CHAPTER ONE
INTRODUCTION
1.1 Background of the study
Like little drops of water that forms a mighty ocean, the littleness of small scale businesses from the cradle has been the bedrock of industrialization in developing countries of the world. Globally, small scale enterprises have contributed enormously in improving the standard of living of the people by providing jobs to relieve the society of social embarrassment, stimulating indigenous entrepreneurship and utilizing scarce resources. Presently, as part of the Millennium Development Goals (MDGs), effort is being made to reduce poverty rate in developing countries. Effort is also being made to reduce the reliance of people on government and so-called ‘white collar jobs’. These are achieved through the growth and development of small scale enterprises (Eneh, 2007).
Furthermore, small scale enterprises play important roles in the economic growth and development of every nation. They are a veritable vehicle for the achievement of national macro-economic objectives in terms of employment generation at low investment cost and enhancement of apprenticeship training. Financial literacy as the name implies occupies a centre-stage in the quest to achieve an overall degree of success in an organization, (Bernheim, 2008). It also enhances to a reasonable degree, a business goal of financial profit. Thus, financial literacy (or lake thereof) has played a key role in the success and failure of our nations business for the past centuries. Companies and businesses have therefore been charged with ensuring that adequate and proper books of accounts are kept so as to ensure reliability of their financial statements. This will in the long run help improve their level of profitability.
Furthermore, profit can analogously be viewed as the life-blood of a business and hence the accounting bases, concepts and principles adopted ought to capture and report all the relevant information to ensure reliability in its measurement (Nelson and Onias, 2011). Also Enikanselu and Oyende (2009) made it clear that no business can run effectively without being financially literate and also having one form of accounting records or the other. It can therefore be deduced that appropriate financial literacy is important for a successful management of any business, whether big or small. Consequently, suffice is to say that it is crucial that financial literacy be encouraged among small scale enterprises so as to enable them be able to supply complete and relevant financial information needed to improve on decisions made by them, and to also enhance their profitability. This research study therefore examines financial literacy and its impact on profitability of small scale enterprises.
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