CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
As today's business environment is becoming progressively competitive, organisations are coming to be more aggressive and vibrant in determining techniques that will guarantee lucrative existence. In an effort to accomplish business sustainability and exceptional financial efficiency in the long-run, the need for strategic management has become essential of business managers. To efficiently and effectively develop and execute strategic management needs sound management accounting system, the high quality which relies on the management accounting practice of the company. Adeniji (2013) insists that information is the lifeline of an organization. Management accounting practice is required for guiding organisation performance decisions. Anthony & Govindarajan (1997) are of the opinion that management control decisions are made within the structure developed by organization's strategies.
Small and medium sized enterprise (SMEs) are claimed to be the backbone of all developed and developing countries. Therefore, the growth of SMEs sector is of vital relevance for any nation regardless of their degree of advancement, since this sector has fantastic potential to produce optimal socio-economic advantages to the nation with minimal degree of investment. Management accounting methods are required to guarantee that SMEs' economic resources are utilized efficiently and effectively.
According to Richard (2000), one of the most considerable factors for this high failure price is the failure of Small and medium sized enterprises (SMEs) to make adequate use of vital management accounting methods. Likewise, Wichmann, (1983) suggested that one of the factors for business failure is poor management capacity that includes accounting problem-solving. Hopper, Koga, & Goto, (1999) noted that based on the results from Japanese companies that a failure to embrace management accounting methods in a similar way to their larger counterparts might be an element presently high failure rate of SMEs. Recently because of the economic situation and pressures and intense competition out there, many SMEs look for new methods and steps to be successful in their organizations. Research has likewise revealed that management accounting practices such as budgetary control have essential roles in making sure that the efficiency in the management of the organization and might likewise enhance performance. Management accounting methods likewise allow companies to compete in the market place and reduce the likelihood of business failure (Lybaert, 1998).
While discussing the function of budgeting to organizations, Meigs and Johnson (1967), stated that every budget is projection of future occasions which company budgets reveal expected revenues, expenses and the financial placement of the business at some future point in time, presuming that the budget estimates are met. Additionally, Meigs and Johnson claimed that a budget is used for control purposes showing what result will be if present plans are put into effect, a budget reveals areas that need attention or restorative action, and performance assessment.
Essentially, the first control purpose discusses that a business whose budget shows potential expenditures of a specific amount for the year and that has a lower amount for the financial resources is forewarned. The understanding of this will allow the managers to discover methods of adjusting/augmenting the resources or expenses. On the second control purpose, there is no indication stating that business plans are performed by people. Control is for that reason exercised not over operations, revenue and costs however over the persons responsible for various business functions and the revenue and expenses results achieved. To this end, budget offers a benchmark against which a manager's actual performance might be compared.
The budgetary control system (as an internal control method) originated in industries to serve as a check on the resources employed in the production of goods and services. These resources have become significantly unpredictable over the years and have posed a good deal of challenges to business managers. Budgeting control as a result came up as a measure of performance of the budget in attaining the objectives of management. Put in another form, budgetary control is a planning procedure which compares real budget with expected budget.
Scott (1970), stated that the term budgetary control is related to the system of management control and accounting where all operations are forecast and so far, as possible planned ahead and the real outcomes compared with the forecast and planned ones. The plan of operations is the best that can be devised in the circumstances, and reasons and remedies in the real results. For this to form an efficient control in the hands of the management the different figures should as far as possible be forecast by the individuals in charge of the achievement. All executives need to have planned conditions to aim at and improved upon and the level to which this is being achieved ought to be consistently brought to their notice.
It is therefore worthy of note that budgetary control is basically interested in planning. This includes considering the different limiting factors that could possibly inhibit the achievement of objectives. In the course of executing the plans, these factors are constantly being watched for any possible abnormality and where any is experienced, there may be deviations from plans if prevailing situations require it. At the end, comparisons will be made between conditions encountered with those expected. The experience got will be used in further planning. Thus, this study will focus on the nexus between budgeting and budgetary control and performance of Small and Medium Enterprises in Ikeja Local Council Development Area.
1.2 Statement of the Problem
According to Jegede (2018), SMEs failure is not a serious problem, the factors that cause SMEs failure are the most troubling. Despite the financial supply and other efforts, many small enterprises still struggle and are unable to remain in business (Jegede, 2018). This puts a big question mark on the survival and sustainability of SMEs. Akeem (2014) is of the view that by adopting appropriate budgetary controls, these anomalies could be tackled. In order words, budgets and budgetary controls are important tools for financial planning and management in every organization (Alahdal, Alsamhi, & Prusty, 2016), SMEs inclusive. Mulani, Chiand Yang (2015) assert that budgetary control is important not only to check expenditure or income against goals, but also to create evolving trends or conditions that can lead to the need for corrective action or policy changes. According to Nso (2020), if managers provide their supervisors with a reason for negative budget deviations, the survival of SMEs will be strengthened, leading to a higher rate of sustainability and if managers have to do just that, it is in the best interest of the company in the long run (Samuel & Laryea, 2016). Therefore, it is important that the organization implements a comprehensive planning and control structure that clearly outlines the priorities for both the entire company and each functional manager (Nso, 2020).
1.3 Objectives of the Study
This study seeks to determine the nexus between budgeting and budgetary control and performance of Small and Medium Enterprises in Ikeja Local Council Development Area. How the specific objectives will be:
i) To ascertain the effectiveness of budgeting and budgetary control on integrating economic resources of small and medium scale industries in Ikeja Local Council Development Area.
ii) To examine the effectiveness of budgeting and budgetary control on monitoring cost variances in small and medium scale industries Ikeja Local Council Development Area.
iii) To understand the influence of budgeting and budgetary control on the profit/cost plan of small and medium scale industries in Ikeja Local Council Development Area.
1.4 Research Questions
The followings are the research questions for this study:
i) What is the effectiveness of budgeting and budgetary control on integrating economic resources of small and medium scale industries in Ikeja Local Council Development Area?
ii) What is the effectiveness of budgeting and budgetary control on monitoring cost variances in small and medium scale industries Ikeja Local Council Development Area?
iii) Does budgeting and budgetary control have any influence on the profit/cost plan of small and medium scale industries in Ikeja Local Council Development Area?
1.5 Research Hypotheses
The following are the research hypotheses for this study:
i) There is a significant relationship between effectiveness of budgeting and budgetary control and integrating economic resources of small and medium scale industries in Ikeja Local Council Development Area
ii) There is a significant correlation between the effectiveness of budgeting and budgetary control and monitoring cost variances in small and medium scale industries Ikeja Local Council Development Area
iii) There is no significant influence of budgeting and budgetary control on the profit/cost plan of small and medium scale industries in Ikeja Local Council Development Area
1.6 Significance of the Study
This study will no doubt be of great benefit to the companies in the small and medium scale industries, companies, prospective investors, owners and creditors of companies and lastly the government.
The study will as well help the small and medium scale companies to understand the possible consequences of the policies employed in the system of budgetary control on their performance.
To prospective investors it will show how effective the system is and by how much it contributes to more probability and growth.
To the owners and creditor, it will show how the managers of the companies are implementing the policies and how it affects the wealth generated in the business.
To government, it will show how those constraints imposed by the state are affecting the companies and whether to relax or further tighten such constraints.
1.7 Scope of the Study
The location of the study is Ikeja, Lagos State capital. This location is chosen because all the companies considered in the study have their origin in the state for potential business opportunities in the oil sector which has its main domain in the state. The target respondents were limited to managers and other persons that have anything to do with the implementation of the budgetary control policies.
1.8 Limitations of the Study
Some respondents may not appear to give accurate answers to some questions even if the researcher promises to keep confidence with any information given to them.
Also, the researcher faced the challenge of finance because this research work require adequate fund, since the researcher will have to visit the company workers in the business organization at various locations in Nigeria.
