Effective Record Keeping for SME Survival and Growth

1. RECORD KEEPING: A STRATEGY FOR SURVIVAL AND GROWTH OF SMALL AND MEDIUM ENTERPRISES (SMES) GLOBALLY A PAPER PRESENTED BY PROF. ADEKUNLE OLADIPO OLOFINTILA (NCE, HND, FCCA, ACIS, FSCA, CNA, FCFAc, MPA, MED, Ph.D) DURING THE GLOBAL SMEs SUMMIT HELD AT NECA HOUSE, CENTRAL BUSINESS DISTRICT, ALAUSA, IKEJA. ON 6TH & 7TH JULY, 2018

2. Pre-Lecture Exercise • Nigerian Bureau of Statistics (nbs) and Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) research survey 2010-2013, divided SMEs in Nigeria into the following thirteen (13) sectors: • Manufacturing • Wholesale and retail trade • Accommodation and food service activities • Mining and quarrying • Construction, roads, houses, etc • Water supply – sewage, waste management and remediation • Agriculture – forestry, fishing, farming and hunting • Transport and storage, courier service • Information and Communication Technology (ICT) • Administrative and support services • Education – Home lessons, school proprietor/proprietress • Arts, entertainment and recreation • Other service activities not listed in 1-12 above.

3. You are required to (i) choose any of the business as 1-13 above (ii) Assume you are the entrepreneur of the chosen SME, list the essential records your business must have to enable you to know where your business stands presently. (5mins). • Turn to Omoyajowo Enterprises accounts on page 23 of this paper and calculate the following key performance indicators: • Profitability = Net Profit x 100%= 1,361 11.34% Capital Used 12,000 • Liquidity/Solvency: (i) Quick Ration= Current Assets = 11246 =3.73:1 Current Liabilities 3017 • Acid test ratio= Current Assets-Stock = 6046 = 2.00:1 Current Liabilities 3017 • Activity/Control ratios • Debtors x 365days= 3600 x365 = 63days • Credit Sales 20895 • Creditors x 365days= 2967 x 365 =72days • Credit Purchases 14960 • Stock turnover = Cost of goods sold = 17260 17,200 = 1.76times Average Stock 4600 + 5200 9800 • Comment briefly on the performance of the business in 2016.(10minutes) • Total – 15minutes

4. Introduction • No one sets up a business enterprise and wants it to die prematurely. (The going on concern concept in accounting supports this statement); but this has been the case in present day Nigeria as regards small and medium enterprises (SMEs). • The problem of high mortality and failure rate of SMEs in Nigeria has become a source of concern and worry to indigenes and residents of our nation. The situation is more disturbing and worrisome when compared with other developing and developed countries where we see what they have been able to achieve with their SMEs. For instance, a high percentage of SMES in every part of Nigeria fail on daily basis. At the Nigeria Manufacturers Association Conference held in 2016, it was confirmed that only 10% of the businesses succeed and 90% are either dying or ailing. • If the reasons for the poor and below expectation performance are not identified and addressed, the nation’s economy will continue to suffer.

5. The Small and Medium Enterprises play a critical role in both developing and developed countries. The East Asian countries miracle was partly as a result of a vibrant SMEs sub-sector, which triggered the up­surge in exports and subsequent development of the industrial sector (Stiglitz 1996), For example, the New Industrialized Countries (NICs) like Singapore, Taiwan, South Korea, Malaysia, Indonesia and China among others, were able to achieve economic growth through the activities of SMEs which later contributed to the transformation of the Large-Scale enterprises. The Republic of China over the years, despite her large population, has been able to generate employment and income for her teeming population through the activities of the SMEs. • This lecture therefore focuses on establishment and maintenance of sound record keeping, especially (financial) for SMEs survival and growth. • Important Terms and Concepts • Certain relevant terms which might appear ambiguous are explained under the following headings according to their usage in this lecture • Business – Any economic activity that is legally carried out with a view of profit or at times non-profit. Or any legal activity that keeps a person, or a group of persons busy for majority of their working day. For instance ones occupation.

6. Effort- An attempt to do something that is difficult or that involves hard work. • Entrepreneur – The organiser of factors of production and risk bearer of a business, makes economic decision as to what to produce, how much to produce, which method of production to adopt and in what proportion to combine the other factors of production (land, labour and capital). • Finance – Decision on how money is spent or invested. • Growth – Process of growing physically, mentally or emotionally. • National - Connected with a particular nation. • Performance- In this lecture performance is used interchangeably with achievement and refers to result obtained by entrepreneur’s business for the year in question. • Rescue – The act or occasion of saving somebody or something from a dangerous or harmful situation. • Small business – A business owned, financed and managed by a single person, group of individuals or family members with a small capital outlay, in a view to make profit. • Support – Help and kindness that you give to someone who is having difficulty in doing something. Support can be in form of money, advice, etc • Survival – The state of continuing to live or exist often, despite difficulty or danger.

7. Expected Roles of SMES in National Development • According to Nigeria Bureau of Statistics (NBS) 2010-2013: SMEs are expected to be the bed rock on which the nation’s economy rests. They are expected: • To be the source of the inputs for the multi national companies (MNCs) • Generate employment – the high percentage of employment created will reduce unemployment and poverty drastically. • To develop rural areas so that the rural/urban drift is minimized. • To enhance capital formation as the initial capital outlay of small businesses are derived from the accumulated saving of their owners. • To promote the concept of Nigeria nisation/indigenization in which Nigerians have a strong hold of our economy. • To act as input in terms of raw materials and partly finished goods to big industries. • To contribute to national income generation. Most of the operators of SMEs, are tax evaders (a criminal act), even those that are registered with the CAC do not file their annual returns. You can imagine how much government looses in terms of income generation from this group of people/businesses.

8. Challenges facing SMES • Many authors and researchers have come to agree that SMES are not playing their expected roles as a result of the following challenges facing them. • Poor capacity building caused by lack or inadequate knowledge of the trade they are in, leading to frequent business failures. Hundreds SMEs fail daily and hundreds are formed each day. The mortality rate of SMEs is generally high. • Most of the business actors or operators of small scale enterprises are either illiterates or semi-illiterates who lack the knowledge and technical skills needed for the growth and sustenance of their businesses. • Lack of modern tools and equipment needed for productive activities. Old technology is still used by many SMEs • Importation of similar goods produced locally thereby rendering home made goods neglected by consumers (e.g. imported rice). Other reasons are: • Inadequate and improper planning / poor cash flow planning • Failure to keep records of the businesses both financial and non-financial • No feasibility studies before starting the business, they just start without planning

9. Inability to source for capital as most of them cannot produce collateral demanded by commercial banks and other financial institutions • Un-conducive business environment, no ready-made market for their products. • Excessive waste as most of them deal with perishable items. • Personal lack and misuse of time • Inability to adapt quickly to changing business environment • Over ambitious growth • Tight business conditions • Inflation effect on working capital • Lack of financial control e.g. inability to distinguish between business and personal income and expenses. • Weakness of the entrepreneur • Failure to motivate workers • Poor business location • Data inadequacies • Inadequate capital to purchase premises and equipment which restricts the business productive capacity–restriction to institutional credits.

10. Small businesses are not attaining the output and profits that they ought to be achieving with their existing resources and which they so desperately need in order to survive (under trading). This failure is as a result of inability of these businesses to make proper decision on pricing of their products. • Dubious character of employees who put their objectives above the business objectives. • Manpower problem - Lack of skilled workers-inability to employ skilled workers • Diversion of loans to other use • Failure to let people know their problems. • Low business credibility • Limited security • High risk of failure • Few markets for their products • Inadequate supply of infrastructure, roads, power supply, water supply, etc.

11. Shortage of raw materials in some cases • Multiplicity of regulatory agencies. • Lack of access to information given that it is costly, time consuming and complicated at times. • Policy reversals/inconsistency in government policies • The inherent characteristics of the SMEs themselves • Not providing adequately for insurance • Inability to forecast customers demand • Lack of adequate advertisement • Credit facility granted without safeguarding business interest. • Great disconnection (lack of linkages) between the SMEs and the large multinational companies in Nigeria / problem of intersectorallinkages- most MCNs source their raw materials from outside the country instead of subcontracting to SMEs in Nigeria • Difficulty in accessing global market • Lack of long term loans which SMEs need during their infancy to grow • Multiple taxation and levies especially in Lagos State • Inadequate market Research • Lack of succession plan • Cut throat competition • Lack of official patronage of locally produced goods and services • Concentration of decision making on one (key) person usually the owner

12. Fuel crisis or shortage • Raw materials sourcing problems • Over concentration on one or two markets for finished products • Competition with cheaper imported products • Poor capital structuring • Inability to maintain accounting practice • Inefficient use of accounting information. • Research findings have shown that amongst the above challenges of SMEs, leading to high mortality and failure rate is failure to keep records of the business transactions both financial and non-financial Expectations of Government from SMEs • Complying with government’s rules and regulations dictated by the government especially those that concern business operations. Business must accept the role of government in business affairs of the country. • Payment of taxes – It is the responsibility of a business organization to pay tax as and when due to the government

13. Expectations of Society from SMEs • This falls under social responsibility of a business to the society in which it is allowed to operate. These include:- • Provision of quality goods and services which society needs at affordable prices. • Provision of social amenities such as water, roads, hospitals, electricity, etc, to the community. • Offering employment opportunities for members of the community. • Award of scholarships and give support to educational development programmes of government e.g. games and sports sponsoring to promote good neighbourliness • Controlling environmental pollution – such as land, water, sound and air pollution resulting from their operations. • Payment of tax-Business should disclose their profit so that they can be assessed correctly for tax purposes. • Fair trading practice – Business should not deceive the society for example, producing inferior goods and labelling them as good quality goods.

14. Efficiency-Goods should be efficiently packaged and made available in large quantity and at any time and place in the society. Expectations of Employees from SMEs • Businesses are expected to do the following about their employees and their welfare; • Compliance with legal requirements relating to employer-employee relationship. • Business must pay employees their wages and salaries timely • It must ensure that an enabling and conducive atmosphere prevail at work places to enhance productivity. • It must assist employees to advance on their jobs by providing good training programmes and facilities • Business must take adequate care of employees welfare. Expectations of customers/ Consumers from SMEs • Businesses have the following responsibilities to customers/consumers: • Business must give prompt attention to customers complaints • Provision of safe and quality products and services that satisfy customers needs and wants.

15. Provision of adequate information on the use of product (s). • Provision of after sales services to customers, especially technical products. What business expects from the society • Acceptance – The business wants to be accepted by the society, so that it can grow and create goodwill. • Peaceful environment under which business can thrive well • Supply of adequate labour with required knowledge, skills and attitudes • Continuous patronage thereby making profits to enhance growth. Expression of success or failure • When the actual performance of an entity or organisation falls short of expectation, it is said to fail. The listener or reader of this paper will know from the above expectations of stakeholders that SMEs in Nigeria have failed to meet the expectation of people. Therefore something urgent must be done to aid the survival and growth of SMEs in Nigerian which is the aim of this summit.

16. Importance of Financial Records in Small and Medium Business Management • According to Jacobson (1999), Accounting is the process of expressing the economic activities of everyday life of a business in monetary terms so that one can estimate the cost of • Creating goods and services; • Making decision about production on the basis of the estimates; • Comparison of actual cost as they occur with the estimates originally made and adjust the output and prices of goods and services accordingly. • See Appendix I:Omoyajowo enterprises and ChukwuEbere Ltd, where able to use the records of their account for planning, controlling through interpretation of their accounts one who is able to identify the SWOT of their businesses which cannot occur if they fail to record their financial transactions. What is a Record? • The word record is a vague term to many people, it include any piece of paper or its equivalent such as a form, book, photograph, punch card, or tape, computer print outs, drawings, or other documents. • A record may be defined as any document or other medium used to store data in such a way that when the record is properly housed, information may be produced or further data added with minimum delay.

17. Information is stored in order to provide a record of transaction. The records of an organization are its memory and they should be used to supplement human memory. Records are the memory of an organization. • Records are the life blood of a business and their creation, organization, control and eventual disposal are of utmost importance. The records usually kept in an office include financial and cost accounts, orders, progress of work, correspondence, etc. It can also be in the form of invoices, receipts, cheques, requisition notes, printed matters, brochures, catalogues or business forms. In records, data are stored for which decisions are made and plans are formulated. The Purpose of Records • The purpose of records that industry and the government produce are to direct, to instruct, to inform, or to record. Business records serve as the vehicles of management in planning, organizing and controlling business activities. Benefits of Record Keeping • Records when too much cannot be remembered in the brain, and hence for reference sake, records of data or information are made in either handwritten or typed form, recorded in microfilm or in an Audio response system.

18. According to Ademola et al (2012), the specific benefits of record keeping include the following among others: • It helps to avoid business failure • It is useful for financial management, planning and control • It helps to make sound decision based on facts • It gives background picture which helps organisational change. • It is critical to business survival Classification of Records • Generally, records falling to the following categories: • (i) Non-Essential Records: Those which are meant for communication only and can be destroyed as soon as the message has been conveyed. • (ii) Important Records: Those which are meant to aid in the solution of a problem or project and can be destroyed once the final decision on the problem or project has been reached e.g. cash records, records of staff, inventory records, etc. • (iii) Vital Records: Those which are needed for reference because they are tied in with information that must be kept for government purpose or for the long range plans – e.g. deeds and leases, charters and franchise, etc.

19. B. (i) Statutory Records: Records required by government to be kept by the business. Laws made by government and formally written down (ii) Non- Statutory records: Record Not enforced by government. C. (i) Non Accounting Records: Relevant records needed by business before and during existence but does not involve monetary transaction. (ii) Accounting Records: Records of Business transactions represented in monetary terms(Naira and Kobo). D. According to frequency of use: Active and inactive, useful and valuable Record Keeping vs Book Keeping • The most widely used type of records is the form. A form is a document with printed headings and generally vertical and / or horizontal rules which provide for the systematic presentation of data. The form is easier to prepare than reports, letter and other media of information transfers. They are always classified according to their use, such as purchases orders, sales invoices, personnel form, APER forms, etc. Forms can be a printed, typed or hand drawn piece of paper, card or other materials on which there are blank spaces for the insertion of required information.

20. Record Keeping • This is the basic ingredient of office activities, therefore, where-ever record keeping is done, or planned, or co-ordinated, that place can be called an office. The following activities: • Receiving information, e.g. letters, quotations, etc • Writing and answering letters • Arranging and collating information • Making out reports • Transmitting information e.g. price lists, estimates, etc • Operating office machines are done in office. • Other activities associated with office work include: sorting, arranging, distributing, copying, filing, calculating and summarizing. Record keeping includes book-keeping. • Nearly all modern business is done in offices and the bulk of office work consists of some form of communication. Reading, writing, talking, telephoning and typewriting are essential form of business communication. Book Keeping Book keeping is the act of recording and classifying business financial transactions in a systematic and orderly way, entering them into the appropriate books as they occur, so that the financial position of a business can be readily ascertained at any time. Book keeping is carried out by using the double entry system. One would discover that record keeping includes book keeping.

21. Use to which Records can be put • Administrative use • Legal use • Fiscal use • Policy use • Operating use • Unofficial use • Research use • Records Life Cycle • This describes the route of a record from creation until its disposal. The cycle consists of: • Creation of record • Use of the record • Storage and retention of records • Transfer from active storage to inactive storage or to final destruction • Disposal and destruction.

22. Purpose of Reports • Most reports in business are in the form of FORMS. Reports serve two main purposes namely • They convey information required to management for purposes of control and • They furnish other officers with information required to carry out their work Kinds of reports: • Routine Reports: These are usually submitted at regular intervals, e.g daily, weekly, monthly and by their nature are likely to be factual, in context, usually recommendation are unlikely to be required. • Technical Reports:This type of report is principally different from routine and special report in content as they are usually prepared by technologists or expert technicians; a high proportion of the content might as unexpected, certain statistical data, figure and formulae. • Special Report: The writer of this report, usually gives advice or recommends certain action in a special non-routine matter e.gadhoc committee report.

23. Characteristics of SMES according to Amount of Records kept • s/n Categories Percentage (%) • 1Those who do not keep records at all 42 • 2Those who keep minimal records 28 • 3Those who keep records on single entry / incomplete records 22 • 4Those who keep normal records 8 • Research findings show that categories 1-3 die within the first six(6) years of existence while category 4 survive despite many challenges as they are able to take control measures before it is too late. Questions - Who are to keep the records for SMEs? Answer – Records can be kept for and by SMEs owners. For example, the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) was established in 2003 by the Federal Government of Nigeria to facilitate the promotion and development of SMEs in an efficient and sustainable manner.

24. SMEDAN was mandated to produce a credible and reliable database that will show the following important details about SMEs: • The contribution of SMEs sector to Gross Domestic Product Yearly. • The number of SMEs in the federation on state wide and sector by sector bases. • The main challenges and constraints facing SMEs sector in Nigeria. • Contribution of SMEs sector to employment generation • Contribution of SMEs to export • Classification of SMEs ownership on gender basis and by age. • The capacity utilization within the sector • The major areas where government can intervene and assist the sector • Financing windows for the SMEs sector for raising low cost finance • If SMEs owners know the many and varied benefits derivable from keeping records of their businesses and yet they fail to keep it. We concerned people should find out why? The following reasons have been raised for not keeping their business records. Some say: • Records keeping is not important to them

25. Some say that they cannot afford the time consuming nature of record keeping • The cost of record keeping is too much when they have little or no capital to run their business and hence cannot afford the cost of hiring qualified accountants. • Some say record keeping is complicated at times and they find it difficult to understand them. What can be done to help SMES to keep records? • Records can be kept for SMEs and SMEs owners/managers can keep records of their business for themselves. • In view of their small size SMEs need continued support in the functional areas of their business. The often neglected area is record keeping including accounting and finance function of the small business, and yet this has not attracted much interest from the support agencies. Lack of proper record keeping and accounting system affects control of the business and finding sources of capital to finance daily operations become problematic (Dodge and Robbins, 1992). • The following entities are expected to help SMEs in getting out of the problem of record keeping.

26. The Corporate Affairs Commission (CAC): This commission has a big role to play in the survival and growth of SMEs. Many SMEs are outside the tax net of government as they are not registered with the CAC. • The SMEs owners claim that the registration process is cumbersome, slow and costly. The CAC can reduce the cost of registration and make the registration process easier for the SMEs owners. If this is done, all other things being equal, more SMEs will enter the data base of SMEs and improvement in IGR generation will happen. ICCA and Department of Entrepreneurship of UET • Both ICCA and Department of Entrepreneurship of UET can organise sensitisation programmes for SMEs owners at low or no cost at all. In these programmes, SMEs owners may come to know the hidden advantages of keeping records of their businesses.Research findings have shown that businesses who keep records of their business transactions stand a better chance of survival and growth than those who fail to do so. Any of our members employed as accountant of SMEs should charge moderate professional fees to encourage SMEs owners to employ accountants. • See appendices I and II: Omoyajowo Enterprises and ChukwuEbere Ltd can be helped because they keep records of their business transactions.

27. Other support groups in record keeping for SMES • The Local government councils chairmen through the Iyalojas and babalajes should encourage the small business owners to keep record of their business transactions with the market department of local government council. The exercise should attract a reward for doing so, for example those who keep the records can be provided with soft loans or financial assistance from the local government. • The exercise should be monitored by a selected group from the local government council. SMES – Owners / Managers • They should listen to the clarion call and do the right thing. That is, keep records of their businesses. There is no free gift other than that God gives. To take risks of production of goods and services will cost something (at least the 4ms and T) • Record keeping should be taken seriously by SMEs –owners. They may equally hire the services of part-time accountants. This will cost less.  Characteristics of SMES in Nigeria • A major characteristic of Nigeria’s SMEs relates to ownership structure or base, which largely revolves around a key man or family. Hence a preponderance of the SMEs is either sole proprietorships or partnerships. Even where the registration status is thus that of a limited liability company, the true ownership structure is that of a one-man, family or partnership business.

28. Other common features of Nigeria SMEs include the following among others • Labour-intensive production process • Concentration of management on the key man • Limited access to long term funds • High cost of funds as a result of high interest rates of bank charges • High mortality rate especially within their first two years • Over-dependence on imported raw materials/spare parts • Poor inter and intra - sectoral linkages – hence they hardly enjoy economics of scale benefits • Poor managerial skills due to their inability to pay for skilled labour • Poor product quality output • Absence of Research and Development • Little or no training and development of their staff • Poor documentation of policy, strategy, financial, plans, information, systems • Low entrepreneurial skills, inadequate educational and technical background

29. Lack of adequate financial record keeping • Poor capital structure i.e. low capitalisation • Poor management of financial resources and inability to distinguish between personal and business finance • High production costs due to inadequate infrastructure and wastages. • Use of rather outdated and inefficient technology especially as it relates to processing, preservation and storage • Lack of access to international market • Lack of succession plan • Poor access to vital information Benefits of Book Keeping • According to Eric and Gabriel (2012), bookkeeping which is a tool for financial control enable managers to know the financial positions of their businesses and to take certain control measures to improve business performance, It provides a wealth of information that is used by managers, investors, leaders, customers, suppliers and regulators. • An analysis of its statements can highlight a company's strengths and shortcomings, and managers use this information to improve performance.

30. If management is to maximize a firm's value, it must take advantage of the firm's strengths and correct its weaknesses. This is done through the analysis of the financial statements. Financial statement analysis which can be obtained through bookkeeping involves comparing the firm's performance with that of other firms in the same industry and evaluating trends in the firm's financial position over time. • These studies help managers identify deficiencies and then take corrective actions to improve situation. From the manager's standpoint, financial statements analysis is useful both to help anticipate future conditions and, more important, as a starting point for planning actions that will improve the firm's future performance. • Bookkeeping convey substantial information about the financial strength and current performance of an enterprise. Although they are prepared primarily for users outside the organization such as the banks and non-banks institutions, managers also find their organization's financial statements useful in making decisions. As managers develop operating plans, they think about how those plans will affect the performance of the organization, as conveyed by the financial statements. From the bookkeeping, financial statements such as the Balance sheet, Income statement, Retained earnings statement and Statement of cash flows are obtained.

31. The balance sheet is the statement that shows the assets, liabilities and equity of an organization at a point in time. Thus, the balance sheet of an organization portrays the financial position of that firm at a point in time. The income statement reports the income for the period between two balance sheet dates. The retained earnings statement shows how income and dividends for the period have changed the organization's retained earnings. The statement of cash flows shows how cash was obtained during the period and how it was used. All these statements help in the decision making process of the firm or organization, • In sourcing long term capital or loan from bank or the government the input of the accountant is a major factor. This fact is supported by Okwena et al (1986). For a bank or government to grant a loan requested by a small scale firm, it will, apart from assessing the character and experience of the management team, analyze the overall financial statement, details how the firm has operated over the past few years and project the future financial results. • These include: • Historical and projected cash flow statement • Historical and projected balance sheet • Historical and projected income statement

32. The cash flow projections are very important, They indicate the ability of the firm to generate enough funds to pay according to interest and outstanding principal, The above are done by the accountant of the lender while the borrowers (firm) accountant prepares the financial statement been evaluated and often advice on the cheaper source of fund. Relationships between Accounting Records and Business Performance • `Performance of business refers to the ability of business to meet the required standards, increased market share, improve facilities, ensuring returns on profitability, and total cost reduction and once this is achieved, a business is believed to be performing effectively (Fitzgerald et al 2006). • Performance refers to an ongoing process that involves managing the criteria for which an institution, agency or project can be held accountable (Duranti and Thibodeau, 2001). Typically, these criteria are represented as component parts of an internal system and cover the institution's ability to; control financial expenses, satisfy staff, derive timely interventions and respond to target group reactions to interventions. • According to Ikechukwu (1993), keeping records is crucial for the successful performance of a business. A comprehensive record keeping system makes it possible for entrepreneurs to develop accurate and timely financial reports that show the progress and current condition of the business.

33. With the financial report generated from a good recordkeeping system, performance during one period of time (month, quarter or year) with another period can be compared. An accurate record of the business' financial performance is vehicle to monitor performance in specific areas. • Accounting records provide a basis for complete and accurate income tax computation, a basis for sound planning for the future and basis for discussion with partners, potential investors, and lenders all these are important aspects which enhance performance of the business, Business also depends on correct accounting records to make good decisions about the firm. Decision such as expansion, drop or maintain decisions of product lines, make or buy decisions, about size of debtors. Therefore if proper records are kept they will facilitate efficient, proper timely decision making and enhance performance in small scale industry. • The importance of SMEs sub-sector cannot be overemphasized. The sub-sector contributes significantly in achieving various socioeconomic objectives, which include employment generation, contribution to national output and exports, fostering new entrepreneurships and providing a foundation for the industrial base of the economy (Inang and Ukpong, 1992).

34. In low income countries with Gross National Product (GNP) per capita of between US$1 00 and US$500, SMEs account for over 60 per cent of GDP and 70 percent of total employment: in middle income countries, the SMEs produced close to 70 percent ofGDP and 95 percent of total employment: and in OECD countries, SMEs constitute the majority of firms and contribute over 55 percent of GDP and 65 percent of total employment (Basu, et, al., 2005). • Therefore there is no universal definition of SMEs since the sector is diverse and flexible that resists any narrow categorization. The definitions given to SME's and applied vary from country to country and also mean different things to different people, even within the same country. The definition of SME is based on five main parameters: labour, capital, loan size, fixed asset and annual sales turnover. Organizations often use one criterion to define SMEs. The size limit is one of the most common definitions in developing countries, Some countries use one criterion to define this sector while others may have definitions with multiple criteria, For example South Korea defines SME on the basis of 'capital or assets', while Canada defines this term on the basis of 'number of employees' and 'gross sales or taxable income', This also appears to be true in the case of Ethiopia. This lack of consistent definition has eventually led to be confusion and failure to distinguish between one segment and another and has significant implications on the structure of interventions and promotional support that could be provided to the sector.

35. To see some of the definitions as an example: to support and develop these businesses, the European Union has introduced a new definition of SME valid from January 1,2005, SMEs are defined by three main criteria: the number of employees, annual turnover in millions of Euros and total value of assets in millions of Euros. Empirical Evidences • Researches have been carried out on record keeping and the accounting practice of SME’s. The empirical evidence below is presented based on the concept of evidence. Accounting practices • The empirical evidence about the accounting practice of SME is organized in terms of evidence such as: record keeping, financial accounting, financial management and cost and management accounting. • Kemla – Raj (2009) conducted a survey of SMEs in many countries, he concluded that “In all countries developing or developed, poor accounting and book-keeping practice influenced SMEs failure. • Studies conducted in Nigeria and UK with a sample size of forty-five (45) questionnaires each between the UK and Nigeria and conducted two (2) Semi-structured interviews each between the UK and Nigeria on the question – Do you agree that poor accounting and book keeping practices lead to SMEs failure in your country? The results showed that 68% and 59% of the respondents in the U.K. and Nigeria respectively agreed that it influenced SMEs failure. This reflect that both countries

36. the respondents quite agree that poor accounting and book keeping practice influenced SMES failure. • Studies were conducted in various countries to examine the usefulness of accounting reports within the context of SMEs, for examples McMahon (1998) in Australia Collis and Jarvis (2002), Gorton (1999) and Nayak and Greenfield (1994) in the UK; and Hopper et al, (1999) on SME Japanese companies. These studies found evidence that financial reports are not considered particularly useful for decision making purposes by SMEs owner-managers, These studies also found that there is limited usage of financial and management accounting reports by SMEs, In addition, it has been argued that accounting reports produced by SMEs are usually limited to a few types of simple reports comprising mainly profit and loss account and balance sheet. The studies using a postal questionnaire to small private limited companies in the UK, found that 82 per cent of the companies use monthly or quarterly management accounts, 87 per cent of the companies prepare profit and loss statement and 78 per cent prepare balance sheet (Collis and Jarvis 2002). On the other hand, SMEs consider the most frequently used sources of information are the periodic management accounts, cash flow information and bank statements, to a lesser extent budgets, the state of order book and the additional annual accounts (Collis and Jarvis 2002). • It is typical for SMES in Africa to lack business skills, lack record keeping and collaterals to meet the existing lending criteria of risk averse banks (World Bank 2000)

37. Association of Nigeria Development Finance Institutions (ANDFI) in 2004, issued this statement in relation to which SMEs perform poorly in Nigeria. “Finance is usually considered as the major constraints of SMEs while this may be true, empirical evidences have shown that finance contributes only about 25% to the success of SMEs. Thus, the creation of other appropriate support system, such as record keeping and enabling environment are indispensable for the success of SMEs in Nigeria”. Requirement by International Accounting Standard Board (2005) from SMEs • SMES should report the following minimum financial information: Balance sheet: Each enterprise should determine, based on the nature of its operations, whether or not to present current and non-current assets and current and non-current liabilities as separate classifications on the face of the balance sheet. • At a minimum, the face of the balance sheet should include line items presenting the following amounts: N • Property, plant and equipment: x • Intangible assets: x • Financial assets x • Inventories; x • Trade and other receivables; x

38. Cash and cash equivalents; x • Trade and other payables; x • Tax liabilities and assets; x • Provisions; x • Non-current interest-bearing liabilities; and x • Issued capital and reserves, x xxx • Additional line items, headings and subtotals should be presented on the face of the balance sheet when such presentation is necessary to present fairly the enterprise's financial position. • Income statement: At a minimum, the face of the income statement should include line items that present the following amounts

39. N Revenue; x • The results of operating activities, x • Finance costs x • Tax expense; x • Net profit or loss for the period. x xxx____ • Additional line items, headings and subtotals should be presented on the face of the income statement when such presentation is necessary to present fairly the enterprise's financial performance. Accounting Tasks of SMEs • Accounting may be the key to small business success, Wichmann (1983). He reported the results of an analysis of Small Business Institute (SBI) cases, which were grouped into seventeen problem areas, Accounting was found to be the most frequent problem, and the number one.

40. Practices /accounting tasks Number of SMEs sampledPercentage of those who prepare such accounts • Keeping records 100 42 • Payroll 100 100 • Taxation/VAT 100 12 • Bank Statement 100 35 • Income statement 100 60 • Balance sheet 100 60 • Periodic management accounts 100 14 • Inventory and cost controls 100 15 • Break even analysis 100 0 • Cash budget 100 10 • Sales budget 100 3 • Expenses budget 100 6 • Budget Variance analysis 100 0 • Ratio analysis 100 0 • Working capital management 100 13 • Source: Own Survey of SMEs in Lagos State

41. Recommendation • Simplified financial reporting standards should be adopted or set for SMES in Nigeria. There is international acceptance that SMES require simplified financial reporting standard fitting their small size and narrow stakeholders base. • Research findings have shown that many SMEs do not know the importance of keeping business records, some know but cannot bear the cost of hiring qualified accounting staff. All efforts should be made by concerned stakeholders to change the status-quo. • CONCLUSION • While record keeping is not the only challenge facing SMEs it is a major contributor to the high failure and mortality rate of SMEs all over the world especially in Nigeria • Kamla-Raj (2009) research findings showed that in all countries, developing or developed, poor accounting and book-keeping practices influenced SMEs failures. Without adequate, effective and timely financial reports and analysis, the SMEs are losing out on the benefits from those practices such as improved monitoring of financial health and progress improved ability to anticipate success, better assessment of financial risks and greater access and ease in financial planning and control.

42. Most importantly, in the context of SMEs requiring extra capital to grow regular financial reports can provide indications on their ability to produce steady cash flows and service debt. It has been established that the use of appropriate financial reporting practices could be the determinants of business survival particularly SMEs (Gorton, 1999, McMahou& Holmes, 1991). • The World Bank (2000) asserted that lenders are faced with lack of adequate and reliable information from SMEs; hence, lack of appropriate investment for managing risk. • SMEs lack of access to credit are particularly the result of incomplete (or no) accounting records. Poor record keeping and accounting information make it difficult for financial institutions to evaluate the potential risk (s) and returns, making them unwilling to lend money to SMEs. • Incomplete (or no) accounting practice of SMEs is the result of limited capital they have, age of the firm and level of education of the owner-managers. These are the major determinants of the accounting practice of the SMEs. These problems hinder continuity and expansion of SMEs. • The goal of this summit is to ensure that SMES (in Nigeria) survive and grow despite all the multitude of challenges facing them.

43. If all concerned stakeholders play their part in the record keeping aspect of SMEs all of us Nigerians will reap the fruit of it, and shall be better for it. This is because survival and growth of SMEs will impact positively on the full utilisation of all the elements of National development that is, the natural resources, the human resources, capital formation and Science and Technology.

44. REFERENCES • Ademola, E (2002). Element of office Administration. Ikeja. McMillan • Al-Sheikh FN 1998. Factors for small business failure in developing countries. Advances in Competitiveness Research, 6(10): 75-87. • Berry, T., Sweeting, B., Goto, J. and Taylor, M. (2002), ‘Financial Management Practice amongst SMEs’, Manchester Metropolitan University, WP 02/16. • Brooks, A., Collings, S. & Gonzales, P. 1990, Accounting for Small Business: a Single- Entry Approach, VCTA Publishing, Collingwood. • CheRuhana Isa, ZakiahSaleh, NoorSharojaSapiei (2007). Financial and management accounting Practices among small and medium enterprises in Malaysia. • Collis, J. and Jarvis, R. (2000).Financial information and the management of small private companies. Journal of small Business and Enterprise Development, 9(2), pp. 100-10. • Davies, L.G. (1994). ‘Financial reporting and analysis practices in small Enterprise’: Their association with growth rate and financial performance. Journal Of small Business Management, 32(1), pp. 9-17. • De Thomas, A.R. &Fredenberger, W.B. 1985, ‘Accounting needs of very small Business’, The CPA Journal, vol. 55, no. 14, pp. 14-24.

45. Ekpenyong, D. B. (1992) ‘Problems of Small Business And Why They Fail.’ Journal of General Studies, Bayero, University, Vol. 3, No. 1 (1995) ‘Financing Small Enterprises in Nigeria: Sources, Constraints And Prospects’ • Holmes, S. (1991). Small business financial management practices in North America: a literature review, Journal of Small Business Management, 29(2), pp. 19-29. • Hopper, T. Koga, T. and Goto, J. (1999). Cost accounting in small and medium sized Japanese companies: an exploratory study. Accounting and Business Research, 30(1), pp. 73-86. • International Financial Reporting Standard for small and Medium- Sized Entities.‘The EAA FRSC’s Comment on the IASB’s Discussion Paper.’ Accounting in Europe, Vol. 2, 2005 • Johnson, R. and Soenen, L. (2003), ‘Indicators of successful companies’, European Management Journal, Vol. 21 No. 3, pp. 364-369. • Jacobson, I (1999) ‘Book-keeping and Accounts, London, Evans. • Kamla- Raj (2009): SMEs Key Failure- Factors: A Comparison between the United Kingdom and Nigeria. Kent Business School, University of Kent, Canterbury Kent, United Kingdom. • Lagos State Inland Revenue (2017). List of Small and Medium sized enterprises including their capital and legal status.

46. Levy, B. (1993). ‘Obstacles to developing indigenous small and medium enterprises: An empirical assessment.’ Wold Bank Economic Review, 7, 65-83. • Olofintila, A.O. (1998). Elements of office Administration. Lagos. AOE publications • Olofintila, A.O (2012). Elements of Business.Yaba. AOE publications • Peel, M. J. and WILSON, N. (1996), ‘Working capital and financial management practices in the small firm sector,’ International Small Business Journal Vol. 14 No. 2, pp. 52-68. • Quartey, Peter (2003) ‘Financial Small and Medium Enterprises (SMEs) in Ghana’, Journal of African business, 4: 1, 37-55 • Small and medium sized enterprise in Czech Republic.Viewed June 24, 2010.

47. APPENDIX I • Omoyajowo Enterprises • From the following trial balance of Omoyajowo Enterprises. Prepare trading, and profit and loss Accounts for the year ended 31st of December 2016 and balance sheet as at 31st Dec. 2016 Trial Balance as at 31st December 2016 N N • Stock at 1st January 4,600 • Purchase 15,020 • Purchase Returns 60 • Cash in hand 340 •  Bank 2,266 •  Freehold premises 3,860 •  Incidentals trade expenses 84 •  Printing, stationary and advertising 164 • Professional charges 28 •  Provision for bal and doubtful debt 350 • Sundry debtors3,600 • Sundry creditors 2,967 • Wages 2,500 • Salaries 1000

48. Income tax11,000 • Discounts allowed 630 •  Discounts received 460 • Sales20,895 • Bill payable 320 •  Office furniture305 •  Rents, rates and insurance 400 •  Sales returns 55 N35, 732 N35,732 Provision for bad and doubtful debts to be increased to N500 • Provide for rent Accrued due N50 • Write off 5% depreciation on freehold premises • Insurance to the amount of N20 relates to the year following that under review • Stock at 31st December N5,200 • Drawing amounting to N1000 have been debited to capital account

49. SOLUTION • OMOYAJOWO ENTERPRISES • Trading profit and loss account • For the year ended 31st Dec. 2016 N N • Opening stock 4,600 Sales 20,895 • Add purchases150220 Less R.Inwards 55 • Less return outwards 60 Net sales 20,840 • Net Purchases 14960 Available for sales 19,560 •  Less closing stock5,200 • Add wages 2,900 Cost of goods sold 17,260 •  Gross profit 3,580 • 20,84020,840

50. Gross profit b/d 3,580 • Salaries 1,000Discount received 460 • Rent, rates, insurance 430 •  Printing, stationary and Advertising 164 •  Discount allowed 630 •  Incidental trade Expenses 84 •  Professional charges 28 •  Provision for bad debts 150 •  Depreciation of premises 193 Total expenses 2,679 Net profit for year transferred to capital account 1,361 N4,040 N4,040