeria (a case study of some selected SMEs in Uyo). The specific objectives is as follows:

  1. Determine whether there is a significant relationship between working capital management practices and the performance of SMEs in Uyo.
  2. Determine the working capital management practices which promotes the performance of SMEs in Uyo.
  3. Determine the effectiveness of working capital management practices of SMEs in Uyo.
  4. Determine the impact of working capital management practices on the performance of SMEs in Uyo.

1.4 Research Questions

The following questions have been prepared for the study:

  1. Is there a significant relationship between working capital management practices and the performance of SMEs in Uyo?
  2. What is the impact of working capital management practices on the performance of SMEs in Uyo?
  3. What are the working capital management practices which promotes the performance of SMEs in Uyo?
  4. What is the effectiveness of working capital management practices of SMEs in Uyo?

1.5 Research Hypothesis

  • Ho: There is no significant relationship between working capital management practices and the performance of SMEs in Uyo.
  • Ha: There is a significant relationship between working capital management practices and the performance of SMEs in Uyo.

1.6 Significance of the Study

It is hoped that the result of this study concerning working capital management in the Uyo Local Government Area would contribute to current knowledge on 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 business in the UyoLocal Government Area but also to all small- scale business throughout the country. This would also help stakeholders in 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 book keeping and accounting To help p the SMEs gain access to finance and improve their financial management skills. Help SMEs

To 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 enterprise. The information would also assist officials of the Ministry of Trade and Industries in formulating small-scale industries growth policies and programmes which are responsive to entrepreneurs useful to non- local governmental organizations playing vital roles in small-scale entrepreneurial skills and development in Nigeria and the Uyo Local Government Area.


1.7 Scope of the Study

The content scope will focus in working capital management practices of small and medium scale enterprises in Nigeria. The geographical scope of this study will cover Small scare businesses in Uyo Local Government Area.


1.8 Limitation of the Study

Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. Insufficient funds tend to impede the efficiency of the researcher in sourcing for the relevant materials, literature, or information and in the process of data collection (internet, questionnaire, and interview), which is why the researcher resorted to a moderate choice of sample size. More so, the researcher will simultaneously engage in this study with other academic work. As a result, the amount of time spent on research will be reduced.


1.9 Definition of Terms

Working Capital:

Indicates the liquidity levels of businesses for managing day-to-day expenses and covers inventory, cash, accounts payable, accounts receivable and short-term debt.

Working Capital Management:

This involves planning and controlling current assets and current liabilities in a manner that eliminates the risk of inability to meet due short-term obligations on one hand and avoid excessive investment in current assets on the other.


1.10 Organization of the Studies

The study is categorized into five chapters. The first chapter presents the background of the study, statement of the problem, objective of the study, research questions and hypothesis, the significance of the study, scope/limitations of the study, and definition of terms. The chapter two covers the review of literature with emphasis on conceptual framework, theoretical framework, and empirical review. Likewise, the chapter three which is the research methodology, specifically covers the research design, population of the study, sample size determination, sample size, and selection technique and procedure, research instrument and administration, method of data collection, method of data analysis, validity and reliability of the study, and ethical consideration. The second to last chapter being the chapter four presents the data presentation and analysis, while the last chapter(chapter five) contains the summary, conclusion and recommendation.


Chapter Five


Summary, Conclusions and Recommendations:

5.1 Introduction

This chapter summarizes the findings on working capital management practices of small and medium scale enterprises in Nigeria using some selected SMEs in Uyo as a case study. The chapter consists of summary of the study, conclusions, and recommendations.


5.2 Summary of the Study

In this study, our focus was to examine working capital management practices of small and medium scale enterprises in Nigeria using some selected SMEs in Uyo as a case study. The study was specifically carried out to determine whether there is a significant relationship between working capital management practices and the performance of SMEs in Uyo, determine the working capital management practices which promotes the performance of SMEs in Uyo, determine the effectiveness of working capital management practices of SMEs in Uyo, and determine the impact of working capital management practices on the performance of SMEs in Uyo.

The study adopted the survey research design and randomly enrolled participants in the study. A total of 50 responses were validated from the enrolled participants where all respondent were owners of some selected SMEs in Uyo.


5.3 Conclusions

Based on the findings of this study, the researcher concluded that;

  1. There is a significant relationship between working capital management practices and the performance of SMEs in Uyo.
  2. Working capital management practices has a positive impact on the performance of SMEs in Uyo.
  3. The working capital management practices which promotes the performance of SMEs in Uyo includes: inventory management, cash management, account receivable management, accounts payable management.
  4. Working capital management practices is very effective in SMEs in Uyo.

5.4 Recommendations

Based on the findings of the study, the following recommendations are proffered.

  1. SMEs should put emphasis on proper cash management practices. They should also improve their cash management policies by adopting appropriate policies like banking, investing, budgeting and planning for cash requirements.
  2. SMEs should adopt the daily stock control policy in order to have an optimal inventory level, which would reduce the cost of holding and ordering and, as a result maximize profitability in turn.
  3. SMEs need to adopt liberal credit policy and carry out thorough credit vetting to ensure reduced costs of bad debts and debt administration costs.

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