CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Small and medium scale industries equity investment scheme (2001) define SMEs as any Industry with a maximum asset base of N200 million, excluding land and working capital and with the number of staff employed by the enterprises, not less than 10 and not more than 300.  It deals with the achievement of improvement in rural infrastructive, living standard of the rural dweller, employment generation, utilization of local resources, transformation of indigenous technology and production of intermediate goods.

          One of the very noticeable characteristics of Nigeria is high rate of business acumen found among the citizen.  The average citizen when given an option would prefer to start a business of his own and remain self-employed, such tendencies must have given rise to the emergence of Nnewi as one of the biggest market in West Africa Sub-region, here and in many other commercial towns in Nigeria.  The streets display a high  proportion of the premises housing a business organization owned by citizens of Nigeria.  The Nigeria population is generally illiterate and such majority of the business units are unregistered with any government agency.  This makes impossible the compilation of any accurate statistics on the number of business unit in the country.

          Small and medium enterprise have one thing in common, it is their limitation to access to sources of funds.  This has greatly made impact on how the maps of their financial structure have been own.  And since most of the small and medium businesses especially in the developing countries, are generally individuals or family businesses operating in a low income economy, they are unable to generate sufficient funds through personal savings for the finance of huge capital equipment or other fixed assets.

          It is important to find out which of the sources of funds are available to the business, then the risk involves and whether the money is likely to recalled at short notice.  Also the respective cost of borrowing from each source, government restriction and institutional constraint are vital considerations.

STATEMENT OF PROBLEMS

Small and medium scale enterprise in the country with particular reference to Nnewi Town in Anambra State are finding it difficult to grow because of operational problem confronting them.  Finance as an economic force has been stated as a major impediment to the progress and survival of this class of enterprise as put by various opinions.  Other which is government interferance and ineffective management have also impact on its growth.

OBJECTIVES OF THE STUDY

The objectives of this study are as follows:

1.           To examine if the financial structure made any impact on management efficiency of small and medium enterprise.

2.           To  find out the various methods and control used in the financial structure of small and medium business

RESEARCH QUESTIONS

1.      What are the impact of financial structure in the management efficiency of a small and medium enterprise.

2.      What are the effective methods and control used in handling the financial structure of small and medium business.

RESEARCH HYPOTHESIS

The following hypothesis is used in this study.

1)      Ho:    Financial structure have a direct impact on the

management efficiency of small and medium enterprise.

Hi:     Financial structure does not have a direct impact on the management efficiency of small and medium enterprise.

2)      Ho:    The various methods of financial structure and control

used in small and medium businesses requires effective handling.

Hi:     The various methods of financial structure and control used in small and medium businesses does not require effective handling.

SCOPE OF THE STUDY

This study covers the area of Nnewi Town in Anambra State as regards to the ways of improving funding to small and medium-scale enterprises and the ways in which these funds can be managed by the management of small and medium scale enterprises.

SIGNIFICANCE OF THE STUDY

In view of discussions on the incidence of failure of small and medium scale enterprises, one can see the need for a study of a financial structure of such businesses.

Academic Significance

It will be beneficially to those that are in the academic field.  The researcher, the student will find the project very useful.

Practical Significance

This study is intended not only to educate the owner of the business on the proper source of finance available to them but also to educate them on how to choose between different types of financing with minimum cost.

          The result of the study will help small and medium enterprises in their effort to access to sources and management of funds.  Bank stands to benefit also because it will help improve the approach of these illiterate and semi illiterates owner of small businesses to bank when seeking for finance.  The government will also benefit because it will help to improve the nations economy.

DEFINITION OF TERMS

For the purpose of better understanding and clarify, the researcher used the following words, which are explained.

EQUITY:- This is the difference between the asset and liability.

FINANCE: An economic force, ability to obtain something of value.

FINANCIAL STRUCTURE: The way the firm’s assets are financed.  It is the entire left-hand side of the balance sheet.

GEARING: The ratio between the fixed interest borrowing and the ordinary shareholder whose dividend may vary with the earnings available for distribution.

WORKING CAPITAL:- Excess of current assets over current liabilities.