THE EFFECT OF BUDGETING ON THE PROFITABILITY OF SMES IN GOMBE METROPOLIS

ABSTRACT Small and Medium Enterprises (SMEs) are known as a catalyst in economic development by promoting employment, innovation, and GDP growth, particularly in developing economies like Nigeria. Despite their significance, SMEs in Nigeria face financial and operational challenges, with ineffective budget planning emerging as a key constraint on profitability. This study evaluates the relationship between budget planning practices and SME profitability in Gombe Metropolis, assessing the effectiveness of budgeting, identifying challenges in adoption, and recommending strategies for financial improvement. The study adopted a Contingency Theory and Resource-Based View (RBV) as guiding theories, and a descriptive survey research design. The data collection was obtained from SME proprietors, owners/managers, and employees, through the completion of structured questionnaires. The data was analyzed using correlation and regression method, and it was found that while some SMEs have adopted basic budgeting practices, there are gaps in comprehensiveness, involvement of stakeholders, and use of technology in the budgeting process, and there was a moderate correlation between budget planning and profitability. Common challenges facing SMEs in adopting budgeting practices were identified as the ever-changing nature of the economy, lack of (financial) resources, and low levels of financial literacy. The study recommends adopting digital budgeting tools, enhancing financial training, and implementing flexible budgeting strategies to address economic volatility. By establishing a budget-profitability link in an understudied region, the study contributes to literature and suggests avenues for future research on sector-specific budgeting frameworks and financial literacy programs.