FINANCIAL PLANNING AND CONTROL IN SMALL AND MEDIUM ENTERPRISES IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Financial planning and control has become a complex management function for both small and medium retailing organizations. Whatever the size of the retail business, adequate and proper financial planning and control are necessary and inevitable.

There is no substitute for adequate and proper financial planning for either a new or an existing retail business, many small independent retailers often begin business without adequate funds or proper financial planning, and this has led stores failures. Inadequate financial planning is not limited to small retailers in some instances large chain stores miscalculate their revenues and expenses, thereby causing financial hardships.

These errors in judgment may be offset by the overall profits of the chain, however, and may not be readily apparent to the casual observer. (Redinbaugh, L.D. 1987).

The financial planning and control function in an organization has the main objective of assisting the management of that organization.

This assistance is directly towards the planning and control activities of manager, but other activities well benefit as well, if the system is well conceived and used; for example, the co-ordinating and motivating aspects of management a good financial planning and control system is one which is in “contex” what is done is relevant to the purposes of that particular organization and the managers who work for it, whatever, those purposes and however they may be measured and appraised.

Inevitability, financial fall short of this ideal systems in practice fall short of this ideal, either in their design or in the way they are used. (Professor Robson, A.P. 1988).

In essence, the management of capital is concerned with obtaining funds and using them well. The implication is clear enough if involves planning. It means calculating cost of men, machine and materials. It means evaluating the market and the potential success of the product. It means figuring the cost of land, building and capital.

And once everything has been decided on, it means making certain that schedules are kept, quality is maintained and that actual cost do no exceed estimated costs.

In another words, it also means control. (Anreder, S.S. 1977P.4).

1.2 STATEMENT OF THE PROBLEM

The problem of financial planning and control in the retailing business is associated with the following:

 The availability of adequate finance

 Budgeting and budgetary control

 Pricing policies and product lines

 Credit control policies

 Sales forecasting

 Merchandise (Inventory) control

 Cash management

 Profit analysis

 Use of internal control system and internal audit.

1.3 OBJECTIVE OF THE STUDY

The objective of this study is to:

 Determine how the retailing business can obtain and used adequate finance.

 Evaluate the use of budgeting and budgetary control

 Evaluate a general pricing policy for each product or product line

 Evaluate the credit control policies

 Determine the retailer’s potential market and a sales forecast for the ensuring quarter year.

 Determine a suitable inventory control system

 Determine an expense control system

 Evaluate the system of cash management

 Evaluate the profitability position of the retailing business by using break-even analysis, profit analysis and other tools.

 Evaluate the use of internal control system and internal audit.

1.4 RESEARCH QUESTIONS

The extent to which the above variables are likely to contribute to the growth or failure of the retail business will be measured: based on this objective the following research question will need to be answered at the end of the study:

 Is there a relationship between the retailer’s growth and the retailer’s level of education?

 Is there a relationship between retailer’s growth and the initial capital investment?

 Is there a relationship between the retailer’s growth and choosing between alternative courses of actions?

 Is there a relationship between the retailer growth and action planning for a specified period of time?

 Is there a relationship between the retailer’s  growth and performance appraisal?

1.5 RESEARCH HYPOTHESIS

This hypothesis will be used to determine the financial planning and control in small and medium enterprises.

Hi: Financial planning and control have significant  relationship on small,  medium enterprises.

1.6 SIGNIFICANCE OF THE STUDY

The significance of the study is that it will help to improve the financial management and the general operation of the retailing business in the following ways:

 The evaluation of the systems of budgeting and budgetary control will help to refine the existing knowledge on how to effectively determine (and manage) adequate financial (cash) requirement suitable for the successful operation of any size of the retailing business.

 The evaluation of the forecasting and planning methods will helps to effectively choose between  alternative courses of action, e.g. product, product lines, sources of raising finance etc.

 The determination of appropriate potential markets, sales forecasts, pricing policies and credit control policies.

 T he evaluation of the systems of merchandise and expense control, will help to extent the existing knowledge, in order to effect more stringent control system.

 The study will evaluate the system of profit planning and refine the existing knowledge on how to use some tools, including the break-even analysis. A break-even analysis can be made for any condition to reveal profitable, less profitable and unprofitable products or product line.

 The general evaluation of the system of financial control, will help to refine and introduce appropriate and effective system of internal control and internal audit.

1.7 SCOPE OF THE STUDY

The scope of this study is to determine the appropriate financial planning and control tools techniques and or systems which will help the retailing business to:

 Provide and manage adequate finance for it’s operations.

 Choose between alternative courses of action

 Establish an effective action planning for a specified period of time.

 Establish an effective performance appraisal.

1.8 LIMITATION OF THE STUDY

The limitation of this study will be finance and the time period within which the study is expected to be completed.

There will be no enough time and finance to enable the researcher to reach retailers within Nigeria.

1.9 DEFINITION OF TERM

FINANCE: Sound business financing may be defined as the allocation of a concerns liquid assets to assure their most productive use. In other words, the limited supply of capital available to any business, whether we are talking about a corner drug store or a steel mill, must if the business is going to be successful, be used in a way in which it can do the most good in terms of profitability. (Anreder, S.S 1977 P.2).

Planning: Planning is deciding  in advance what to do, how to do it, when to do it, and who is to do it. Planning bridge the gap from where we are to where we want to go.

It makes it possible for things to occur which would not otherwise happen.

Planning is an intellectually demanding process, it requires the conscious determinations of courses of action and the basing of decision on purposes, knowledge and considered estimates. (koonte, O’ Donnel and weihrich 1980 p.156). Planning is also defined as a delineation of goals and a formulation of a decision model for selecting means of achieving them. (Horngren, C.T. 1977 p.5).

Control: Controlling implies measurement of accomplishment of events against the standard of plans and the correction of deviations to ensure attainment of objectives according to plans (Koontz, O’ Dennell and Weinrich 1980, P. 717). Control  is the implementation of the decision and the use of feedback so that the goals are attained.

The main purpose of control is to ensure that the firm’s activities conform to its plans, hence it is closely linked to the planning function.

Retailing: There are many of “retailing”, but there is little agreement as to the precise explanation of the term. According to Redinbaugh, L.D. (1987 P.9). “Retailing” include all those business activities associated with selling goods and services to an ultimate consumer or final user for personnel consumption.

A “retailer” is an independent merchant middleman, this merchant middleman” stands between a producer or whole saler and a consumer, and is the one who serves as the consumer’s purchasing agent. Thus, the retailer makes the consumer’s job of buying goods and services much easier by offering a convenient location and a wide assortment of merchandise, for this purchasing function, the retailer hopefully receives a reward (profit) from the operation of the business.