CHAPTER ONE
GENERAL INTRODUCTION
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 mostly sole proprietorship business venture. Small firms play critical roles in providing job opportunities, nurturing a culture of entrepreneurship and opening up new business opportunities. They are recognised and acknowledged worldwide as vital and significant contributors to the economic development, introduction and diffusion of new technology, ability in generating potential entrepreneurs and skilled workers for the industrialization process both nationally and internationally (Ch ng Hakng Zephkee-Yun, 1986).
Small and Medium-Scale enterprises development can encourage the process of both inter-and intra- regional decentralization; and they may well countervail economic power of larger enterprises. More generally, the development of SME s is seen as accelerating economic objectives, including poverty alleviation (cook & Nixson, 2000).
Small and Medium enterprises are new and growing business which (for any number of reasons) do not grow beyond a certain size (Thomson & Martin 2005). The Nigerian Bureau of Statistics (NBS) consider firms with fewer than ten employees as small -scale enterprises and their counterparts with more than ten employees as medium and large sized enterprises. The GSS in its national accounts considered companies with up to 9 employees as SMEs. (kayanula & Quartey 2000).
SME s accountforsignificant share of the economic activity in Nigeria and can play an important role in achieving the Millennium Development Goals (MDGs). The long term goals is for SME s to maximize their contr development with respect to production, income distribution and employment and the closer integration of women and people in rural areas within the national economy (NBSS, 1981). One of the significant characteristics of flourishing and growing economy is booming small and medium enterprises (SMEs).
Small and Medium enterprises play an important role in the development of Nigeria in various ways by creating employment for rural and urban growing labour force, providing desirable sustainability and innovation in the economy as a whole. The small and medium scale enterprises have obvious advantage for a developing country like Nigeria because it provides the means of entry for new entrepreneurial talent.
Small and medium scale business sector serve as a seed bed from which new large companies will grow but lack of managerial know-how places significant constrains on SMEs development. Even though SMEs tend to attract motivated managers, they can hardly compete with large firms. The scarcity of management talent, prevalent in most countries in the region, has significant
impact on SMEs (ParkerThelack ofetsupportal,services1995)ortheirrelatively. higher unit cost caneffort hamper to improve their management SMEs of working capital (ibid). In view of their sizes and complexities of their operations, most small and medium scale enterprises fail to keep proper records of financial activities which affect their working capital. This has taxation, credit management and security implication. The lack of proper business records makes most small and medium scale businesses become practically constrained in managing their working capital very well.
1.1 STATEMENT OF THE PROBLEM
Working capital management is poorly understood by most small and medium scale enterprises in many parts of the developing world of which Nigeria is one. The dynamic role of small andindevelopingmediumcountries scale have been identified as the means through which rapid industrialization and other development goals of these countries can be realized.
Many small and medium scale enterprises which are profitable are forced to cease their operations due to the inability to meet their short term debts obligations. Not that they do not have funds to operate, but the problem is how they manage their working capital. Blunt and vague ideas about phenomenon will be misnomer.
To gain empirical insight into this state of affairs, there is a need to conduct an investigation into the management practices of small and medium scale enterprises insofar as their working capital is concerned and why small and medium scale enterprises which are profitable collapse.