THE IMPACT OF FINANCIAL PLANNING ON THE PROFITABILITY AND EFFICIENCY OF SMALL SCALE FIRMS

THE IMPACT OF FINANCIAL PLANNING ON THE PROFITABILITY AND EFFICIENCY OF SMALL SCALE FIRMS

ABSTRACT

Small and Medium-sized Entities (SMEs) are very important to the economic growth and development of a nation.

Unfortunately, a large number of SMEs in Nigeria do not survive for a long period. This study believes that Prudent Financial planning Practices can help SMEs become profitable and for that matter stay in business for a long period of time.  The Nigeria Economy has a lot of turbulence in the 1980’s.  The period witnessed unemployment, inflation, dwindling oil revenue; the need has risen for the government to take serious steps to change the direction of the economy through policies which are aimed at restructuring and making better use of available resources.

However, this study was conducted to examine the impact of financial planning in the profitability and efficiency of small scale industries in Orumba North Local Government Area of Anambra State.  The results of the study showed that financial planning has to be interpreted and used.

The study used a sample of two hundred and thirty-two (232) SMEs operating in Orumba North Local Government Area. The study was a cross sectional survey which used primary data predominantly. Multiplicative linear regressions together with Pearson‟s correlation co-efficient were used to analyse the data. The findings indicate that financial planning practices such as working capital management, Financing, Investing, Financial reporting and Accounting Information Systems (AIS) impact positively on the profitability of SMEs, accounting for 77.4% of the variances in profitability of SMEs. The results further indicate that the application of Accounting Information Systems has the highest effect on profitability since a one percent (1%) increase in the application of Accounting Information Systems increases profitability by 0.39%. The study strongly recommends higher adherence to financial planning practices. Policy makers, developments partners, owners, and managers of SMEs may use these findings to appreciate the importance of financial planning practices to the sustainability of SMEs in Nigeria.

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