THE RELEVANCE OF FINANCIAL MANAGEMENT TO BUSINESS GROWTH
CHAPTER ONE
1.0INTRODUCTION
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
1. This study attempts to provide an orderly framework for “Financial Appraisal in Small Business Management”.
2. It is aimed at inquiring on how Government has contributed to the progress of business activities.
3. 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:
(a) Made available at the right time,
(b) Made available for the right length of time,
(c) Obtained at the lowest cost and
(d) 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
1. What are the sources through which the organizations gets funds to finance its activities?
2. Is Bank loan on of the sources of funds? if yes, how is the interest rate?
3. What are the problems encountered by your organization in its effort to secure bank loan to finance it activities?
4. What are the problems associated with other sources of funds to the organization?
5. 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
