CHAPTER 1

THE PROBLEM AND ITS BACKGROUND

Introduction

“Business is the engine of an economy”. In any market economy, business

plays a major role within our society. Business provides jobs that allow people to

make money and goods and services that people can buy with the money they

make. Without the business, the economy would be very inefficient and very

primitive. In any economy, people need jobs for them to earn money and to

provide an income. Most businesses provide people with jobs like in a restaurant

that need to hire cooks, wait staff, and dishwashers. Now imagine how many

people get their jobs from the large groups and small groups of businesses that

can provide a thousand of jobs. This is incredibly important to an economy; all

businesses require the effective management of one of its owners in order to

have a smooth operation of his business and to make a good flow of income. An

effective management of a business is important to avoid the loss of a business

or the so-called bankruptcy.

There are some ways to avoid this type of loss in a business so

there are different types of business organization and one of this is the sole

proprietorship where only one person owns it and manages this kind of business.

Sole proprietorship is the simplest and most common legal structure someone

can choose. It’s an unincorporated business owned and run by one individual in

whom there is no distinction between the business and the owner. If you own a
sole proprietorship, you are entitled to all profits and are responsible for all your

business’s debts, losses, and liabilities. In forming a sole proprietorship

it is necessary to consider how it can be managed properly because only one

person manages it so it is also necessary for this type of business to have an

effective management. In this kind of proprietorship business it also consists of

various types and some of them are Self-Employed Business Owner,

Independent Contractor, and Franchise.

There are many different businesses belonging to proprietorship business

and one of them is the carinderia. A carinderia business is a local eatery selling

and it is also known as “turo-turo” wherein customers literally point what they

want to eat. There are many establish carinderia near a school wherein their

potential customers will be students with the ability to buy at their affordable

price. That is the reason why carinderias are a big hit especially if they are near

the said establishment. This is one kind of business that would not require a big

start-up capital, and if managed correctly, this can become something big.

Background of the Study

In this type of business, a person who owns a business is called sole

proprietor who provides the initiative controls of the business and retains all the

profit arising from the business. He or she is the one who is responsible for all

the business debts, losses, profits and liabilities. Only a few types of businesses

that can be considered as sole proprietorship business is the Carinderia,

Carinderia business is one of the eatery businesses which are one of the
frequent meals of people and students around the school or in any place, there

are lots of stands which provide some kinds of food that is affordable viands for

the masses. It can be run by a single entrepreneur and it is the sole

proprietorship which is the simplest form of business in our economy which can

operate by only one individual who provides all the capital requires to carry on

the business.

In all kinds of business it needs to consider how it will grow even with a

simple carinderia, it is still necessary to have an effective management to avoid

losses. In all types of businesses, especially in a sole proprietorship it is possible

to have a bankruptcy due to lack of financial in their business and lack of

customers. This study conducted to help and provide more information to each

owner of a carinderia business how to gain more effective management in order

to avoid bankruptcy in one’s business.

Theoretical Framework

Frederick W. Taylor (1856-1915) defines scientific management theory as

follows: “This principle uses data and measurements to make organizations

more effective. By observing and evaluating processes in numerical terms,

managers are able to distill information that helps them run their businesses

more efficiently and profitably”. This theory promotes standardization,

specialization, assignment based on ability, and extensive training and

supervision. Only through those practices can a business achieve efficiency and

productivity. 
 Max Weber (1864-1920) builds on this definition, stating that the

bureaucratic management theory revolve around the importance of structuring

your business in a hierarchical manner with clear rules and roles. Elton Mayo

(1880-1949) defines human relations theory as improving productivity, Mayo’s

work led to the recognition of the importance of psychological and social factors

in creating productive organizations. There are no doubts about the importance

of management for organizational effectiveness, the question “what are the

factors that are the most important in overcoming business failure?’’ is answered

with “provide better managers and train and educate current managers” (Whetten

& Cameron, 1991, p.5) Other research showed that in 89% of the cases poor

management was the reason for bank-failure. (Salaman, p.207) Increasing

emphasis has therefore been given to managerial competences and to need to

identify the key managerial skills that underlie or underpin effective management

performance.

Management science theory is management that focuses on the use of

techniques to maximize the use of organizational resources to produce goods

and services. It is a contemporary approach to management that is an extension

of scientific management that measures the worker to task mix and ratio to raise

efficiency. According to the Proprietary’ theory, the firm is owned by some

specified person. This theory holds that all profits and losses immediately

become the property of the owners, and not the firm. The proprietary theory is

particularly applicable to sole proprietorships where the owner is the decision

maker.
 The definition of a Business Management theory is closely related with the

concept of business management strategy; and it deals with the steps that are

taken by the collective decision of the managerial authority of the business as

well as the workers for the attainment of the desired objective. A business

management theory is a study of the principles and practices of a business to

attain its desired organizational goals conducting effective management.

Conceptual Framework

The variables used are presented in paradigm form to serve as the basis

of the illustrated conceptual framework of the study.

IV DV

Profile Demographics

 Age
Financial Performance
 Gender
 Bankruptcy
Effective Management

 Scientific management

 Bureaucratic management

Frame 1 Frame 2
Figure 1. Conceptual Paradigm

The frame 1 is consisting of independent variable which is demographic profile

such as age, gender and the effective management.

The frame 2 is consisting of dependent variable which is the financial

performance of one’s business.

Statement of the Problem

This research focuses on the effective management and the financial

performance of a selected respondent of carinderia business owners in Sta. Cruz

Laguna. Specifically, this sought to answer the following questions:

1. What is the demographic profile of the respondents in terms of?

1.1 Age

1.2 Gender

2. What is the effective management in terms of?

2.1 Scientific management

2.2 Bureaucratic management

3. What is the level of financial performance of the respondents in terms of?

3.1 Bankruptcy

4. Does effective management affect the financial performance of the

respondents?

Hypothesis
 The effective management has no significant effect to the financial

performance of a selected respondent of carinderia business owners in Sta. Cruz

Laguna.

Significance of the study

This result of the research would be a great benefit to:

Students- They will be given additional information about the effective

management of a business especially if they want to do business or raise a

business someday.

Entrepreneur- They will be informed and benefit about the information that will

help them in order to have an effective management in their businesses.

Business owners- They will gain more knowledge about an effective

management and learn different strategies that can help them to avoid losses in

their business.

Businessman/Businesswoman- They will be given a background idea about

the financial matters of the business that can help them to improve a

management in one’s business.

Future researcher- The future researcher would have a basis especially when

they needed additional information about the effective management to avoid

bankruptcy in a sole proprietorship business.

Scope and Limitations of the Study

The scope of the study involves the business owners of the carinderia

business that will be needed to ask some questions about how they maintain an
effective management in their proprietorship business and how they can manage

properly their financial management that generates profit for themselves and for

their businesses.

This study aims to determine the effective management on how to avoid

bankruptcy on a proprietorship business. The type of questionnaire will be used

is rating questions contains 10 items, each item need to be ask respondents to

the business owners. This will be conducted in selected proprietorship

businesses in Sta. Cruz Laguna among the estimated 20 respondents of

business owners in a carinderia.

Definition of terms

Age- Age is an independent variable that is use to determine one of the

demographic profile of a respondent.

Bankruptcy- This refers to the owners of a business who are not capable of

managing their business due to the absence of customers buying their food

items.

Carinderia- This term is used as one of the proprietorship business. It refers to a

cheaper foods stall that locates in roadside wherein the foods are very

affordable.

Debts- It is the term use to define that the owner of the business is the one who

is responsible for the debts of the business. It is the amount of money borrowed

from others.
Effective Management- It is use an independent variable where it refers to the

proper management of a business in order to avoid bankruptcy in one’s

business.

Financial Performance- It is use as dependent variable where it refers to the

financial level and proper conduct of financial activities in a business.

Gender- Gender is an independent variable that is use to determine what gender

your respondent is.

Sole Proprietor – It refers to the owner of a business where he is entitled to all

losses and profits that will occur in his or her business.

Sole Proprietorship- It refers to a business where only one person owns it.