An Evaluation of Financial Management Practices in Nigerian SMEs: A Case Study of Manufacturing Firms in Lagos State
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Background of the Study
Financial management is a critical component for the survival and growth of small and medium-sized enterprises (SMEs). In Nigeria, SMEs contribute significantly to economic development, accounting for nearly 48% of the nation’s gross domestic product (GDP) and over 84% of employment opportunities (SMEDAN, 2023). Despite their importance, many SMEs in Lagos State face significant challenges due to inefficient financial management practices. These practices include budgeting, financial forecasting, investment decisions, and risk management strategies. Effective financial management ensures optimal utilization of resources, enhances profitability, and facilitates growth.
Manufacturing SMEs in Lagos State play a pivotal role in industrialization and economic diversification. However, this sector has been plagued by poor financial management practices, which have hindered their growth and sustainability. Key issues include inadequate access to finance, poor accounting systems, and insufficient training for financial managers (Ogundele et al., 2024). With Lagos being Nigeria’s economic hub, understanding the financial management practices of its SMEs is vital to devising strategies to enhance their performance.
Recent studies highlight that financial mismanagement remains a leading cause of SME failures in developing economies (Adebayo & Adewale, 2025). Factors such as corruption, poor financial planning, and lack of financial transparency further exacerbate these challenges. It is essential to examine how these practices affect manufacturing SMEs and identify best practices to improve their operational efficiency and competitiveness in a highly volatile business environment.
Statement of the Problem
Despite the critical role of SMEs in Nigeria’s economy, their growth has been stymied by ineffective financial management practices. Manufacturing firms in Lagos State are particularly vulnerable due to high operating costs, limited access to credit, and poor financial planning mechanisms. Previous studies have largely focused on general financial constraints faced by SMEs, with limited attention given to the unique challenges faced by manufacturing firms. This gap in knowledge hinders the development of targeted solutions for improving financial management practices within this critical sector.
Objectives of the Study
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To assess the current financial management practices adopted by manufacturing SMEs in Lagos State.
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To identify the key challenges affecting the implementation of effective financial management in these firms.
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To propose strategies for improving financial management practices to enhance the growth and sustainability of manufacturing SMEs in Lagos State.
Research Questions
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What are the current financial management practices used by manufacturing SMEs in Lagos State?
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What challenges hinder the effective implementation of financial management practices in these firms?
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What strategies can be adopted to improve financial management practices in manufacturing SMEs?
Research Hypotheses
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H₀: There is no significant relationship between financial management practices and the growth of manufacturing SMEs in Lagos State.
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H₀: Inadequate access to finance does not significantly affect the financial management practices of manufacturing SMEs.
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H₀: Financial planning does not have a significant impact on the profitability of manufacturing SMEs in Lagos State.
Scope and Limitations of the Study
This study focuses on manufacturing SMEs in Lagos State. Data collection will be limited to registered SMEs within the manufacturing sector, and findings may not generalize to other sectors or regions in Nigeria. Time constraints and limited access to financial records may also affect the depth of data collected.
Definitions of Terms
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Financial Management Practices: Activities such as budgeting, financial planning, and investment decision-making that help organizations manage their finances effectively.
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SMEs: Small and Medium-sized Enterprises as defined by Nigeria’s Small and Medium Enterprises Development Agency, with an employment range of 10 to 199 employees.
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Manufacturing Firms: Businesses involved in the production of goods through the transformation of raw materials.
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Growth: The increase in revenue, market share, and profitability of SMEs.
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