Chapter 2

Review of Related Literature and Studies

The researchers reviewed various related literature and studies related to the

present study which was gathered from the internet, published and unpublished theses,

journals and different books to conceptualize the research problems. The researchers

considered it significant in understanding the present concern of the research.

Related Literature

Based on the definition under Republic Act No. 9501 or the Magna Carta for

MSMEs, which amended RA 8289 and RA 6977 (Magna Carta for Small Enterprises)

micro-enterprises in the Philippines can be characterized by size of assets, size of equity

capital, and number of staffs. A typical micro-enterprise is an enterprise that employs

nine people or fewer, with investments as low as ₱3 million and below. Approximately

90 percent of all companies in the Philippines are classified as micro companies. These

are companies involved in sector, agribusiness, and/or services, whether single-owned,

cooperative, partnership or corporation. Their total assets, including those that arise from

loans but excluding the land on which the office, plant and equipment of the particular

business entity is located, have a value not exceeding ₱3 million. Department of Trade

and Industry 2017 MSME Statistics- Sectoral Distribution shows that of all micro

businesses, about 46 percent are involved in the wholesale, retail and maintenance
business; 27.6 percent are involved in accommodations and food service; 13.5 percent are

involved in manufacturing; while 12.5 percent are involved in other service categories.

Establishing new micro business is easy and the first step to do it is to finance

your business. Debelak D. stated in his book that MSMEs is finance either by debt or

equity, or by a combination of both. Typically, both kinds of funding come from either

the Informal Finance Sector (IFS) or the Formal Financial Sector (FFS). Commercial

banks, microfinance banks, international development agencies etc. are some examples of

formal finance sector that is made up of formal finance intitutions. He revealed that

commercial banks and development banks is the most popular source of finance for

enterprises. The informal sector which consist of borrowing from friends, relatives and

cooperatives are also important source of financing MSMEs. Personal savings is another

source of financing MSME. Operations includes everything you do to buy, build, provide

or produce items or services in order to offer your product or service; it also involves

administration tasks, to require to run the business. Operation sections of plans are

intensely different from plan to plan today, because businesses operate in so many

various ways. Production is often outsourced to other businesses and, in some cases, so is

sales, marketing, administration and human resource functions. The one part of the

business plan that hasn’t changed for years is the management section. Good

management will succeed in most businesses and bad management can turn even the best

business concepts in business failures. Management has to start somewhere and there

have been many successful businesses started by young or in experienced entrepreneurs.

If at all possible, you want to be able to show your management has a successful
background. If you don’t have that experience, you need to show that management has

dedication and enthusiasm and that you have found mentors who will help you.

According to the Association of Chartered Certified Accountants or ACCA

(2016), building up the privilege money related capacities, and utilizing them, requires

the correct culture in the business. At the highest point of the association, proprietors and

directors must see how money related administration can add to the accomplishment of

the business. They added that moving toward money related administration as a task to be

designated leaves you at significant hazard if things turn out badly. Representatives need

to perceive how money related administration can enable them to perform better, instead

of simply forcing controls on them. They conclude that the business will expand its

prosperity on the off chance when you prepare to perceive how money related

administration can help accomplish the objectives. Money Utilization Strategies

As stated by Woodruff J. (2019), one of the most important responsibilities of

business owners and managers is financial management. They should consider the

potential effect of their decisions on their profits, cash flow and financial condition of the

company. Every activity has an impact on their business’ financial performance and must

be controlled and evaluated by the owner. Effect of Money Utilization Strategies

In accordance with the book of McCloskey D., The Applied Theory of Price,

producing too small output leaves a positive area of profit foregone; the profit that you

could be had is minimized. It sacrifices potential profit because the marginal revenue of

unit is more than its marginal cost. Producing too large leaves a negative area of loss
incurred, the profit is also sacrificed because the marginal revenue is less than the

marginal cost. Only producing at “just right” can maximize profits. The simplest way to

determine that you produced just right is to note that anywhere else an increase or

decrease in quantity produced can make more money. Production Strategy/Cost

minimizing/Profit maximizing

Camposano (2007) stated that when sales expand, many entrepreneurs ignore

their descriptions for working capital. They fail to provide for the larger working capital

base required to support their larger volume of sales. Some entrepreneurs think that the

increased profit from the larger sales volume will take care of increased capital

requirement. Increase in sales will usually cause accounts receivable to rise, more

inventories to be brought and additional employees may have to be hired or new

equipment purchased. All of these changes will put demands on the firms’ working

capital and the wise entrepreneur will have done some planning to see that there is

adequate working capital to meet these needs.

Related Studies 4 pa lang

André Ligthelm’s (2012) study, using a life-cycle analysis showed that there are

only 43.2% micro businesses survived in an increasing competitive environment over a

period of five years. He additionally expressed that the human issue and, especially the
entrepreneurial endowment and small business management skills appeared as strongest

predictors of micro business sustainability. Years.

According to the study of Dr. Parilla (2013) entitled Level of Management

Practices of Micro and Small Businesses in Ilocos Norte, micro and small business

owners in Ilocos Norte is owned by young graduates and married woman. Most of them

have no proper trainings nor attending various seminar and not affiliated with

professional organizations. Also, most of the micro business in Ilocos existed for less

than 5 years and mostly retail type of business and have only one owner. They started

with an initial capital of 500,000 and have 1-2 employees who are usually family related.

Also, as revealed by their level in the personal entrepreneurial competencies survey, both

micro and small have their capability to manage their business. Micro business is

observed with moderate level of management practices compared to the small business.

Years, employees.

The study of Madelyn R., Aplaon M., Paguio E., San Jose A. (2016) conducted in

Davao City stated that the most street vendors don’t have a plan in terms of their

strategies. Most of them are neither business graduate nor oriented. They only manage

based on their own perception of their knowledge and instincts. They found out that

having business plan may help in business success and lack of planning and technical

knowledge lead to bankruptcy. Also, street vendors don’t give importance about keeping

records. They only used estimation and simple computation based on their experiences.
 Barte R. (2012) study entitled Financial Literacy in Micro Enterprises: The Case

of Cebu Fish Vendors shows that the pasil fish vendors have low financial skills. It is

because most of the vendors do not have proper recording of various transactions, have

poor systematic income and expenses evaluation or have no income statement at all. They

also lack on cash planning and also result to high interest due from loan. Because of the

combination of these problems, they are difficulty in facing the concerns of their micro

enterprise and affects their income and progress to some point. Financial skills.

The study of Gawali, R. and Gadekar, A. (June, 2017) entitled Financial

Management Practices in Micro, Small and Medium enterprises-An Exploratory Analysis

with the help of Literature Review points that the importance of improved financial

management decisions based on efficient, vital financial management practices for the

survival and growth of MSMEs. It also concludes that accounting and financial

knowledge, competencies in the interpretation of financial statements, attitudes of

owners-mangers and their level of involvement in financial aspects of business are

largely responsible for the success or failure of MSMEs. Financial management.

In Rekish S. study, it examines the need for efficient use of resources. Critical

management resources are involved in financial management. It merely means that

financial resources optimization can address the inevitable cost and danger. She stated

that financial management means putting together the economic resources at hand to

make efficient use of them and to take decisions that can lead to more assets being

acquired for the business. She added that you can even draw finance with efficient

leadership of resources to satisfy the company’s short-term and long-term demands. She
concluded that the whole method is difficult and deals, if any, with the choice of

particular resources or a mixture of resources to address the economic problem. Financial

management

Synthesis of the State-of-the-Art

The review of related studies that were used has certain similarities and differences with

the current study. General findings found various impact of money utilization to the

profitability of micro businesses.

Based on the study of Dr. Parilla (2013) that was conducted in Ilocos Norte most micro

businesses doesn’t last for 5 years of chuchus.. It was supported by the study of

Lighthelm. (2012).

Also, according to the study conducted by Madelyn R., Aplaon M., Paguio E., San Jose

A. (2016), most business don’t have a plan in terms of their strategies. It was supported

by Barte (2012). It is important that business should have proper money management as

stated by Debelak D (2003), Association of Chartered Certified Accountants or ACCA

(2016), Woodruff J. (2019), as it has an effect on the profitability of the business as stated

by Camposano (2007), McCloskey D.

Gap to be Bridged by the Study/Gap Bridged by the Study

 There is no

Theoretical Framework

The researcher adapted the theory derived from Profit Theory of Management

Efficiency. According to the article by Nikita Dutta, this theory acknowledges that some

businesses are more effective than others in managing productive activities and meeting

consumer requirements effectively. Businesses with an average efficiency level earn an

average return rate. Businesses with greater management abilities and effectiveness in

manufacturing must be compensated for by above-normal revenues (i.e. financial profits).

This theory is therefore also called profit compensatory theory. Deeksha Bhardwaj

supported that profit arises as a consequence of managerial effectiveness is often

asserted. In many instances, it can be shown that management can reduce the cost of

doing business by means of more efficient operations, anticipate and offset changes that

will adversely affect the income of the company, adopt new marketing techniques,

improve product quality and expand the product line to increase profit.

Theoretical Paradigm

Figure 1

Profit Theory of
Management Efficiency
 Effect of Money Utilization to the
Profitability of Micro Businesses in
Daet

Conceptual Framework

The conceptual framework of this research on the effect of money utlilization to the

profitability of micro business was anchored on the Profit Theory of Management

Efficiency. As adapted in this study, the money management/ utilization of the business

like investing, replenishment of inventories, payment of salaries, mark-ups, payment of

taxes, surcharges and penalties, drawings for personal use, purchases of supplies and debt

(independent variable) with effective management can affect the business profitability.

Nikita Dutta supported that the businesses with greater management abilities and

effectiveness must be compensated for by above-normal revenues.

Conceptual Paradigm

Money Management
Investments
Replenishment of inventories
Payment of salaries
Mark-ups Profitability of
Taxes, surcharges and
penalties Micro Businesses
Drawings for personal use (Dependent Variable)
Purchases of supplies
Debt

(Independent Variable)
 Notes

Senate of the Philippines (March 2012). The MSME Sector at a Glance. Retrieved from

https://www.senate.gov.ph/publications/AG%202012-03%20-%20MSME.pdf

Department of Trade and Industry. 2017 MSME Statistics – Sectoral Distribution.

Retrieved from https://www.dti.gov.ph/dti/index.php/2014-04-02-03-40-26/news-

room/179-workshop-on-market-access-for-MSMe-set

Debelak D. (2003). Successful business models Surefire Ways to Build a Profitable

Business. Entrepreneur Media, Inc. Canada.

E.C. Gbandi, PhD, G. Amissah, PhD. (2014). Financing Options for Small and Medium

Enterprises (SMEs) in Nigeria. European Scientific Journal. Vol 10.

The Association of Chartered Certified Accountants (May 2016). Financial management

and business success – a guide for entrepreneurs.

Woodruff J. (2019). Why is Financial Management So Important in Business?. Retrieved

from: http://smallbusiness.chron.com/financial-management-important-business-

57073.html.

McCloskey D. (1985). The Applied Theory of Price. Chapter 11. Page 234-236.

Macmillan Publishing Company. New York.

Camposano A. (2007). Entrepreneurship for Modern Business. Page 287. Mandaluyong

City, Metro Manila. National Book Store.

André Ligthelm. The viability of informal micro businesses in South Africa: A

longitudinal analysis (2007-2011). Retrieved from:

https://www.researchgate.net/publication/304185138_The_viability_of_informal_micro_

businesses_in_South_Africa_A_longitudinal_analysis_2007_to_2011

Parilla, E. (2013). Level of Management Practices of Micro and Small Business in Ilocos

Norte. International Journal of Academic Research in Business and Social Sciences Vol.

3 No. 7. Retrieved from www.hrmars.com/journals.

Madelyn R., Aplaon M., Paguio E., San Jose A. (2016). Money Utilization and

accounting practices among street vendors of Davao City. International Journal of

Development and Sustainability. Retrieved from: www.isdsnet.com/ijds

Barte R. (2013). Financial Literacy in Micro Enterprises: The Case of Cebu Fish

Vendors. Retrieved from http://www.academia.edu/4172293/Cebu_Fish_Vendors.

Gawali, R. and Gadekar, A. (2017). Financial Management Practices in Micro, Small

and Medium Enterprises – An Exploratory Analysis with the help of Literature Review.

Retrieved from http://euroasiapub.org/wp-content/uploar=ds/2017/07/5FMjune-4986-

1.pdf

Rekish, S. (2013). Analysis of Effective Utilization of Funds. Page 42-46 Volume 2 Issue

11. Retrieved from www.ijbmi.org

Nikita Dutta. Top 5 Theories of Profit – Explained!. Retrieved from

http://www.economicsdiscussion.net/profit/top-5-theories-of-profit-explained/6101

Deeksha B. 4 Main Theories of Profit. Retrieved from

http://www.yourarticlelibrary.com/microeconomics/4-main-theories-of-profit/82113