SMALL BUSINESS MANAGEMENT – EXAM QUESTIONS AND ANSWERS

For: Questions and answers email: theotherwomaninmarriage@gmail.com

These Small Business Management Questions are from the regular students and we  should be keen about it.  I have solved all most all:

Enjoy (hehehehe *wink*)

Question1.a.:

          Define the term small business and explain clearly the criteria used for defining what exactly a “small Business” is in different countries

ANSWER:

The growing want of uniform criteria for identifying small business led scholars to define it with one or more of the following:

a.   Number of employee

b.   Capital outlay

c.    Asset base

d.   Market size and

e.   Sales volume 

Against the above, Baum back (1983) observed that attempts to define small business in terms of employment, asset value or sales volume have proved unsatisfactory because, a firm in one industry may loom large relative to its competitors, yet be small in employment, assets and sales relative to firms in other and sales, or vice versa.  

The first attempt to overcome this definition was by the Bolton Committee (1971) which formulated an “economic” and statistical definition.  Under the economic definition, a firm is regarded as small if it has a relatively small share of the market place; managed by owners in a personalized way; is in depended in the sense  of not forming part of a large enterprise. 

In an attempt to overcome the problem of definition between small and large scale enterprises, the European Commission (EC) coined the term Small and Medium Enterprises (SMES): The three components of the SMES are:

i.             Firms with 0-9 employees are micro enterprises

ii.           Firms with 10-99 employees are small enterprises

iii.         Firms with 100 – 499 employees are medium enterprises 

The EC definitions are based solely on employment rather than multiplicity of criteria and restricted to enterprises, which employs less than 500 workers. 

This definition is considered too all embracing for a number of countries.  Thus, researchers adopt definitions for small firms which are more appropriate to their particular target group, that is, operational definition.  Consequently, definitions vary across countries and business environment as a result of differences in industrial organization at different levels of economic development in parts of the same country (Sule, 1986).

In 1992, the National Council on Industry, stream lined the various definitions in order to ensure uniformity and provided for its review every four years.  The definition adopted used a combination of capital investment and employment for categorization of industry. The definitions were first revised in 1996 and then 2001 as follows (Ukeje 2003).

·         Micro/cottage Industry: Enterprise with a labour size of not more than 10 workers or total cost (including working capital  but excluding cost of land) not more than N1.5m

·         Small-scale industry: Enterprise with a Labour Size  of between 11-100 workers or a total cost (including working capital but excluding cost of land) not more than N500m. 

·         Medium –scale industry: Enterprise with a labour size of over 101-300 workers or a total cost (including working capital but excluding cost of land over N200m) but not more than N200m.

·         Large-scale industry: Enterprise with a labour size of over 300 workers or a total cost (including working capital but excluding cost of land of over 200m.)

From the various viewpoints above, the small and medium enterprises are characterized by;

a.   Simple management structure resulting from the rousing of ownership and management by one or very few individuals.  

b.   There is often greater subjectivity in decision-making and prevalence of largely informal employer-employee relationship.

c.    They have very limited access to long-term capital and their access to short-term financing is often limited and sometimes obtained at a penal rate of interest based on the perception of the sector as risky by the formal  financial institution.  

d.   The inadequate funds often results in the non-adoption of modem technology and the resort to labour intensive production processes. This, coupled with very poor inter and intra-sectoral linkages do not allow the enterprises take advantage of the benefits associated with economies of the large-scale production

QUESTION 1.b.       What are the rationales for studying Small Business Management in Nigeria?

ANSWER:

IMPORTANCE OF SMALL BUSINESS

Small business organizations are very important in any economy, especially in a developing economy like that of Nigeria.  They are the back-bone of our economy as they provide employment for the people, service the local market and also provide the raw materials or inputs used by large business organizations. 

Hardly any major industry can succeed without the services of Small Business Enterprises. The relative strength of their importance may vary from one industry to another.  Small firms show their greatest strength (Compared to larger firms) in service industries, whole sale, distribution, retailing.  In Nigeria, there are thousands of small business which include farming, piggery and animal husbandry, fishing, pottery and ceramics, brick, and block molding, baker, weaving and tailoring, printing press, wood and metal works, poultry and a host of others which depend mostly on local raw material inputs. 

The importance of small business enterprises in any economy cannot be over-estimated.  Firstly, the continuing growth in the economy of any nation depends to a large  extent on the start-ups and development of small business.  

Even on a recessionary economy, small scale business are a legitimate and viable component in any strategy for reconstructing the economy.  Further, it is emphasized that the small business enterprises make the possibility of the equitable distribution of national income more realistic by providing employment on a large scale.  By creating more employment opportunities, small business enterprises help in mobilizing capital and human resources that would otherwise be left idle. 

Small scale businesses economize resources.  Resources such as capital, technical and management skills are scare and constitute the central problem of underdevelopment.  The capital that goes into the start up of small business is relatively easier to come by and this is an advantage to a developing economy in view of the limited amount of savings in such economy. 

Small scale enterprise promotes competition and hinders monopoly.  The relative ease with which small scale businesses are established and the responsiveness of entrepreneurs to innovations are major factors for the preponderance of small scale enterprises in any economy especially a developing economy.  

Observation has it that the existence of many healthy business firms in an industry constitutes a barrier against monopoly. The importance of a competitive market to the consumer in particular and the economy in general cannot be over flogged.  

Small businesses also provide options for self employment.  Small businesses constitute a vital source of self employment for retired officers or retrenched workers or even older persons and others who are handicapped and find it difficult to obtain gainful employment elsewhere.  This advantage is particularly obvious in Nigeria. 

The contribution of the small firms in a developing country may be exemplified by the Indian experience where small industries accounted for about 50 percent of industrial output in 1987.  They are also responsible for 10 percent of industrial fixed capital formation and over 18 percent of the total industrial employment in that country (Ezeh, 1999).

QUESTION 2.          How can prospective small business owner/manager goes about evaluating the financial picture of a new business? Consider the following financial terms in your discussion.

                   (i)      Sources of funds

                   (ii)     Use of funds

                   (iii)    Cash flows

SOLUTION TO SOURCES OF FUNDS:

Guys, we all know the sources of funds na – we don do this thing for years but in case you have forgotten, let me remind you a few.  1. Your personal saving, money from friends and family, borrowing from the bank, overdraft, hire-purchase, buying goods for credit etc.. There are whole lot of them but just try and remember them ok.

SOLUTION TO CASH FLOW:

·         A cash flow budget measures the flow of money in and out of the business.  It is critical to you and your banker.

·         Many businesses operate on a seasonal basis, as there are slow months and busy months.  The cash-flow budget – projection will provide an indication of the times of a cash flow shortage to assist in properly planning and financing your operation.  It will tell you in advance if you have enough cash to get by.

·         A cash flow budget should be prepared a year in advance and contains monthly breakdowns.

Cash Flow Assumptions

When reviewing the cash flow plan, certain assumptions should be made.

·         Sales: Monthly sales (consulting service fees) that are expected to materialize.

·         Receipts: Due for goods sold on credit; rental income is rent that will be collected in advance at the beginning of each year.

·         Disbursements:  Accounts payable to be paid in the month following month of purchase.

·         Accounting and Legal:  To be paid upon the receipt of bill, expected to be paid after your fiscal year end. 

·         Financial statements have been completed

·         Advertisement: Anticipated to be the same amount each month and paid for in the month the expense is incurred. 

·         Car: Anticipated to be the same amount each month and paid for in the month the expenses is incurred.

·         Bank charges and interest: Anticipated to be the same amount each month and paid for in the month the expenses is incurred 

·         Equipment rental: To be paid for in monthly payments.

·         Income tax: Amount for tax of the prior year and to be paid in the next season

·         Insurance annual premium: To be paid quarterly, semi-annually or annually in equal installments. 

·         Loan repayment: Amount is the same each month and paid in accordance with the monthly schedule  furnished by the lending institution

·         Office supplies and expenses:  To be paid in month following receipt of invoice and supplies to be purchased on a quarterly basis

·         Licenses: To be paid upon due date

·         Telephone: To be paid for quarterly in month after receipt of bill.  Amount expected to be the same each quarter

·         Utilities:  Expected to fluctuate with weather conditions and to be paid for quarterly.

·         Wages and Benefits: Wages to increase after pay review.  Amount otherwise considered to be the same each month and paid one month in arrears.

·         Miscellaneous: Expected to be the same each month and paid for in the same month the expenses incurred.

QUESTION3:

          Develop a comprehensive essay entitled: “ The Impact of Small Businesses on the Economic Activities of Federal Capital Territory, (FCT)”

ANSWER:

This has to do with your ability to write – if you are a writer or has experience in writing, then you can write and highlight the impact of small business in economic activities – such as employment, GDP growth name it.  But I think, this will consume your time in the exams so please, I will advice “you jump am pass”

QUESTION4:

 Write explanatory notes on each of the followings:

          (i)      Planning as Tools for Decision Making in Small Business

          (ii)     Small Business and Big Business (Comparative Analysis)

          (iii)    Scientific methods of market analysis for Small Business

ANSWER:

In Nigeria where many of the businessmen are inexperienced and the academic preparation is by no means very impressive, planning to avoid waste of money and other resources is very important and compelling.  The importance of planning is well recognized by the Nigerian government that engages in National Development Plans.  Planning is a blueprint for action.  In Nigeria, a businessman who wishes to enter into any business has to engage in detailed planning in order to identify the sources of raw materials and equipment, determine delivery dates and sources of working capital.  Many projects have failed in this country because adequate plans were not made to identify all the important variables likely to bear on the projects that would determine their failure or success.

Planning is therefore the first and perhaps the most important function of management.  The essence of planning is to prepare for and predict future events. Howard (1976:554)  opines that planning involves the establishment of objectives and a step-by-step determination of the activities and resources necessary to achieve them.  It entails determination of control, direction and methods of accomplishing the overall organizational objectives.

THE PLANNING PROCESS

There are some planning processes an entrepreneur will pass through before taking off in any business endeavour.  These planning processes include:

1.   Setting Organizational Objectives

2.   Analyzing the environment/identification of opportunities

3.   Selection of alternative courses of action

4.   Formulation of specific targets

5.   Implementation

6.   Feedback

1.    Setting Organizational Objectives – it is therefore assumed that if these steps are taken, planning for the future becomes relatively simple.  The first thing to do is determine the organizational goals.  This is very important because it gives a sense of direction.  If a man decides to take bread, this will become the objective and will determine subsequent course of action.

2.    Analyzing the Environment/Identification of Opportunities – After having determined the organizational objectives, the entrepreneur will now analyze the environment, to determine whether or not there is an investment opportunity.  This he can do by determining the type of products/service customers would need; the reasons why such needs are not at present being satisfied: whether he, the entrepreneur can satisfy such needs and whether the gap is large enough for him to invest in.  the planner has to search for opportunities as to key customers, competitors, suppliers and the type of technology required.

The entrepreneur should equally determine or examine the environment in terms of economic, social, political, legal, technological and competitive level or the competitors.  This environmental analysis will help the entrepreneur to identify and analyze the threats to and opportunities for the success of the firm.

3.    Selection of Alternative Courses of Action  - At this stage, the entrepreneur has to take decision in choosing the best plan from the alternatives identified.  The entrepreneur should choose a plan that is not only based on its possibility of being done successfully but also that which would be flexible enough to suit the likely changes in the environment.

4.    Formulation of Specific Targets – In order to be definitive, he must set targets and quotas.  Quantitative measures help to know if the objectives are being realized or not – this may involve the use of budgets and schedules.

5.    Implementation – The next step is the implementation of these measures

6.    Feedback – To complete the planning process, there should be a review of the whole planning process.  These help to take corrective actions and serve as control process.  Any good plan must always have a feedback.

 

Question 5:

How would you evaluate the potentials and performance of the current Federal Government Subsidy Reinvestment Empowerment Programmed (SURE-P) with regards to small businesses in Nigeria?

ANSWER:

Subsidy Reinvestment and Empowerment Programme (SURE-P) is a 3—4 year programme designed to mitigate the immediate impact of the removal of fuel subsidy and accelerate economic growth through investments in critically-needed infrastructure.

It is noteworthy that, while the 2012 budget allocated the best possible amounts to these critical projects, additional resources are allocated to the same projects in the Subsidy Reinvestment and Empowerment Programme (SURE-P) to ensure that they are completed at faster rates than envisioned in the 2012 budget.

Some of the projects and allocations are as follow:

WORKS

• N11bn is allocated to the Abuja-Lokoja road in the 2012 Budget, with an additional N14bn from the Subsidy Reinvestment and Empowerment Programme (SURE-P).
• N6bn is allocated to Benin-Ore-Shagamu, with an additional N16.5bn to be financed through SURE Programme.

• N3bn is allocated to Port-Harcourt–Onitsha road, with an additional N5bn from the Subsidy Reinvestment and Empowerment Programme (SURE-P).
• Similarly, N18.5bn is allocated to Kano-Maiduguri road, with an additional N1.5bn from SURE Programme.

• Provision is made in the 2012 budget for construction of the Second Niger Bridge (N2bn) and Oweto Bridge (N3.5bn). An additional N5.5bn and N4bn would be spent on both bridges respectively from the SURE Programme.
• Provision of N23.5bn is made for maintenance of roads and bridges across the country through Federal Road Maintenance Agency (FERMA).

POWER

• The total amount allocated to the power sector (including Bulk Trader, Nelmco, and Multi-Year Tariff Order (MYTO) and PHCN privatization) is N248bn.
• A sum of N392 million allocated to Nigeria Electricity Liability Management Company and N650 million for Bulk Trader.

• In the 2012 Budget Proposal, a sum of N3.7bn is allocated to the Kaduna Dual Fired Power

 Plant.
• Similarly, N2bn is allocated for the completion of the small and medium hydro-electric power plants Oyan Dam Hydro Power (Ogun state).

• A sum of N2.2bn is allocated for feasibility studies regarding the establishment of coal fired power plants.

• Additionally, N155bn will be spent on Power projects (Mambilla power plant, Coal Power Plant and Small Hydro power plants) through the SURE-P over the period 2012-2015.

AGRICULTURE & RURAL DEVELOPMENT

• The total allocation to the sector is N78.98bn
• N4bn is allocated to research and mechanisation
• Provision of N1.22bn is made for the construction of access roads to each of the 6 Staple Crop Processing Zones.

• Value Chain: N720 million is allocated to the development of value chains in cocoa, rice, maize, livestock, cotton and others sectors.
• N1bn is allocated to the Price stabilisation scheme.
• N610 million to facilitate for the access to credit, fertilizers and seeds.
• An additional sum of US$500m is expected from Development Finance Institute to support the sector.

TRANSPORT

• Rail lines: The 2012 budget allocates N3.95bn, N3.15bn and N3.35bn to the construction and completion of Abuja-Kaduna, Lagos-Ibadan and Ajaokuta-Warri rail lines respectively. In addition, the Subsidy Reinvestment and Empowerment Programme (SURE-P) allocates N11.6bn to the Abuja-Kaduna line and N9.3bn to the Lagos-Ibadan line.
• Provision of N800mn is made for the procurement of wagons, coaches and locomotives.
• Dredging project: N1.2bn is allocated to the dredging of Lower River Niger (Warri-Baro).

EDUCATION

• The total allocation to the sector is N400bn
• N11.6bn is allocated for existing universities.
• N7.7bn is allocated for the restructuring to Unity Schools.
• National Teachers Institute: The 2012 budget allocates N3.5bn to the retraining of teachers for basic education and training in innovative teaching.
• Moreover, an additional N24.6bn will be spent on vocational training centres from the Subsidy Reinvestment and Empowerment Programme (SURE-P).

HEALTH

• N4.6bn is allocated to the Polio eradication programme
• N3.5bn is allocated to the procurement of HIV/AIDS Drugs
• The sum of N174 million is allocated to Integrated maternal, newborn and child health strategy, including capacity building, and promoting school health initiatives.
• N8.42bn is allocated to Federal University Teaching Hospitals.
• N6bn and N3.6bn are allocated to the procurement of vaccines and midwifery service scheme respectively.
• An additional N73.8bn will be spent on Maternal and Child heath from Subsidy Reinvestment and Empowerment Programme (SURE-P).

AVIATION

• Various Airports: N22.2bn is allocated for the modernization of airport terminals and upgrading of facilities in the six geopolitical zones of the country.

FEDERAL CAPITAL TERRITORY ADMINISTRATION

• N3.1bn is allocated to the construction of a 20,000m3/hr lower Usuma dam Water Treatment Plants.
• N2.5bn is allocated to the construction of Cultural and Millennium Tower.
• N1.25bn is allocated to the Development of Idu Industrial Area (1b Engineering Infrastructure).
• Various road projects including the completion of roads B6, B12 and circle road (N4bn), rehabilitation and expansion of airport Expressway (N7.53bn).

NIGER DELTA

• East-West Road (Section I—V): The 2012 budget allocated N22.2bn to this road. In order to accelerate its completion, an additional N21.7bn is allocated in 2012 from the SURE programme.

WATER RESOURCES

• N1.2bn is allocated to the construction of Central Ogbia Regional Water Project.
• A total of N4bn are allocated to the construction of dams.
• Other provision for water facilities (i.e. regional water supply scheme) of N8bn.
• Rehabilitation of river Basin authorities (12 nos) of N13.91bn.
• Moreover, over the period 2012-2015 an additional N205.5bn will be invested in rural water scheme, water supply scheme, irrigation scheme and other water related projects from Subsidy Reinvestment and Empowerment Programme (SURE-P).

In summary, these projects will not only significantly improve the country’s infrastructure, but will also help the small business to thrive and create millions of jobs for Nigerians.

QUESTION 6:

Budgets are plans as well as control.  Discuss this statement with regards to SALES and CASH BUDGETS for Small Business.

ANSWER:

I will give you hints on how to answer this question so that you can answer it in your own way. Sales budget helps you to plan ahead for on how many quantities you want to sell in your products and how you can go about achieve it while the cash budget helps you to know how cash is been spent and who it comes in.  Cash budget consists of “Cash inflows and Cash outflows”

Note:  You can summarize these answers since you have it typed by me, just copy and paste and edit it – remove the long stories and leave only the areas you think you can remember – so that you don’t read all these stories and forget – you need to summarize it okay.

Good luck to you all.

Remember, if you have Patience, you will have Good- Luck!