CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Conceptually business is the exchange of goods, money or services for mutual benefit. In other words, a business enterprise succinctly put is the sum total of those activities that have as their main purpose, the creation, maintenance and expansion of a concern which continues to exist, because it earns profit or other benefits, as a result of this exchange of goods and services or money. Historically, business activities came into existence when our forefather began to trade by barter, that is exchange of goods for goods) having realized the different capabilities and talents possessed by individuals and the enormous times energy wasted in trying to become self sufficient. No wonder why, the age long aphorism that “No man is an Island” is an accepted contention of most critics.
As a rule of thumb, this exchange of goods existed in many parts of the world including Egypt, Europe, Germany and some parts of Africa Albelt, the advert of industrial revolution made man to conceptualize and then concretize that serious need to develop his genetic and phenotypic qualities in trying to specialize in one trade or another, thereby making life more satisfying to the generating of the people. Conceptually different types of business enterprises have evolved over the years ranging from sole proprietorship to partnership, co-operative companies to even corporation or public liability companies (PLC). All those were primary established for the production distribution and provision of services to the entire human race (Homo Sapiens).
On the whole, modern business enterprises are characterizes by rapid technological changes; speculation/forecasting with a high degree of inter-dependence and precision, and increased number of mergers. As of today, the complexities of business and modern technological advancement encourage the formation of companies that engage only in production; while selling and many types of small business enterprises such as Supermarket Retailshops, Parent medicine stores, provision stoves, motorcycle spare parts shops, plastic producers etc. have all sprang up. Enugu as an ancient city is consistently being converted from a pure traditional setting into a fast growing cosmopolitan city. Enugu was the capital of the Eastern Region, which was later sub-divided into East Central State; and presently, Enugu is the capital state; after the Nigerian Civil War. There has been steady but gradual influx of people from other state particularly the nearly states like Imo, Anambra, Ebonyi, etc, either as traders or workers. And with a lot of Federal and State establishments, there was a tremendous increase in the number of people coming from other states into Enugu. This situation has indeed made the population of Enugu to be a mixed one.
As a rule lunch, the major economic activities in Enugu are civil service working with either at the Federal of State establishments, a lot more are still engaged in large scale medium scale enterprise scattered almost everywhere in the city including of course, Easter Plastics at along Enugu-Abakaliki Express Road, Emene, Enugu. This research work would thus highlight the major issues surrounding he sourcing of funds for small/medium scale business concerns with particular reference Eastern Plastics Enugu-Abakaliki express road Emene, Enugu. It would also evaluate the relevance of having a balanced working capital as this will serve as important basis for the inculcating of the need to have a proper internal control of funds when finally obtained by this enterprise.
1.2 STATEMENT OF THE RESEARCH PROBLEM
In general one major panacea proffered by well meaning Nigerians on effective way of reducing unemployment in this country, thereby increasing productivity is through the establishment and sustenance of small scale/medium scale business enterprise all over the country. Little wonder then, why most government; both past and present and the three ties hand in one way or another, enunciated well articulated but perhaps, poorly implemented programmes, all of which were aimed at increasing the awareness required for this kind of business enterprises/concerns.
Incidentally, virtually all small/medium scale concern is almost part of the world including Enugu, started in a very low way, but they gradually and steadily expanded. In other words most of these small/medium scale business concerns passed through a period of metamorphosis, generally beginning virtually with little, but subsequently, graduating into full-pledge business concerns. Some of these business enterprises/concerns even got matured into large-scale business enterprises/public liability companies after some period of transformation and sustained development.
However, the issue that arises is why should such a period of gestation or transformation take place in the establishment and expansion of small/medium business enterprises? One school of thought holds it that the above trend suggests and even indicated that small/medium business enterprises have problems in obtaining the initial capital to start off their operations and subsequent expansion. Worst still is the generally accepted motion that such capital when finally obtained some times is poorly managed, and even in some extremely cases, embezzled by the top management. On the whole, any of these circumstances, can greatly affect the establishment of these business enterprises. therefore, ascertaining the authenticity of these schools of thought by first identifying the various sources of capital to small/medium scale business enterprises with particular reference to Eastern Plastic Nig. Ltd at along Enugu-Abakaliki Express Road Emene, Enugu is the major thrust of this work. The study will equally investigate thoroughly the difficulties encountered by their company in sourcing capital as well as finding out, how such capital if obtained, is managed for the successful operation of this company, in it’s bid to meet their specific and corporate objective/goals.
1.3 PURPOSE OF THE STUDY
The overall purpose of the study is to find out the sources of capital available to small/medium business organization operational activities. It was also aimed at ascertaining how these funds should be effectively managed throughout the life span of the business so as to enable them meet their corporate goals and targets. Besides this study was also geared towards ascertaining how efficient are the financial management including their skills and strategies used by small/medium business as regards to the preparation of necessary book of accounts; the use of professional accountants and whether banking facilities are used and at which cost. Specifically, the study seeks
i) To ascertain the various sources of loan/capital available to Eastern Plastics Nig. Ltd in Enugu.
ii) To appraise which sources are more frequently used and why;
iii) To examine whether Eastern Plastics Nig. Ltd experience any difficulty in getting loan/capital.
iv) To find out if Eastern Plastics Nig. Ltd actually employ qualified accountants, so as to curb cases of loans of stock and cash in their operations.
1.4 RESEARCH QUESTIONS
(1) Are the various sources of loans/capital available to Eastern Plastics Nig. Ltd adequate?
(2) What are the difficulties encountered with these sources; as well as the cost implications of each sources?
(3) Does this business outfit employ the services of qualified accountants in their day to day financial operation and transaction?; and
(4) What measures can be taken to significantly increase the availability of funds to this business concern so as to enable them meet their corporate goals.
1.5 SIGNIFICANCE OF THE STUDY
This study is significantly for a good number of reasons, including the following:
Firstly, this study will to a reasonable extent, highlight the perceived deplorable conditions under which Eastern Plastic concern in the face of a glassing dearth of funds needed for both the working capital as well as for the attainment of their corporate goals and target. By so doing, all the indentified issues will later be examined with a to redressing and resolving them, so as to sustain and improve upon the efficacy of this business concern in the production of plastic and other associated products for the people of Enugu State in particular and Nigeria in general.
Again, this study will reveal the associated cost of each source of fund in terms of their implications towards the availability of capital needed by the enterprise. This will naturally guide future government at the various tiers towards formulation polices and programmes that will make it mandatory for financial institutions and intermediaries to set aside substantial amount of funds as loan advancement to small scale and medium scale business concerns such Eastern Plastic Nig. Ltd. When such an enabling environment is thus established, it will go a long way forwards the production of plastic and other allied products by the business concern. Additionally, the findings of this study will serve as a blue-print that will ultimately guide future policy formulation towards the increase and sustenance of the production of plastic product in the state in particular and Nigeria in general. Besides, other future researchers will find this research work very invaluable at least, as a readily available reference material, while carrying out any study of this nature in future.
1.6 SCOPE OF THE STUDY
This study will be delimited only to Eastern Plastics Nig. Ltd. along Enugu Abakaliki express road Emene, Enugu, in terms of their various sources of funds, their cost implications and then the measures that could be taken to significantly increase the number of organizations or institutions – financial or otherwise, that will be also and willing to make funds available to them at a relatively reasonable costs. Additionally, the study will be concentrated only on the various plastic products produced and marketed by Eastern Plastics Nig. Ltd. Besides, the study will investigate the various roles played by commercial banks, insurance companies etc towards increasing the available of capital to small scale and medium scale business outfits that are scattered all over the state.
Finally, this study will be delineated to only the proximate and immediate measures that could be taken by this business concern, and then the governments, towards redressing any anomaly, such that more funds can be made available to them so that they can be meet up with their corporate objectives and targets.
1.7 DEFINITION OF TERMS
WORKING CAPITAL: The difference between current assets and current liabilities it is an index of the firm’s ability to pay its short term liabilities.
INSOLVENCY: The inability of the firm to discharge its liabilities immediately they are due.
SHORT TERM LOAN/CAPITAL: It is a borrowed capital that must be paid back within an relatively short term usually less than a year.
LONG TERM LOAN/CAPITAL: It is the capital usually obtained by using bonds long terms notes or mortgages used for the purchase of fixed assets of the business repayable after 5-10 years or longer.
INTERMEDIATE OR MEDIUM TERM LOAN: It is the borrowed capital that is repayable within one to five years.
CURRENT ASSETS: They are those assets that can be converted into cash with a period of time such as marketable securities, stocks debtor, and prepared expenses.
CURRENT LIABILITIES: These are credit bills payable acured expenses, bank drafts, income tax and long-term debts maturing in the current.
