Case study of Bata Shoe companies The financial management system for a small business includes both how

you are financing it as well as how you manage the money in the business. Financial Management is the process of managing the financial resources, including accounting and financial reporting, budgeting, collecting accounts receivable, risk management, and insurance for a business. Financial management is very important or significant because it is related to funds of company. Financial management guides to finance manager to make optimum position of funds. We can clearify its value in following 5 points.

1. With study of financial management, we can protect our business from pre-carious mismanagement of money. Suppose, you are small businessman and you took short-term loan and financed fixed assets with this loan. It means, you have to pay loan within one year but fixed assets can not be sold within one year. In the end of year, you have not enough money to pay this long term debt and this will create risk to your businesss existence. You will become insolvent. This is the simple example of mismanagement of money in your small business, but we do large scale company business, importance of financial management is greater than small business. We should invest in fixed asset if there is any other source of funds. In financial management, we make optimum capital structure and we should buy all fixed assets out of share capital money because, it will reduce the risk of repayment.

2. In financial management, we deeply study our balance sheet and all sensitive facts should be

watched which can endanger our business into loss. For example, a closing balance sheet shows you, you have to pay large amount of debt in next year and you have blocked all the money by purchasing goods or inventory. Financial management teaches you that this is not good outflow of funds which is invested in inventory. Blocked inventory never generate earning and your balance sheets stock value gives you idea that your company is not capable to sell products quickly. Financial manager can elucidate you that overstocking will increase godown expenses one side and it is also risky due to the danger of damage the stock. Moreover, it increases risk of liquidity. Inventory management is the part of financial management and merely using inventory management can be the best way to solve the problem of overstocking.

3. Yesterday, I am searching on Google "who are getting high salary in the world" and it is quite startling for all of us that financial managers whose duty is to use the funds of company effectively, are getting salary more than $110,640 per year ( information which is given by Forbes Magazine). This fact obviously reveals the significance of financial management.

4. An imprudent man never thinks return on investment but you are not imprudent. So, get some knowledge of financial management, you can not endanger your money.

5. Financial management works under two theories. One theory reins bad sources of fund. This theory elucidates us that we should think cost, risk and control and these should be minimum when we get money from others. Only financial management makes good financial structure to minimize cost, risk and control of borrowed money. Second theory elucidates or clarifies us that we should think about time, risk and return before investing our money. Our ROI should be more

than our cost of capital. Our risk of investment should be least. We should get our money with high return within very short-period. All above things can be possible only after study financial management. In setting up a financial management system your first decision is whether you will manage your financial records yourself or whether you will have someone else do it for you. There are a number of alternative ways you can handle this. You can manage everything yourself; hire an employee who manages it for you; keep your records inhouse, but have an accountant prepare specialized reporting such as tax returns; or have an external bookkeeping service that manages financial transactions and an accountant that handles formal reporting functions. Some accounting firms also handle bookkeeping functions. Software packages are also available for handling bookkeeping and accounting. Bookkeeping refers to the daily operation of an accounting system, recording routine transactions within the appropriate accounts. An accounting system defines the process of identifying, measuring, recording and communicating financial information about the business. So, in a sense, the bookkeeping function is a subset of the accounting system. A bookkeeper compiles the information that goes into the system. An accountant takes the data and analyzes it in ways that give you useful information about your business. They can advise you on the systems needed for your particular business and prepare accurate reports certified by their credentials. While software packages are readily available to meet almost any accounting need, having an accountant at least review your records can lend credibility to your business, especially when dealing with lending institutions and government agencies.

Setting up an accounting system, collecting bills, paying employees, suppliers, and taxes correctly and on time are all part of running a small business. And, unless accounting is your small business, it is often the bane of the small business owner. Setting up a system that does what you need with the minimum of maintenance can make running a small business not only more pleasant, but it can save you from problems down the road. The basis for every accounting system is a good Bookkeeping system. What is the difference between that and an accounting system? Think of accounting as the big picture of how your business runs -- income, expenses, assets, liabilities -- an organized system for keeping track of how the money flows through your business, keeping track that it goes where it is supposed to go. A good bookkeeping system keeps track of the nuts and bolts -- the actual transactions that take place. The bookkeeping system provides the numbers for the accounting system. Both accounting and bookkeeping can be contracted out to external firms if you are not comfortable with managing them yourself. Even if you outsource the accounting functions, however, you will need some type of Recordkeeping Systems to manage the day-to-day operations of your business - in addition to a financial plan and a budget to make certain you have thought through where you are headed in your business finances. And, your accounting system should be producing Financial Statements. Learning to read them is an important skill to acquire. Another area that your financial management system needs to address is risk. Any good system should minimize the risks in your business. Consider implementing some of these risk management strategies in your business. Certainly, insurance needs to be considered not only for your property, office, equipment, and employees, but also for loss of critical employees. Even in

businesses that have a well set up system, cash flow can be a problem. There are some tried and true methods for Managing Cash Shortages that can help prevent cash flow problems and deal with them if they come up. In the worst case you may have difficulties meeting all you debt obligations. Take a look at Financial Difficulties to learn more about ways to manage situations in which you have more debt than income. It is possible you may even be at the a point where you want to sell the business or simply close it and liquidate assets. There are financial issues involved for these circumstances too. So, be certain that you know what steps you need to take in order to protect yourself financially in the the long run. Clearly, financial management encompasses a number of crucial areas of your business. Take time to set them up right. It will make a significant difference in your stress levels and in the bottom line for your business REASONS FOR LIQUIDATION OF SOME NIGERIA COMPANIES The high rate at which small and medium scale business in Nigeria are folding up, has brought to limelight, the issue of Government sincerity in ensuring that the revamping of the economy is given utmost priority. The reasons behind the collapse of these businesses can be traced to the following reasons: Success in business is never automatic. It is not strictly based on luck although a little never hurts. It depends primarily on the owner's foresight and organization. Even then, there are no guarantees of success.

Many businesses fail within their first six months of operation. It is estimated that about Seventyfive percent if not more of start-up businesses shut down within the first five years. These odds can be very depressing. It makes you wonder how many of the start-up businesses in operation today will eventually fold up or just give up trying. Thus, making great dreams of business success of many become a nightmare that may haunt them for the rest of their lives. As the saying goes that there is no smoke without fire, small business failure is attributable to some possible causes. The following reasons are suggested as some of the key reasons for small business failure: 1. Lack Of Experience: According to Dunn & Bradstreet, the major reason for small business failure is incompetence. It is not incompetence relating to the product or the service to be offered to the public, but rather incompetence in the area of how to run a business. Many people who go into business are first timers. They take the plunge into business without investing the hours and effort needed to seek out the requisite knowledge, vital information, wisdom, and expertise to develop the competence they need to go into business. 2. Unnecessary Risk: Most of the businesses that fail take unnecessary risk without counting the cost. They just guess something without adequate planning, researching, and investigating to see the odds that may rise against them in the process of embarking on such a venture. 3. Insufficient Capital (Money):

Start-up Capital is very important to every start-up business and the sufficient of it the better. Many business owners out of zeal and passion gather a little start up capital and start running without considering whether the money or other material resources that are to serve as capital are adequate for the take-off of the business. They start without sufficient capital and get stack without the ability to continue thereby wasting even that with which they have started. 4. Poor Location: Where you locate your business is strategic to the success of the business. Many businesses are located poorly to the detriment of their possibility of succeeding. Go back to the chapter five and read on How to Find the Best Location for Your Business 5. Poor Inventory Management: Another problem at the root of business failure is the challenge of Business Inventory. Many people in business are not organized in their record keeping, a key factor in business success. This reminds me of an experience I had with one of my church members, a woman who sells roasted plantain and peanuts (groundnuts). She approached me for prayers as one of her pastors, against spirits stealing her business money. I immediately discerned that her problem was not a spiritual one but rather mismanagement. I prayed with her anyway to satisfy her religious curiosity. After that, I gave her an assignment. I asked her to start keeping record of every transaction of the business, beginning with amount of plantain and peanut she buys to start the business everyday, how much sales she makes at the end of the day, how much she spends out of the sales for the day and the balance.

She came back to me after two weeks this time full of smiles that the so-called spirits have stopped stealing her money. If you dont manage your inventory very well you will think you are making profit whiles in actual fact your business is incurring serious loses. 6. Over-Investment In Fixed Assets: Many young businesses over invest their cash into fixed assets and become illiquid thereby affecting their business adversely. A business caught in the illiquidity trap is like a car in the middle of a journey without petrol. Dont over invest in fixed assets which cannot be readily reconverted into cash when you need it urgently. We will consider in detail how to manage your cash flow in chapter three of this book. 7. Poor Credit Arrangements: Credit may appear an immediate respite to young and even existing businesses, but when not properly managed can spell the doom of any business. If debt servicing, is not balance well with the cash flow it can lead to total bankruptcy and possible liquidation of even a flourishing business. Exercise some restraint in how you access credit facilities no matter how lucratively they package them for you. 8. Personal Use of Business Funds: This is one of the very serious and unpardonable reasons for business failure. Indiscreet use of business fund is at the root of many business collapses and fold ups. A young person starts a business and within the first five years, he is driving a flashy car, using expensive mobile

phones, taking lunch in the expensive restaurants in town. Simply put he wants to rub shoulders with the big guys in town just to prove a point. You have no point to prove, you are acting unwisely. Some business folks want to start building houses within the early years of the business when they should concentrate on expanding and establishing solid foundations for the business. What do you think is the fate of a young up and coming road contractor who has no equipment and so relies on hiring equipment for his projects. This young man lands a big time contract and having been paid the initial payment, goes to buy a brand new HAMMER a modern luxury car worth about $90 000.00 and is driving in town. This is sheer economic lunacy and you dont need anybody to tell you where such a persons business will be in the next three five years. 9. Unexpected Growth: By now, you are wondering how one could consider business growth, which is the greatest desire of every businessperson as one of the killers of business. Note that, business growth can only be a blessing when it anticipated and prepared for adequately. Other than that, it is death trap. If you dont prepare for success in life and success comes to you, it will only destroy you because you will begin to do the unexpected and unimaginable. Instead of thinking about how to expand, you may think you have already arrived since you have no immediate plans and preparation for expansion of the business. Thereby becoming a victim of the parable of the RichFool in Luke 12:16-20 And he spake a parable unto them, saying, The ground of a certain rich man brought forth plentifully: [17] And he thought within himself, saying, What shall I do, because I have no room

where to bestow my fruits? [18] And he said, This will I do: I will pull down my barns, and build greater; and there will I bestow all my fruits and my goods. [19] And I will say to my soul, Soul, thou hast much goods laid up for many years; take thine ease, eat, drink, and be merry. [20] But God said unto him, Thou fool, this night thy soul shall be required of thee: then whose shall those things be, which thou hast provided?

10. Poor Pricing: The most frequent mistake made when setting a selling price for the first time is to pitch it too low. This mistake can occur either through failing to understand all the costs associated with making and marketing your product, or through yielding to the temptation to undercut the competition at the outset. Both of these errors usually lead to fatal results, and can cause the business to fold up prematurely due to low cash in flow. These reasons though real, are not meant to scare you, but to prepare you for the rocky path ahead. Underestimating the difficulty of starting a business is one of the biggest obstacles entrepreneurs face. However, success can be yours if you are patient, willing to work hard, and take all the necessary precautionary steps. Lack of Capital No business can thrive without sufficient fund to carry out its daily operations.

The situation is pathetic in Nigeria, as most small businesses are starved of needed funds. Commercial banks are not willing to release funds, and when these funds are made available, the interest rate is so high, thus discouraging potential lenders. Epileptic Power Supply The power sector in Nigeria has gone from bad to worse, as most businesses are now forced to resort to the use of petrol or diesel generator to sustain their business. This has adversely affected the running cost of these businesses which are barely managing to survive. The present move by the Nigerian Government to privatized the power sector is aimed at encouraging private investors to fully utilize the huge potential available in the Nigerian market. Inexperience Management This is a key factor in the survival of every small business. The influence of management on business success cannot be undermined. Most small and medium scale business is owned by individuals, and this can often affect the choice of who manages the business. The decision about who manage these businesses is often influence by family ties and relationship with recourse to experience and business ethics. This can ultimately prove disastrous in the long run. Insecurity The spate of violence in most part of Nigeria has resulted in most of the small businesses closing shop. Militant activities, kidnapping and ethnic/religious crisis have conspired to ensure that the average business life span in Nigeria is greatly reduced. Government Policies The frequent change in Government has also resulted in change in Government policies.

Some of these policies are not business friendly, as they tend to add strain to the limited resources of these small businesses. There are cases when multiple taxation is implemented and where goods in ports are unduly delayed due to change in Government policies. Lack of Creativity The creative ability of small business owners can become a survival weapon in time of depression. Most business owners are lacking in this regard, hence the high rate of failed businesses. Some creative entrepreneur having studied the economic tide, are forced to diversify their operation to counter any adverse effect that would otherwise have some negative implication on the operation of their business.