The Effects of Assets Management on the Financial Performance of Small Businesses

ABSTRACT

Many failures in business entities have been blamed on the poor management of assets. Small businesses produced financial reports without an independent examination of the asset management structures. This study seeks to unveil the effect of asset management on the financial performance of Small sized businesses (SSBs). Using five variables in a three-section questionnaire of 28 Like t-type questions and open ended questions, with the use of primary sources of data collected from the main source with the help of questionnaires and a sample size of 31 respondents per the responses returned. The study covered over 30 different shops located in Buea to examine the use of assets management for a period of 5 months. The methods of data analysis used to carry out this study were descriptive with the use of frequency tables and inferential too with the used of regression data analysis. The major findings, were that fixed assets management, account receivable and inventory management has a significant effect on the financial performance of small businesses in Buea leading to a positive relationship whereas cash management has no significant relationship with the financial performance of small businesses leading to a negative relationship. On the basis of the major findings, it was recommended that SSBs prepares an asset register and also tag the non-current assets each time in other to know the historical cost, so as to account for depreciation every year of the assets useful life. Create a re-order level policy for their institutions that will create an enabling environment for them to request for the supply of moderate and high quality fixed assets. An institution of such a policy paves the way for businesses to identify the best sellers of their wanted products in the market at peculiar seasons. Another spill over effect of such a policy shall be the eschewing of price fluctuations and pirated goods. To this end, it is recommended that SSBs at large and their Boards of Directors should put a firm eye on the asset management performance.

Keywords: account receivable management, cash management, fixed assets management, inventory management and financial performance.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Assets management is a systematic process of developing, operating, maintaining, upgrading, and disposing of assets in the most cost effective manner including all cost, risk and performance attributes. Assets can be classified into two major classes that is tangible assets and intangible assets. Tangible assets are made up of some classes which are fixed assets (examples land, building, vehicle etc.) and current assets (examples cash, account receivables, prepaid expenses, inventory etc.). Intangible assets are goodwill, patent rights

Small Sized Businesses (SSBs) comprises of organizations that usually provides services and job opportunities to employees numbering 1-30 but less than 250 employees. These small and medium sized enterprises are present in all economy and play a very critical role in reducing poverty as a source of income and for the reduction of unemployment.

Studies in the US and the UK highlight that weak assets management is a major cause of the failure of small businesses, compared to large firms (Peel and Wilson, 1996; Dunn and Cheatham, 1993). Thus, there is an increasing emphasis on efficient financial management (Including working capital management) to reduce the probability of their closure. The genesis of the movement toward Asset Management in the United States has been an understanding of the need for it.

Highway agencies in the United States have moved their primary focus many times during the last 50 years. There was a shift from expansion to preservation from the 1960s to the mid1980s, and then the focus changed to reinventing government from the mid1980s to the beginning of the new century. From that point of time until now, the focus has been on employing sound business practices. This new focus has many implications, including embracing quality, emphasizing the need to address strategic rather than tactical issues, integrating economics and engineering, and taking advantage of the progress made in information technology (America Association of State Highway and Transportation Officials, 1999). Meanwhile, Asset Management has already been widely accepted by the private sector worldwide and has been practiced since the mid-1990s by transportation agencies in the United Kingdom, Australia, and New Zealand (Stalebrink and Gifford 2002). Hence, transportation agencies in North America had one more reason to investigate whether this was an approach that they wanted to endorse and apply (McNeil 2000).

In Ghana a similar Study among listed manufacturing companies indicated that small firms need to focus on critical areas such as managing the size of the working capital, improving the efficiency of working capital use and reducing the cost of operations to survive cash flow problems (Ebenezer and Asiedu, 2013).

In 2018, the asset management sector in South Africa handled approximately R4.6-trillion in private equity and assets – nearly the equivalent of the country‘s gross domestic profit (GDP) for the same year. At this valuation, it‘s clear that this industry plays a crucial role in the allocation of capital that is essential for the growth, development and evolution of our economy and society.

In a society like South Africa‘s, where unemployment is high and fostering a diversified economy is essential to create sustainable growth, the asset management industry is pivotal not only in improving our economic outlook, but also our social outlook. With healthy cash flow, this sector can assist in eradicating poverty and reducing inequality – two important objectives of the National Development Plan. In Cameroon, SSBEs officially make up 95% of the country‘s economy, affirms Laurent Serge Etoundi Ngoa, Minister of Small and Medium size Enterprises, Social Economy and Craft, in an interview. Fully aware of SMEs‘ importance in any development strategy, Cameroon has been increasing, in the last few years, its support for them. This includes the creation of the SME Bank on July 20th, 2015 in Yaoundé which was conceived to reduce the challenges faced by SMEs in Cameroon when seeking financing, and the opening of the Upgrading Office, with the EU‘s support, to reinforce the competitiveness of Cameroonians.

Asset managers make investment decisions to grow clients‘ capital and obtain good returns. These professionals also have a duty of care towards their clients that requires them to act with skill and due diligence and in their clients‘ best interests. Aside from good returns, investors also wish to retire in an environment that is strong, balanced and peaceful; hence asset managers must make investment decisions that will further such a goal. Asset Management is a generic framework of tools and methodologies aimed at enhancing assets management by emphasizing good business practices and asserting the holistic approach. It incorporates elements of various diverse disciplines such as accounting, value engineering, life-cycle cost analysis, economics, risk management, and user satisfaction (Danylo 1998). It also differs from the traditional management practices in the following ways:  Applies strategic, rather than tactical, measures, goals, and policies.  Addresses decisions in a network, system-wide fashion rather than at a project level.

Integrates existing individual infrastructure systems and databases in a common interoperable environment.  Introduces and incorporates financial and economic performance measures, ideas, and theories and treats the infrastructure management process as a business, which requires efficiency and effectiveness.  Models internal processes after the private sector.  Establishes efficient documentation and communication of the decision-making process, which yields two significant benefits: (1) making management decisions transparent to all kinds of shareholders and (2) rendering decision makers accountable for their choices. Asset Management combines engineering and economic principles with sound business practices to support decision making at the strategic, network, and project levels. One of the key aspects of the development of Asset Management is data collection. The way in which transportation agencies collect, store, and analyze data has evolved along with advances in technology, such as mobile computing (e.g., handheld computers, laptops, tablet notebooks, etc.), sensing (e.g., laser and digital cameras), and spatial technologies (e.g., global positioning systems [GPS], geographic information systems [GIS], and spatially enabled database management systems). These technologies have enhanced the data collection and integration procedures necessary to support the comprehensive analyses and evaluation processes needed for Asset Management (Flintsch et al., 2004).In many cases, however, the data collection activities have not been designed specifically to support the decision processes inherent in Asset Management. As a result, the use of the aforementioned technologies has led agencies to collect huge amounts of data and create vast databases that have not always been useful or necessary for supporting decision processes.

1.2 Statement of the Problem

Assets management is poorly understood by most SSBs in many parts of the developing world of which Cameroon is one. The problems faced due to lack of assets management are as follows;

No Asset Information in the event that you don‘t even have the foggiest idea that how many assets are there in your organization and what‘s their status. Nobody takes note on what happens to those assets that you own. Assets failure that is when an unexpected breakdown of machines occurs, it not only costs money but also decreases the productivity of the organization, ghost assets can really hurt your business very badly because it directly impacts the organization‘s bottom line. Ghost assets are assets mentioned in the books but physically they are not available loss due to poor managements, maintenance too often during the whole operational asset life, giving too much maintenance than it is required, is an issue or giving too often is also an issue. So, there should be a balance between maintenance activity and done only when it‘s required. Because it is inefficient for the maintenance team and it will only produce big maintenance bills. Assets maintained are building furniture and so on.

With reference to case study the business current situation due to lack of assets management is at a breakeven point where total revenue (TR) is equal to total cost (TC) in the long run where TC will be greater than TR this small business might leave the business as any other small business if special care is not taken.

The long run perception was the researcher push factor to use the case study.

1.3 Research Questions

In the view of the above stated problems, this study is therefore designed to provide answers to the following questions:

The main question is; what is the relationship between assets management and financial performance of small business case of ALPHATELECTRONICS?

The specific questions include:

1. Does cash management has a relationship with financial performance of ALPHATELECTRONICS?
2. How is inventory management related to financial performance?
3. What is the relationship between accounts receivables management and financial performance?

1.4 Objectives of the Study

The main objective is to examine the relationship between assets managements and financial performance with reference to ALPHA TELECTRONICS Cameroon-Buea

Specific objectives are;

1. To determine the relationship between cash management and financial performance of ALPHATELECTRONICS.
2. To establish the relationship between inventory management and financial performance.
3. To determine the relationship between accounts receivables management and Performance

FURTHER READING: ACCOUNTING PROJECT TOPICS WITH MATERIALS