Application of Break-Even Analysis in SME Financial Planning in Kaura Namoda LGA
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- NGN 5000
Background of the Study
In Kaura Namoda LGA, SMEs play a significant role in driving economic activity. However, many of these enterprises struggle with managing their finances and ensuring profitability. Break-even analysis, a financial tool that helps businesses determine the point at which their revenues equal their costs, can be a valuable tool for financial planning in SMEs. This study will explore how SMEs in Kaura Namoda LGA apply break-even analysis to enhance their financial planning and ensure profitability.
Statement of the Problem
Many SMEs in Kaura Namoda LGA face challenges in determining their financial thresholds and understanding the relationship between costs, revenues, and profitability. Break-even analysis could be a critical tool for helping these enterprises make informed financial decisions, but its use remains underexplored in the region.
Aim and Objectives of the Study
Aim: To assess the application of break-even analysis in SME financial planning in Kaura Namoda LGA.
Objectives:
- To evaluate the current use of break-even analysis by SMEs in Kaura Namoda LGA.
- To determine how break-even analysis impacts the financial planning and profitability of SMEs.
- To identify the challenges faced by SMEs in implementing break-even analysis.
Research Questions
- How is break-even analysis applied by SMEs in Kaura Namoda LGA?
- What impact does break-even analysis have on financial planning and profitability in SMEs?
- What challenges do SMEs face in implementing break-even analysis for financial planning?
Research Hypothesis
- H₀: Break-even analysis does not significantly influence financial planning and profitability in SMEs in Kaura Namoda LGA.
- H₀: There is no significant relationship between the use of break-even analysis and financial performance in SMEs in Kaura Namoda LGA.
Significance of the Study
The findings will provide insights into the effectiveness of break-even analysis as a tool for financial planning in SMEs, which could help improve profitability and financial stability in Kaura Namoda LGA. The study may also contribute to the promotion of financial literacy and the adoption of better financial practices by SMEs.
Scope and Limitation of the Study
The study will focus on SMEs in Kaura Namoda LGA, particularly in retail and small-scale manufacturing sectors. Limitations include potential reluctance to share financial information and the availability of accurate financial records.
Definition of Terms
- Break-Even Analysis: A financial calculation that helps a business determine the level of sales at which it will cover its costs, with no profit or loss.
- SMEs (Small and Medium Enterprises): Businesses with relatively small operational scale, often defined by employee count or revenue.
- Financial Planning: The process of managing a business's finances to achieve long-term goals, including budgeting, forecasting, and cost management.
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