The Impact of Financial Management on the Profitability of Online Micro Businesses

A Research Project Submitted in the College of Education and Liberal Arts

College of Business Administration

In Partial Fulfillment of the Requirements

For Business Technical Writing

De Roxas, Charisse Anne V.

Estabillo, Karla Lorraine E.

Gonzales, Jewel Cheryl L.

Salvatierra, Blaizah Mae M.

Samson Eizzel Marie C.

3:30 – 5:00 PM

Mr. Rizal O. Dapat, PhD

November 2020
 CHAPTER 1
THE PROBLEM AND ITS SETTING

BACKGROUND OF THE STUDY

Finance serves as the fuel and core of every business as it allows them to successfully run

their day to day operation. The money generated from the business is necessary to meet incurred

operational expenses, purchase supplies and materials, pay outstanding debts, and fund future

unforeseen costs. Considering this aspect, utilization of financial management plays a vital role in

sustaining a business’ profitability and keeping it fully functional. Financial management enables

businesses to create competitive advantage by aiding them in achieving short-term and long-term

objectives.

In the Philippines, most online micro businesses fail in less than five years due to poor

financial management (Abrugar, 2013). While it is not unusual for businesses to experience

challenges, it is the performance of financial management that determines the possibility of

unexpected business failure. Unlike established companies, online micro businesses do not have

adequate resources to employ financial advisors and fund financial consultations and trainings.

Online micro business owners are simply focused on earning a living, thus proper financial

management is not their priority. They solely rely on their basic finance skills and knowledge.

Some of them neglect to consistently practice financial management as they do not understand

how crucial it is to profitably operate and stay in business.

Due to the pandemic threat, a 4,000% increase in online business is reported in which

majority of it are micro businesses (Department of Trade and Industry, 2020). Hence, it is more
necessary for the online micro business owners to understand the impact of practicing financial

management as their daily cost of living is dependent on it. No matter the size, extent of reach, and

level of profitability of a business, financial management is still one of the most important tools to

attain business continuity and success.

This study aims to uncover the impact of financial management on the profitability of

online micro businesses to serve as a guide for aspiring entrepreneurs and existing ones. Due to

poor financial management literacy and lack of awareness of its impact, online micro businesses

form negligent and uncalculated financial decisions. By instilling its impact and importance,

online micro businesses would be saved from unbearable consequences.

STATEMENT OF THE PROBLEM

The study generally aims to determine the impact of financial management on the

profitability of online micro businesses. It is guided by the following questions:

1. What are the financial management techniques performed by the online micro

businesses?

2. How does utilization of financial management benefit the online micro businesses in

terms of profitability?

3. What are the impacts of non-performance of financial management on the profitability of

online micro businesses?

SIGNIFICANCE OF THE STUDY

This study centralizes on the impact of financial management on the profitability of online

micro businesses. Upon conducting the study, the researchers aim to inflict an impact to the

following individuals and entities:

1. Students. The students would benefit from the study as it enables better decision-making

skills, allows more capacity of learning on how to succeed in establishing a business, aids

in improving leadership skills, and serves as an eye opener in the business world.

2. Educational Institutions. The educational institutions are also deemed beneficiaries as the

study assists in raising financially literate prospective businesspeople and allows educators

to instill awareness on students pertaining to the impact and importance of utilizing

financial management.

3. New and Aspiring Entrepreneurs. New and aspiring entrepreneurs would be guided by

the findings of this study by allowing them to create an efficient and sustainable financial

management techniques as early as the planning stage. Through this, proactive measures

to counteract probable losses and deficits would be performed.

4. Online Micro Businesses. The focal subject of the study, online micro businesses, would

benefit the most as this would aid on ensuring profitability by stressing the impact of

financial management. The study would help online micro businesses to understand the

importance of making informed investment decisions, performing proper budgeting and

finance handling, maximizing profits while decreasing costs and expenses, sustaining a

higher probability of success, and lessening the likelihood of bankruptcy.

5. Local Government Units (LGUs). The study would allow the local government units to

have an analytic information on the impact of financial management to online micro

 businesses. Through this, LGUs would carry out legislative and supervision roles more

thoroughly and establish ways on raising the bar in terms of financial management literacy

to the benefit of online micro businesses owners.

6. Future Researchers. Lastly, the future researchers would be able to have their potential

topics for future research by modifying aspects and abiding recommendations stated in this

study.

SCOPE AND DELIMITATION

The study is primarily concerned with the impact of financial management on the

profitability of online micro businesses situated within Metro Manila. Only those businesses that

conduct their operation through online platforms and do not have physical stores are the focus of

this research. This study is also limited to micro businesses hence small, medium, and large

enterprises are not covered.

The collection of data is conducted through an online survey with the use of Google Forms.

The survey can be answered by the owner of the business or anyone that has significant

involvement in managing its operation. Only complete answers will be used to assure the validity

of data and minimize inaccuracy.

This study does not aim to suggest effective financial management strategies that

businesses should practice as it is centered only on the impact of financial management on the

profitability of online micro businesses. This research is mainly dependent on the sincerity,

honesty, and integrity of the respondents.

DEFINITION OF TERMS

The following are operational and functional definitions of significant terms that provided

common reference in understanding the concepts, principles and theories utilized in this study:

1. Business. It refers to the activity of making, buying, or selling goods or providing

services in exchange for money.

2. Expense. It refers to the outflow of money or cost of operation of a business to

generate profit.

3. Finance. It refers to the process of studying, raising, and managing money or

financial resources of a business to be used on its day to day operation.

4. Financial Management. It refers to the strategic planning, organizing, controlling, and

monitoring of the cashflows and financial resources of a business. It is the act of

creating profit and securing an acceptable return of investment to carry out business

objectives.

5. Financial Management literacy. It refers to the ability of an individual to understand

proper management of financial resources and make effective business decisions

concerning money.

6. Profit. It refers to the financial gain from business activity less the incurred expenses.

7. Profitability. It refers to the degree in which a business earns profit or financial gain.

8. Online Micro Business. It refers to a type of business that are independently owned

and operates in a small scale using online platforms. It is commonly non-staffed and

appropriates capital funding of less than P100,000.

 CHAPTER 2

REVIEW OF RELATED LITERATURE

This chapter presents substantial literatures and studies attesting the existence and

prevalence of the research problem. It considers both foreign and local literatures and studies to

strengthen the foundation of knowledge about the study. The literature review focuses on the

following themes: the concept of financial management, overview of online micro businesses,

financial management practices of online micro businesses, benefits of financial management

utilization, and effects of non-performance of financial management. This section exhibits

theoretical framework to support the problem being studied and to provide notable perspectives

that will reinforce its totality. A conceptual framework illustrating the input, process, and output

of the research is also discussed.

The Concept of Financial Management

Without finance, a business could not successfully start up, run, and accomplish its

objectives. No economic activities would also be realized. For almost 3,000 years, money has been

in the history of mankind from simple barter system to its transition to current global banking

system. With the quick turn of the century, people could no longer ignore its significance, thus the

actualization of financial management. (Milbrath, 2019)

The London School of Business and Finance (2018) defines financial management as the

act of strategically planning, organizing, directing, and controlling of an organizational or

institutional financial transactions and resources. Its objective is to efficiently optimize, utilize,
and maintain funds. It safeguards the cash inflow and outflow of a business to secure profitability.

Financial management is centered into three (3) elements: financial planning, financial control,

and financial decision-making. Financial planning carries out determination of required

capitalization and framing of financial policies. Under financial control, competent asset handling

and asset security are the key activities. The third element, financial decision-making, involves

decisions regarding investing, capital borrowing, and raising of finance.

Financial management is the art and science of managing business finances to meet its set

goals and objectives. All business decisions, from logistics, procurement, and production to

marketing, sales, and distribution, have financial consequences. (Gitman et al., 2018) The core

function of financial management is interrelated to all internal and external activities of a company.

An excellent skill in capital estimation, profit projection, and risk calculation is required to

effectively carry out financial-related decisions. (Azam, 2019)

Financial management adopted by a business could be “strategical”, “tactical”, or both.

Strategic financial management allows controlling and monitoring of finances with the intention

of attaining long-term success. It ensures profitability of a business and secures acceptable return

of investment (ROI). If a business opted to strategically manage its finances, it may have to endure

present losses and set aside short-term objectives. On the other hand, tactical financial management

focuses more on short-term goals. Financial decisions with immediate results are realized as it is

more concerned on current financial position of a company. (Kenton, 2020) The decision regarding

what type of financial management approach to be applied is highly dependent on the seriousness

of the problem along with its probable impact.

 Regardless of a business size and extent, financial management should be set at the top

priority of business owners. Basic financial management and accounting practices must be

maintained whether a business is merchandising, service, or manufacturing operating locally or

globally (Milano, 2017). To maximize profits and minimize expenses, understanding substantial

and key concepts of managing finances, such as planning, forecasting, budgeting, and cash

management, guarantees a solid foundation.

Overview of Online Micro Businesses

Nowadays, businesspeople live in a technological era where industries radically adapt the

technological advancement to boost their business development strategies. This event opens new

opportunities for all businesses and attracts interest around the world as it increases business

opportunities through new technologies, especially the internet. The internet aids in expanding

existing businesses’ growth and helps the development of start-ups. It enhances a business’

competitive advantage through meeting consumer satisfaction in terms of speed and convenience.

Thus, businesses, regardless of size and extent, use the internet to secure profitability.

People engage in online micro business as it gains momentum on the internet. They could

go beyond what their resources limit because sales and marketing strategies could be easily

implemented. Also, consumers now have multiple channels that could lead them to engage with

online micro businesses. Jani Asia Logistic (2019) discovers that the Philippines has the second-

largest average online user size in Southeast Asia, which indicates how eager local consumers are

to seek out and buy products online. According to a research from IPSOS, commissioned by

PayPal (2015), the internet, aside from increasing the potential number of buyers that a business
could reach, contributes to gaining a competitive driving profitability. A study of Entrepreneur-

Asia Pacific (2008) supports that industries which handle online micro businesses enable them to

receive payments faster and easier as consumers just pay through e-wallets like GCash or through

kiosks.

Numerous definitions of micro businesses exist but there is one thing that is common

among them (Badenhorst, 2010). An Online micro business is relatively small when it comes to

the number of staff which has ideally ten employees, and its assets are not more than P250, 000

per year. (Steve Bulger, N.d).

No matter the size of a business, it significantly impacts economic growth and

development. Based on a study conducted by Global Entrepreneurship Monitor (2004),

approximately 7.5% of the entire numbers of companies in African countries are micro businesses

which contributes 55% of employment. Moreover, they constitute 34.8% of the Africa’s Gross

Domestic Product (GDP). Dube (2007) states that due to the success of the online micro-business,

the GDP and employment of South Africa increase. Online micro businesses contribute to

economic growth through job creation, particularly in rural areas wherein people could create a

micro business that may help their local community. (Broembsen, 2003.)
Financial Management Practices of Online Micro Businesses

A survey conducted in Central Region of Ghana by Mbroh & Quartey (2015) reveals that

in 188 small enterprises and 254 micro enterprises, 13% of the respondents understand and perform

proper financial management while 36% are financially illiterate and neglectful of appropriate

practices. Micro and Small Enterprises (MSEs) lack proper financial management practices that

greatly affects the operation, profitability, and the survival of the business

According to Yohannes (2018), financial reporting and analysis, working capital

management, fixed asset management, and capital budgeting management create positive and

significant effect in the profitability of MSEs. These four (4) techniques are further discussed in

this section to delve into financial management practices of online micro businesses.

Financial Reporting and Analysis

Durcevic (2019) defines financial reporting as the practice of precisely presenting business’

finances that includes capital, revenues, profits, and cash flows. This serves as a formal record that

allows users to gain comprehensive understanding of financial information. Analyzing these

records helps the owners and other users in making important financial-related decisions.

However, many micro and small enterprises were incapable of conducting financial reports due to

the lack of education in accounting and bookkeeping (Rudiantoro & Siregar, 2011; Tuti, 2014).

This lack of education and understanding in accounting and other financial information

complicates the operation as well as the business decision making (Perren & Grant, 2000). Thus,

importance of financial reporting and analysis in the business is taken for granted by the managers

or owner of various MSEs.

 Working Capital Management

Working capital management refers to a business practice that monitors business current

assets and liabilities. With this, businesses could be certain that their operations are efficient and

effective. The main purpose of working capital management is for the businesses to maintain

adequate cash flow to cover all its short-term operating cost and debt obligation (Tuovila, 2020).

According to a study conducted in Obuasi Municipality, Ghana, working capital management

significantly affects the profitability of enterprises (Yensu, 2016). Another study conducted by

Norah et al. (2015) reveals that there is a positive effect in the profitability of small businesses that

practice an appropriate working capital management. Hence, proper working capital management

leads to business profitability.

However, many Micro, Small, and Medium Enterprises (MSMEs) ignore the importance

of working capital management. In Nigeria, various MSMEs fail consequential to lack of

knowledge regarding financial management specifically working capital management (Sunday,

2011). In addition, majority of micro businesses tend to use the business’ fund or money to pay

for their personal expenses. A study conducted by Bandara & Rathnasiri (2016) in Sri Lanka shows

that many SMEs experience problems in their operation due to the informal practice of working

capital management that results to a low level of profitability. In the Philippines, the importance

of working capital management and financing is very evident due to the threat of COVID-19. A

survey reveals that 44% of MSMEs’ major challenge is effective working capital management

implementation while 39% need financing (PwC Philippines, 2020).

 Fixed Asset Management

BTerrell Group (2020) defines fixed asset management as the process that tracks the

business’ fixed assets. Its primary purpose is centered around internal control, asset maintenance

for good quality and condition, and estimation of depreciation. Fixed asset management also

allows businesses to minimize loss of inventory and equipment failures that could prolong the

operation. Hence, this practice improves businesses’ assets which have a vital role in the survival

of the business. Cameron (2017) states that having fixed asset management practice helps

businesses in different ways, such as monitoring assets value and awareness of equipment’s

unexpected repairs. Also, this will make owners realize when is the best time to purchase new

assets. Despite of this, many Micro and Small Enterprises (MSEs) still neglect that importance of

this practice.

Wasp Barcode State of Small Business Report (2017) shows that approximately 6% of

business owners do not practice fixed asset management in their business. Numerous small

business owners admit that asset tracking is dull and confusing especially if you lack education

about this practice. As a result, owners often fail to efficiently actualize fixed assets management.

Capital Structure Management

Tuovila (2020) defines capital structure management as a practice of combining debt and

equity of the business to finance its operation and growth. Capital structure composes of two

components namely debt, short-term and/or long-term, and equity, common and/or preferred. The

combination of debt and equity of a business serves as the finances that are necessary for the

business operation and survival (Carlson, 2020).

 A study conducted in Mexico by Palacios et al, (2016) shows that many Micro, Small, and

Medium Enterprises (MSMEs) lack proper capital structure that results to poor decision making

and prevents them in maximizing economic performance. As per Cassar (2004), many MSMEs

have difficulty in external financing due to lack of collaterals, financial records, and business plans

that are common requirement in banks. Also, due to their small size, some MSMEs could not

afford the high-interest rates of the banks which pushes them to just rely on informal non-banking

channels.

Benefits of Financial Management Utilization to Online Micro Businesses

Micro businesses are important for a country’s commercial development, work creation,

and advancement. Their illiteracy as to financial management matters is regularly cited as one of

the significant restrictions affecting their performance and competitiveness (Aldaba, 2011). A

study conducted in Hawassa City Administration in Ethiopia reveals that proper financial

management practices help the business’ profitability as well as its going concern. Financial

management practices support and guide businesses especially the Micro and Small Enterprises

(MSEs) to its survival and expansion.

Financial management is responsible for maintaining the capital management of the

business. A competent and successful business should adopt, not just sufficient but, optimum

financial management techniques. For example, in managing working capital; micro businesses

should know that too much working capital depicts that the business leaves too many idle assets.

On the other hand, a low amount means that the business is just getting by to cover the assets

needed for a certain period. Appropriate management of finance is important to maintain the
business financial health and overall success. An indicator that a business has good management

is its effective utilization of financial resources to maintain a balance of growth, profitability, and

liquidity. (Liapis, 2010)

Financial management plays a vital role in entrepreneurs who want to enter the business

world. According to Schroter (2018), a small business would take at least four (4) years to make

a successful start-up and need 7 – 10 years for it to be stabilized. Since most micro businesses have

few employees or no employees at all, the owner is the manager as well. It is essential that they

know how to allocate and utilize their financial resources. Financial management makes sure that

all financial resources of the business are efficiently and effectively used and invested for the

business to be more profitable and sustainable in the long run.

Starting a business, regardless of the size and extent, takes a lot of risk. Financial

management prepares the business to forecast, assess, and control both foreseen and unforeseen

risks. In general, it involves the formation and implementation of financial principles that motivate

the business to reach its main goal. It helps the business to connect all financial aspects which

leads to a long-term benefit.

Finance is an important part of an organization. It is tough for a business to survive for a

long period of time without proper finance. Efficient management of these financial resources is

also important to the sustainability of the business. A business with strong and stable financial

management is most likely to make more informed decision which is one of the most important

aspects of financial management. Financial planning and financial decisions go hand in hand. The

absence of one may greatly affect the other. With proper planning, a good financial decision is

most likely to happen.

The Effects of Non-performance of Financial Management to Online Micro Businesses

There are different types, level, and extent of financial problems but the consequence, if

not counteracted, leads to one – bankruptcy. According to a Turkish study, Karadag (2015) analyze

that difficulties in the financial management and practices impact the performance of small,

medium, and micro enterprises. Regardless of the great expectations and development patterns,

they also face various difficulties and one of the core problems is the ineffective and inefficient

financial management system (Karadag, 2015).

According to a European study, most owners or managers focus only on having experience

in other functional areas of the business. Therefore, financial aspects of the business receive not

much attention. Jindrichovska (2013) It also appears that an absence of strategic financial

management abilities is twice more prone to cause financial failure than lack of skills of human

resources and operations (Wolmarans,2015).

Mbroh & Quartey (2015) study the specific practices of financial management used by the

small and micro business owners using a self-administered questionnaire in 372 selected business

owners from 118 small business and 274 micro business in Ghana. Among the respondents, 13%

explicitly claim that they do not know the real meaning of financial management nor have any

form of proper education about it. In general, the results of the survey indicate that experience is

vital, particularly in business. It is expected that the longer a business owner is engaged in business,

the higher expertise must they manifest in dealing with all business circumstances especially

managing of finances.

Wolmarans (2015) demonstrates that the absence of skills in financial management and

proper utilization of financial management are the greatest variables contributing to business
failures. David (2020) specifies that the main problem of micro businesses is that some of the

owners are lacking financial management strategies and financial plans are poorly developed to

guarantee business accomplishment in the next years. The study of Anoos et al., (2020) in Danao

City reveals that when micro business owner does not acknowledge the principle of financial

management, it constitute some threats on the sustainability of the business considering that their

size are predominant as the volume of their resources and income procured are low. Mbroh &

Quartey (2015) suggest that despite of the industry participation and business size or segment, a

business owner must have acquired a proper level of education or finance-related preparations to

adjust financial decisions depending on occurring problems.

Financial management is a focal point in the overall administration of micro businesses.

The inadequacies and failures of financial handling directly affects a business lifespan and

performance. Poor financial management is the most common cause why micro businesses fail. If

micro businesses are not well managed from the financial management perspective, then it could

not succeed to continuously operate in the long run (Wolmarans,2015).

Theoretical Framework

Theory of
Finance
D.L Newman
(1996)

Keynes’ Agency Cost

Precautionary of Free
Motive of Financial Cashflow
Handling Cash Management Theory
John Maynard
Theories
Michael Jensen
Keynes (1936) (1986)

Theory of
Financial
Control
Lars Ostman
(2009)

Figure 1. Theoretical Framework Diagram

This study adopts four (4) financial management related theories namely: Theory of

Finance, Agency Cost of Free Cashflow Theory, Keynes’ Precautionary Motive of Handling Cash,

and Theory of Financial Control. These interrelated theories are used to explain the path of the

research, show how fit the study is with established ideas, and relate broader area of knowledge

relevant to the study.

 Theory of Finance

Figure 2. A Representation of Theory of Finance

Figure 1 exhibits a representation of theory of finance by D.L. Newman in 1996. This

theory states that the success or failure of any organization is brought by how a business owner

makes decisions (Brigham & Ehrhadrt, 2013). The decision set which consists of dividend,

investment, and financing decisions is constrained by both the internal and external environment.

To pursue the objective of profitability for the business and wealth maximization of the owner, the

decision set plays a crucial role. The threats which external environment such as market risk,

information, and competitive capital markets pose could also be counteracted by materializing the

decision set.
 This theory stresses the essence of building effective and efficient financial decisions

through involvement of proper utilization of business finance, specifically inventory acquisitions,

operating expenses, and sales-related expenditures.

There are bunches of financial issues that all types and kind of business encounter in its

daily operation. Some problems even require a profound financial policies and techniques

transformation. Consequently, businesspeople struggle to consistently pursue proper financial

management. This theory assists in accentuating the significance of strategic and tactical financial

management in achieving one’s business objectives so as its corresponding pitfalls if neglected or

unutilized.

Agency Cost of Free Cashflow Theory

Agency Cost of Free Cashflow Theory is popularized by Michael Jensen in year 1986. This

theory sets forth the fact that free cash flows results to agency costs. Free cash flow refers to the

leftover cash of an entity after meeting its incurred operating expenses and capital expenditures

(Murphy, 2020). Manager or business owners could spend internally generated cashflows, which

could be used to optimize an entity’s value, for their self-interest. This theory argues that managers

would control a business cash inflows and outflows in favor to them and make financial decisions

which might not bring profits to the business.

Agency Cost of Free Cashflow Theory is relevant to the study as it points out the relevance

and significance of effective financial management to business operation. It manifests that

consistent performance of financial management is necessary to avoid situations whereby business

owners would mismanage or mishandle the business resources, specifically appropriated capital

and working capital, for their personal benefits.

Keynes’ Precautionary-Motive of Handling Cash

In precautionary motive of handling cash, Keynes (1936) stresses the importance of

holding cash to meet businesses contingencies in the future. Through this, emergencies, such as

lack of workforce, malfunctioning machines, and problems caused by fortuitous events could be

withstood. The risk of sudden contingencies must be assessed to measure the extent of

precautionary motive. When a cash is set aside for unexpected turnout of events, problems could

be easily solved hence, profitability. This concept heeds to unplanned purchases and unanticipated

opportunities of advantageous expense. (Kakuru, 2005)

Keynes’ precautionary motive emphasizes the importance of cash management which

makes it relevant to the conduct of the study. A firm could only set aside cash for unpredicted

circumstances if finances are properly managed. Immediate actions to unforeseen problems should

be performed to keep the operation flowing. Even the slightest disturbance in the business

operation could result to permanent financial consequences.

Theory of Financial Control

The theory of financial control stipulates that current and feasible functions of financial

tools for every organizations are fundamental and necessary. Accounting policies, control

frameworks, payments, and financial instruments, both within the internal and external
environment of an organization, are ought to be assessed and discussed. A relationship between

business transactions and financial activities must also be comprehensively established. (Wakiriba

et al., 2014)

Any financial undertaking of a company is construed to be meaningless if the controls

attributed to it are not in line with the business short-term and long-term objectives. Reiterate

adjustment or amendments process of financial plan and policies should be done to detect errors,

check if everything is on the right track, and find areas of improvement. (Captio, 2017)

The theory of financial control argues how impactful financial control is in achieving

organizational goals and reaching larger economic system. It is relevant in conducting this study

as it aids in better understanding of complexities in financial management relating to financial

controls.
Conceptual Framework

INPUT PROCESS OUTPUT

• Financial • Surveys • The final

Management • Statistical research paper
• Online Micro Treatment – The Impact
Businesses of Financial
Management
on the
Profitability of
Online Micro
Businesses

Figure 3. Conceptual Framework Diagram

The above diagram shows the flow of the study, from its input up to its result. It is divided

into three portions: the input which consists of the study’s focal variables, the process which refers

to the research methodology, and the output which is the final product of the whole conduct of the

research.

Under the input, financial management is included as it partakes a major role in answering

the research problems. Also, to complete the study, the researchers select online micro businesses

as their target respondents.

The process portion of the study composes of surveys among the owners of the online

micro businesses or anyone that has significant involvement in managing its operation. After

gathering the responses, statistical treatment is used to analyze and conclude the study.
 The thorough process results to the output of the study, which is the final research paper.

This paper serves as the driving force of every online micro businesses. Through this, the

significance of the study idealized by the researchers would be substantiated.

 CHAPTER 3

RESEARCH METHODOLOGY

RESEARCH DESIGN

In this study, the descriptive method of research was applied to effectively deal with the

research problem. The descriptive method assisted in providing necessary facts that are accurate

and systematically describe a phenomenon which could lead to a more substantial and

corroborative conclusion. With that, the incorporated research design served as an instrument in

determining the financial management techniques performed by the target respondents, the

benefits of financial management utilization, and the effects of non-performance of financial

management. Through the descriptive method, the researchers were able to determine and explain

the impact of financial management on the profitability of online micro businesses.

SAMPLING METHOD

The researchers used the purposive sampling technique, a non-probability sampling, in

determining the participants who took part in the conduct of the study. The selection of the

respondents relied on the judgement of the researchers on whether they have a direct relevance to

the research questions. With this, online micro business owners or anyone with significant

involvement in the business, with a sample size of twenty (20), were the respondents of this

research. In this manner, the researchers were able to gather results that are sufficient in fulfilling

the research objectives.

DATA COLLECTION METHOD

The researchers conducted a survey, guided by the statement of the problem, via Google

Form to the respondents purposely selected. The survey questionnaire was in the forms of multiple

choice and Likert Scale. The Likert Scale allowed the respondents to choose the option that best

aligned with their opinion. With this type of survey questionnaire, the researchers aimed to

determine whether the respondents were adopting financial management techniques, and measure

financial management’s impacts on their profitability.

INSTRUMENTATION

The related literatures and studies served as the guide of the researchers in preparing and

developing the content of the survey form. The researchers ensured that the questions and

statements logically cohered with the applicable concept and theories concerning financial

management. Aside from that, the researchers greatly considered the research’s statement of the

problem in constructing the survey form. This is to ascertain the questions’ relevance and

connection with the research objectives.

The research instrument was divided into four (4) parts to produce a more grounded

analysis and conclusion about the impact of financial management on the profitability of online

micro businesses. The first part was intended to ascertain the variation of respondents’ location

and to determine the length of their business engagement to correspond with the research scope

and delimitation and significance of the study. The second part planned to identify the different

financial management techniques that the respondents were adopting in their business. The third

part aimed to discover the effectivity of financial management utilization by identifying which
effects do the respondents encounter whenever they do so. Lastly, the fourth part focused on

determining the negative effects that the respondents face whenever they neglect or overlook

appropriate financial management practices in their daily operation.

The survey questionnaire was solely established by the researchers. As it was not

standardized, it was improved and validated by Mr. Rizal O. Dapat, PhD, the researchers’ research

adviser. The validation of instruments was conducted to make sure of the survey form’s reliability,

clarity, and effectiveness before its dissemination to the respondents.

STATISTICAL TREATMENT

To summarize the responses of the respondents, the Percentage Frequency Distribution and

Weighted Mean in Likert Scale were quantified with the help of Microsoft Excel. The Percentage

Frequency Distribution aided in specifying the percentage of observation that existed for each set

of data or group. This was presented in a tabular form.

The Percentage Frequency Distribution formula is as follows,

𝑓
%= 𝑥 100
𝑁

Where,

% = Percent

f = Frequency

N = Number of Cases
 Moreover, Weighted Mean was adapted to analyze and interpret the results shown in the

Likert Scale. It is defined as a type of mean used to calculate a theoretically anticipated outcome

where every outcome differs in probability of occurrence.

The Weighted Mean formula is as follows,

∑𝑛𝑖=1 𝑤𝑖 𝑋𝑖
𝑊=
∑𝑛𝑖=1 𝑤𝑖

Where,

W = Weighted Average

n = Number of terms to be averaged

Wi = Weights applied to x values

Xi = Data values to be averaged

The Likert Scale utilized in the survey form came from a range of 1 to 4, 1 as the lowest

score and 4 as the highest. To get the weighted mean, first, the number of responses was multiplied

to the corresponding Likert score. Then, the results of the first step were summed up and divided

by the total number of respondents. These steps were repeated until the last row of the survey.

After computing for the weighted mean, an interpretation was formed from the range of

values. To interpret the weighted mean, class categories were created. First, the lowest Likert score

was subtracted from the highest Likert score to compute for the range. Next, the researchers chose

five (5) interpretations for the class categories: Outstanding, Average, Below Average, and Poor.
Then, the range was divided by the number of class categories to determine the class interval,

which is necessary in identifying the appropriate interpretation of the weighted mean.

An overall weighted mean and interpretation of each part of the survey were calculated to

assist in the discussion of the results and formation of conclusion.