Financial Literacy Level of Small Scale Business and the Profitability of Small Scale Business (PDF)

Financial Literacy Level of Small Scale Business and the Profitability of Small Scale Business.

ABSTRACT

The major purpose of this study was to determine the relationship that exist between the financial literacy levels of small scale business owners and the profitability of small scale businesses in Uyo Local Government Area.

In order to achieve this purpose, four research questions were raised in the study and four null hypotheses were formulated and tested at 0.05 level of significance.

The study adopted descriptive survey research design. The population of the study constituted of 564 owners of registered small scale businesses in Uyo Local Government Area.

Meanwhile the sample size of the study comprises of 282 small scale business owners in Uyo Local Government Area which was statistically obtained through Taro Yamane’s sampling formula.

Simple random sampling technique was used and the study had a total of 277 respondents. The researcher structured instruments titled “Financial Literacy Level of Small Scale Business Owners Questionnaire” (FLLSSBOQ) and the Profitability of Small Scale Business Questionnaire (PSSBQ) were developed and used to collect data for the study.

The questionnaire was faced validated by two experts in the Department of Vocational Education and one from Test and Measurement Unit of the Department of Educational Foundation.

The reliability of the instrument was ascertained using Cronbach Alpha analysis and a coefficient index of 0.91 was obtained which declared the instrument highly reliable.

Pearson Product Moment Correlation was used in answering the four research questions used for the study as well as testing the null hypothesis at 0.5 level of significance.

The findings of the study revealed that there was a very low positive relationship between financial literacy skills and the profitability of small scale businesses in Uyo Local government area of Akwa Ibom State.

The findings of the study also revealed that there was a significant relationship between financial literacy skills variables used in the study and the profitability of small scale businesses in Uyo Local government area of Akwa Ibom State.

Based on the findings of the study, the following conclusions were drawn: Financial illiteracy has a negative effect on the profitability of small scale businesses and leads to poor performance of small scale businesses.

That financial illiteracy makes small scale business owners unable to keep complete accounting records and that financial literacy do not only have a positive relationship with the profitability of small scale businesses but it also aid in improving the profitability of small scale businesses.

Based on the conclusion drawn the study recommended that small scale business owners should endeavor to attend workshops and training conferences organized by professional bodies in the State.

That Micro finance institutions and government agencies in Akwa Ibom State should organize financial education capacity building programs and financial awareness campaigns on credit management and banking services literacy for small scale business owners.

TABLE OF CONTENTS

Title Page

Declaration –              i

Certification              ii

Dedication   –           iii

Acknowledgement           iv

Abstract          v

Table of Content   –    vi

CHAPTER ONE: INTRODUCTION

1.1     Background of the Study –             1

1.2     Statement of the Problem         –        6

1.3     Purpose of the Study             7

1.4     Significance of the Study            8

1.5     Research Question –              9

1.6     Null Hypothesis     –         10

1.7     Delimitation  of the Study            10

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1     Theoretical Framework       11

2.1.1  The Dual – Process Theory  11

2.1.2  The Risk and Uncertainty Bearing Theory of Profit        12

2.2     Conceptual Framework          14

2.2.1  Concept of Financial Literacy    –        14

2.2.2  Concept of Small Scale Business/Business Owners –         16

2.2.3  Concept of Business Profitability              20

2.2.4  Financial Management Skills and the Profitability of Small Scale Business               22

2.2.5  Savings plan and the Profitability of Small Businesses      26

2.2.6  Credit Management Skills and the Profitability to Small Scale Businesses           29

2.2.7  Financial Records Keeping Skills and the Profitability of Small Scale Businesses      33

2.3     Review of Related Empirical Studies      37

2.4     Summary of Related Literature Reviewed       39

CHAPTER THREE: RESEARCH METHODOLOGY

3.1     Design of the Study      42

3.2     Area of the Study             42

3.3     Population of the Study   –           43

3.4     Sample and Sampling Technique            43

3.5     Instrumentation        43

3.5.1  Validation of the Instrument          44

3.6     Reliability of the Instrument     –     44

3.7     Method of Data Collection           45     

3.8     Method of Data Analysis           –        45

3.9     Decision Rule        –        –        45

CHAPTER FOUR: DATA ANALYSIS, RESULT AND DISCUSSION OF FINDINGS

4.1     Answering of Research Questions           46

4.1.1  Research Question 1           46

4.1.2  Research Question 2      –        47

4.1.3  Research Question 3        –       47

4.1.4  Research Question 4        –          48

4.2.1  Testing of Null Hypothesis  –        48

4.2.2  Hypothesis 2         –   49

4.2.3  Hypothesis 3            –        49

4.2.4  Hypothesis 4         –       50

4.3     Findings of the Study      –        51

4.4     Discussion of Findings    –         52

4.4.1  Financial Management Skills of Small Scale Business Owners and the Profitability of Small Scale Businesses in Uyo Local Government Area        52

4.4.2  Savings plan by owners of Small Scale Businesses and the Profitability of Small Scale Businesses in Uyo Local Government Area              53

4.4.3  Credit Management Skills by Small Scale Business Owners and the Profitability of Small Scale Businesses in Uyo Local Government Area   –           54

4.4.4  Financial Record Keeping Skills by Small Scale Business in Uyo Local  Government Area –     55

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION

5.1     Re-statement of the Problem                  56

5.2     Description of Procedure Used in the Study  –     57

5.3     Educational Implications of the Study –      –        58

5.4     Conclusion –         58

5.5     Recommendation  –     59

5.6     Suggestions for Further Study   –         60

References               61

Appendices     72

INTRODUCTION

Like little drops of water that forms a mighty ocean, the littleness of small scale businesses from the cradle has been the bedrock of industrialization in developing countries of the world.

Globally, small scale enterprises have contributed enormously in improving the standard of living of the people by providing jobs to relieve the society of social embarrassment, stimulating indigenous entrepreneurship and utilizing scarce resources.

Presently, as part of the Millennium Development Goals (MDGs), effort is being made to reduce poverty rate in developing countries. Efforts are also being made to reduce the reliance of people on government and so-called ‘white collar jobs’. These are achieved through the growth and development of small scale businesses (Eneh, 2007).

Small scale enterprises play important roles in the economic growth and development of every nation.

They are a veritable vehicle for the achievement of national macro-economic objectives in terms of employment generation at low investment cost and enhancement of apprenticeship training.

Small scale enterprises can be defined as a business with employment level of not more than 5 persons and with an annual turnover of less than Five Hundred Thousand Naira (N500,000.00). A small-scale enterprise is also seen as a business with a small number of employees.

However, there is no universal definition of small scale business. The working definition varies among countries, industrial groups and from one financial institution to another.

Generally, in determining what should be a small scale business, many different criteria have been used such as number of employees, assets value, sales volume, financial strength, etc.

Osuala (2004) defined small scale business as any business that is owned, managed and controlled by a sole proprietor or proprietress of about two persons, has a total assets of less than four million naira and a relatively small shares of the market and does not have more than 50 employees.

Nigerian economy is greatly dependent on the small scale business activities, small scale businesses are the backbone of the Nigerian, so when the financial literacy skills of small business owners fall short, it is more than the individual business that is at risk (Pearl and Eileen, 2014).

The importance of financial literacy is not only expressed in the failure of small businesses and it consequences, as expressed by Pearl and Eileen.

Also, financial literacy plays an important role among those business owners because it provides the financial tools needed to take informed decision, through the accurate understanding of financial information, which largely contributes to the future success of the company. Otherwise, decision may be poorly taken or lead to advices of accountants or financial advisors (Brown, Saunders, and Beresford (2006).

Financial literacy as the name implies occupies a centre-stage in the quest to achieve an overall degree of success in every business operations, (Bernheim, 2008).

It also enhances to a reasonable degree, a business goal of financial profit. Thus, financial literacy has played a key role in the success and failure of our nation’s businesses for the past centuries.

REFERENCES

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