Financial Management Practices of Small Firms in Nigeria: Emerging Tasks for the Accountant”

Topics: Business, Corporate finance, Management Pages: 9 (2623 words) Published: March 11, 2014
This paper titled “Financial Management Practices of Small Firms in Nigeria: Emerging Tasks for the Accountant” It is aim to determine whether the financial management practices of small firms in Nigeria have impact on their profitability, growth and survival. It was discovered that two financial information variables (accounting system and financial management information) alone dominate the risk perception of fund providers. As a result, small firms find it difficult to source adequate funds for business operations. The study also reveals that lack of qualified staff and the inability of owner managers to appreciate the right of stakeholders to have access to such information. SME firms are therefore recommended to employ the services of qualified accountants in order to upgrade their financial management practices to enhance their overall performance. Key words: Financial management, Small firms, Accountant, Performance.

Small firms play vital roles in the process of industrialization, sustainable economic growth encouragement of entrepreneurship, employment generation reduction of poverty and contribution to the Gross Domestic Products (GDP) of many countries and Nigeria is not an exception. They perform such vital roles through innovation and the production of various goods and services which empower the process of economic development. For small firms to carry out such important tasks, they need credit facilities in terms of short and long-term loans. The process of sourcing such funds as well as the effective utilization and efficient management of the funds constitute major challenges for the accountants of SMEs. The challenges require the involvement of well trained/professional accountants which SMEs lack the resources to attract.

Therefore, role of the accountants in SMEs is often broader than the conventional definition of the accounting function. Apart from the basic accounting functions of providing the accounting information, auditing, tax matters, the SMEs accountant is responsible for providing general leadership in all aspects of financial decision making like working capital management, budgeting and financial planning. It has been noted by researchers that the failure to effectively discharge these broad financial management functions have contributed largely to global financial crisis (Osisioma, 2010).

Similarly careless or poor financial management practice has been identified as one of the reasons for small business failures (McMahon and Holmes, 1991; Berryman, 1983). As revealed long ago by Potts, (1977) the clearest and most startling distinction between successful and failed small businesses lie in their approach to the generation and utilization of accounting information. Over the years, there has been a significant increase in government efforts to promote the financing of businesses by initiating policies which help small and medium scale businesses to source funds for business operations. Nigerian banks can access loanable funds from government and international financing institutions like the World Bank which uses the Central Bank of Nigeria (CBN) as the arrow head for on-lending to small businesses (Terungwa, 2012; Olorunshola, 2003; Anyanwu, 2002). In spite of the various sources of fund made available to them, accessibility to both short-term and long-term credits from banks has not been easy for SMEs because of the poor risk perception which fund providers have of small firms. The poor risk perception can be reduced if quantitative and qualitative financial information details of firms can be ascertained, adequate collaterals provided and effective banking relationships established (Okafor, & Onebunne, 2010).

Qualitative and quantitative financial details provide required information about the quality of a firm in terms of size, profitability and leverage levels Merve & Niskanen (2010); as well as asset base and sales volume (Okafor, 2007)....

References: Ennew, C. T. and .M Binks (1995), “The Provision of Finance to Small Businesses: Does the Banking Relationship Constrain Performance?” The Journal of Small Business Finance 4(1):57-73
McMahon, R
Merve Niskanen, J. Nisknanen (2010), “Small Business Borrowing and the Owner-Manager Agency Cost: Evidence on Finished Data” Journal of Small Business Management 48(1): 16-31.
Mumbula, C. (2002), “Perceptions of SME Growth Constraints in Nigeria.” Journal of Small Business Management 40(1):58-65.
Olorunshola, J.A. (2003), “Problems and Prospects of Small and Medium Scale Industries in Nigeria”, Seminar on Small and Medium Scale Industries Equity Investments Equity Scheme, Lagos. CBN Training Centre, Publication No. 4.
Osisioma, B.C. (2010), “Global Financial Crisis: Impact on the Changing Face of Accountancy Profession” Awka, Nnamdi Azikiwe University. Frontier Lecture Series 1
Okafor, R.G
Prentice Auken, Van (2001), “Financing Small Technology-Based Companies: The Relationship between Familiarity with Capital ands Ability to Price and Negotiate Investment”. Journal of Small Business Management 39(3):240-258.
Terungwa, A. (2012), “Risk Management and Insurance of Small and Medium Scale Enterprises (SMEs) in Nigeria”, International Journal of Finance and Accounting. 1(1), 8-17
Tagoe, N
Walker, E. W., and J.W. Petty (1986), Financial Management of the Small Firm, 2nd ed. Englewood Cliffs. Prentice
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Modern Financial Management Practices Essay
  • Essay on Financial Management
  • Small Business Management Research Paper
  • Financial Management: Theory and Practice Essay
  • 10 Principles of Financial Management Essay
  • Cash Management Practices in Small Companies Essay
  • Financial Management Essay

Become a StudyMode Member

Sign Up - It's Free