THE EFFECTS OF COVID-19 ON FINANCIAL MANAGEMENT

OF MICRO-ENTERPRISES IN MATI CITY

Chapter I

INTRODUCTION

Background of the Study

Micro-businesses, which contribute to economic development, are essential to

the economy of a country. They have the edge over other companies because they are

easy to start. As a result, small businesses contribute significantly to improving

household incomes (Musa, 2021).

The term “micro-business” refers to companies with nine employees or less with

a total asset of Php3,000,000 and below. They are the backbone of the economy.

Although there are many of them, their contribution to economic growth is unclear. They

exist in public areas because they offer essential products or services and fulfil general

needs. Therefore, they can be found in residential areas, morning and night markets, by

the roadside, in areas of public focus such as schools and government buildings,

beaches, and even inside shopping complexes. Their business is conducted on a small

scale, with most of them dealing with food and beverage, construction, and service
operations. They use the income generated from the business to feed their families

(Yuesti, 2020).

The current critical issue of coronavirus disease 2019 (COVID-19) has become a

worldwide disaster. The pandemic has led to health and economic crises throughout the

world. A movement control order (MCO) (i.e., social isolation) was declared and

imposed worldwide to control the pandemic. The MCO was a shock and an

unprecedented situation that affected almost the entire world. This situation has

significantly changed the habits of life. The prolonged COVID-19 crisis has dramatically

impacted small businesses worldwide, and the MCO put industries on hold for quite

some time, resulting in most companies being forced to close (Bonacini, 2021).

During economic struggles, businesses must increase liquidity. For example,

small businesses will need to liquidate their assets, as they typically do not make

significant investments in capital expenditure. They can also implement cost-

containment measures such as reducing the number of employees, cutting employee

salaries, or changing the status of employees from permanent to temporary according

to their needs and sales income. However, in the case of this pandemic, cost-cutting

measures, especially those related to labour and operations, were difficult to implement

due to the restrictions and limitations imposed by the government on the people and

businesses. The shock of the current pandemic goes beyond contingency planning and

has given rise to prolonged uncertainty and unprecedented scenarios. Due to the

nationwide lockdown and stalled economic activity, many micro-businesses were

severely affected, and some even went bankrupt. In addition to cash assistance from
the government to help those most affected, savings and liquid assets were helpful for

survival. The performance of micro-businesses depends on the extent to which they

owned savings and liquid assets before the COVID-19 pandemic hit (Gu, 2021).

The pandemic has strengthened the need for micro-businesses to have proper

cash flow management. Therefore, this study examines the practice of cash flow

management pre-2020 and determines how the lives of micro-traders were affected

when economic activity was frozen. The study also examines micro-traders’ sources of

capital after the economy reopened. Maintaining proper cash flow is crucial in a

business, whether large or small, because its success or failure is determined by its

ability to generate and manage its cash flow (Ahmad, 2020). Companies with poor cash

flow management cannot survive because cash is the backbone of every business. A

business must ensure that it has sufficient cash to meet its needs and obligations and

increase its profitability and sustainability. Powerful cash management builds

adaptability and is an advantage in managing crises or exploiting opportunities when

they suddenly arise. In addition, operating cash determines a company’s capabilities to

conduct its business activities, with poor cash management affecting its survival. Most

small businesses do not practice cash flow management because it is presumed to be

unnecessary and time-consuming (Mungal, 2018). If there is to be discipline and

consistency in financial management, including cash flow, the business sector must

differentiate between business and personal finances.

Despite the pandemic, there are still businesses that are still open for operation

while others closed. The researchers came up with this study to know the possible
effects of the COVID-19 pandemic to the Micro Enterprises in Mati City. Conducting this

study will help researchers to determine the impact of COVID-19 pandemic to financial

management of business owners and their businesses through collecting information

using survey questionnaires.

Managing business and personal cash is important during economic uncertainty,

such as during the COVID-19 pandemic crisis. Therefore, this study is relevant because

it provides vital information on this matter. The findings will assist practitioners and

policymakers in identifying the strategies required to respond to the impact of COVID-19

on the practice of cash flow management among micro-traders. This study can be used

as a reference by government agencies to educate micro-traders on the importance of

cash flow management when facing difficult times. The findings will also help the

Malaysian government alleviate their burden by providing financial assistance to micro-

traders for their businesses and lives.

Statement of the problem

This study aims to know the impact of COVID-19 pandemic on financial

management to the SMEs in Mati City. Specifically, it seeks to answer the following

questions:

1. What is the profile of the respondents in terms of:

1.1 age

1.2 gender; and

1.3 address

1.4 types of business

1.5 capitalization

2. What is the effects of pandemic on the financial management of micro-enterprises in

City of Mati?

3. What is the importance of cash management to profitability of micro-enterprises

during pandemic?

Objectives of the Study

1. To determine the demographic profile of the respondents in terms of

1.1 age

1.2 gender; and

1.3 address

1.4 types of business

1.5 capitalization

2. To determine effects of pandemic to the financial management of micro-enterprises in

City of Mati
3. To determine the importance of cash management to profitability of micro-enterprises

during pandemic.

Scope and Limitations

This study focuses on the effects of pandemic to financial management of small

food businesses in Mati City. The data collection will be limited to the small food

business owner which is located in City of Mati.

While conducting the study, some limitations were encountered. One of these

was that not all the micro-enterprises in City of Mati were access. Due to limited

resources and time, not all the micro-enterprises were visited to conduct the study

wholesomely. As a result sampling techniques were to made use of to conduct the

research on a representative portion of the population. Due to the numerous numbers of

micro-enterprises the sample chosen might have not been sufficient enough to

represent all the micro-enterprises in City of Mati.

Theoretical Framework

This section provides key concepts and existing theories that are related and

relevant to the study.

Pecking Order Theory

Organizations continually make decisions on the means of financing them, taking

care of exposure to risk, the theory Packing Order Theory states that firms inherently

make such decisions reliant on a pre-set ranking system (Bhama, Jain & Yadav, 2018).
This theory was advanced by Myers as well as Majluf in the year1984. It offers a buffer

between investment and financing decisions. Firms first finance their needs using

internal funds. Issuing out equity is expensive and would not be a first option of funding

(Myers and Majluf, 1984). Therefore, it would be considered the last priority of funding

the firm after internal funds and debt financing. Internal funding mainly comes from

retained profit (López-Gracia&Sogorb-Mira, 2008). Hence when cash flows from

operation are large, businesses use this as a way of financing new viable projects,

paying dividends, repaying debts and for additional cash accumulation.

Relying on the Pecking Order Theory, financing internally is prioritized. It

becomes simpler to obtain and has minimal risk level. Even so, running a firm on

exclusive internal finance cannot service it for the foreseeable period (Ni & Yu, 2008).

External sources have to be sought when there is not enough retained earnings

Managers as such prefer debt as compared to equity due to lesser cost. The

relationship depicted between leverage of corporates and SMEs profitability and

opportunities for growth support POT (Adair & Adaskou, 2015). This theory is therefore

relevant to this study which seeks to assess the effect of cash planning on financial

performance of SMEs.

Conceptual Framework

This section contains the model that shows the relationship of COVID-19 to

financial management of micro-enterprises.

 INDEPENDENT DEPENDENT

Significance of the Study

This study aims to know the Street Vendors’ Struggles and Coping during

Pandemic. The result of this study can be useful to:

Micro-enterprise - The findings of this study could possibly help them to know

other possible coping mechanisms that could be effective for their business.

Government - The findings of this study may give them ideas of how street

vendors were struggling during pandemic and serve as guide if possibly their planning

for support assistance for MSME’s.

Future Researchers - The finding of this study could be a reference for future

researches especially small business related study.

 CHAPTER II

REVIEW OF RELATED LITERATURE

Status of Micro-enterprise during COVID-19

Micro-enterprise has a very significant role in the Philippine Economy with its vital

importance in the job creation that reduces poverty indices. It is seen as contributing

factor to the economic development of the rural and far-flung areas. According to the

data cited by UP-ISSI Diliman (2020), Philippines has 99.62% SMEs establishments

which provided 62.9% workforce in 2017. Being recognized by the government as one

of the primary contributors in the economy, the government through the initiative of the

Department of Trade and Industry (DTI) has designed programs in maximizing the

resources to develop highly skilled and competitive entrepreneurs that could develop

the society and elevated its standard of living.

The global health crisis severely affected the SME sectors worldwide. The small

and micro business had to shut down because of the strict health protocols in order to

contain the spread of the virus. As cited by Rivas (2020), the Asian Development Bank

posited 70.6% of the SMEs had forced temporary closure of the business due to the

outbreak. Moreover, Teo (2020) The global health crisis severely affected the SME

sectors worldwide. The small and micro business had to shut down because of the strict

health protocols in order to contain the spread of the virus. As cited by Rivas (2020), the

Asian Development Bank posited 70.6% of the SMEs had forced temporary closure of

the business due to the outbreak. Moreover, Teo (2020) also cited the Philippine
Statistics Authority report of the 17.7% unemployment rate which is over 7.3 million job

losses. This was summed up by de Vera (2020) to a total economic losses that of 2.2

trillion pesos and millions of jobless workers.

The SME global status is even worse than the Philippines. According to Fairlie

(2020), there was a loss of 3.3 million active business owners (22%) from February to

April 2020 due to mandates and health and economic-driven demand shifts in the

United States. It was further disclosed that the large drops in the number of active

business owners majority include the construction, restaurants, hotels, transportation,

and personal/laundry services with the exception of agriculture. These data clearly

established the fact that no business was immune to the negative impacts of the strict

protocols imposed by the governments. In the Southeast Asia, the statistics prove a

critical impact on the various industries. The data gathered from the study of Awad and

Konn (2020) showed that agribusiness and tourism had been hardly hit in the countries

of Laos, Vietnam, Cambodia, the Philippines and Myanmar. The study identified that the

food supply chain was not able to sustain livelihoods caused by the travel restrictions

delaying the transport of produce from farms to markets. Similarly, there has been

significant losses in the tourism sector as recorded by 99.6% decrease in tourists’

arrivals in Angkor Wat, Cambodia during April 2020.

In the Philippines, the MSMEs have been negatively affected. According to Awad

and Konn (2020), the manufacturing and agriculture sectors had been negatively hit by

the pandemic affecting more than one third of the Philippine economy. The lockdowns

and travel restrictions imposed in the Philippines affected the transport of produce from
farms to markets; the supply of agricultural labor; and demand, both locally and for

exports. Accordingly, the survey conducted by PricewaterhouseCoopers on the impact

of COVID-19 on businesses in quarantine revealed that 44% of MSMEs required better

working capital management and 39% of MSMEs felt that access to financing was one

of the more critical needs. As a result of lockdown, MSMEs were pressured on the

working capitals and were forced to absorb losses.

Cash Management

Different academic perspectives have led to different definitions of cash flow

management. For instance, cash flow management was viewed by as a corporate

procedure that involved the collection, management, and (short-term) investment of

cash. Companies could be assured of remaining financially stable and solvent primarily

by their cash flow management. In the authors offered an alternative definition of cash

flow, which they regarded as the business’ inward and outward monetary movements. A

key determinant of a business remaining solvent is its cash inflow and outflow cycle

(Pandey, 2019).

Based on (Hastuti, 2019), cash flow is a procedure used to control the flow of

cash receipts into a business, cash transfers between different parts of the business,

and cash payments. According to the definition provided by [30], cash flow means cash

transfers into or out of businesses, projects, or financial products. Normally, a specific

and limited time period is used when measuring cash flow. Meanwhile, cash

management was defined by [31] as the procedures involved in creating cash-flow-

related plans and controls. Effectively implemented cash management would make
companies more profitable and enable them to maintain their liquidity. Despite the many

definitions, all refer to an identical concept and exhibit a consistent perspective, which is

evident in both the limited and more expansive ways that cash flow management has

been defined.

Additionally, the significance of cash flow management in business activities has

been recognised by numerous researchers. In (Gulec, 2019), it was observed that cash

flow control is essential for maintaining adequate liquidity, which refers to cash on hand

and assets that can be converted into cash. A business is said to have liquidity if it has

sufficient cash or assets that can be transformed into cash when required to settle

short-term obligations. Conversely, if a company does not have the liquidity to pay its

debts, payments must be deferred, and it will have to seek external funds, resulting in

increased operating costs, or it will be forced to sell certain assets. In (Rahman, 2019),

it was noted that companies’ successes depend as much on their cash flow

management as their development of profit-making business models. A company

experiencing issues with its cash flow has no safety margin if they encounter

unforeseen costs.

The control of cash by small traders ensures the availability of funds to support

the company’s operations. The availability of cash flow helps the company to pay its

obligations on time and to pay suppliers to enjoy cash discounts, reduced costs, and

improved performance. Thus, firms must effectively manage their incoming and

outgoing cash. Companies perform better financially if their cash flow management is
appropriate. In general, sound business decision-making often depends on an

awareness of a firm’s status with regard to cash (Rahman, 2019).

Cash Conversion Cycle

This is the time interval between actual cash payment/expenditure for the

purchase of productive/operational resources and the ultimate collection of cash from

the sales of products/services. The cash conversion cycle provides a valid alternative

for measuring company liquidity. The longer the time taken to get back the money paid

out, the more the likely hood the organization is to face technical insolvency and vice

versa (Johnson, 2019).

The cash conversion cycle (CCC) is a metric that expresses the time (measured

in days) that it takes for a company to convert its investments in inventory and other

resources into cash flows from sales. Also called the net operating cycle or simply cash

cycle, CCC attempts to measure how long each net input dollar is tied up in the

production and sales process before it gets converted into cash received. This metric

takes into account how much time the company needs to sell its inventory, how much

time it takes to collect receivables, and how much time it has to pay its bills (Hayes,

2022).

The CCC is one of several quantitative measures that help evaluate the

efficiency of a company’s operations and management. A trend of decreasing or steady

CCC values over multiple periods is a good sign, while rising ones should lead to more

investigation and analysis based on other factors. One should bear in mind that CCC
applies only to select sectors dependent on inventory management and related

operations (Hayes, 2022).

Operational Cash Flows

Cash flows from operations are the amount of cash a firm generates in a

measured time from its operation. Various methods are used to determine the amount

of operating cash flow. The prevalent methods use the income statement and the

balance sheet to prepare the cash flow statement. Positive cash flows indicate how

much cash the organization has generated from operations during the financial year.

Negative cash flows indicate how much additional cash has been used to support the

operations during the same period. Usually, a firm with negative cash flow from

operations is unable to finance its operations. De facto, it is consuming cash flows

rather than generating them. It becomes prone to technical insolvency problems and it

may go bankruptcy. ash flow accounting involves the reporting of classified list of last

year’s cash flows, and a set of forecast cash flows, with supporting analysis of the

variances between last year’s actual and forecast cash flows. It therefore emphasizes

the most fundamental events in business activities, cash flows into and out of the firm,

and the segregation of past (cash) facts from future estimates, accounting time period

allocation, based on estimates of consumption are avoided. Finally, the use of a cash

flow statement integrates trading activities and investments, dividends and financing

policies, unlike information presented in profit and loss account and balance sheet

format (Johnson, 2019).

 Operating cash flow (OCF) is a measure of the amount of cash generated by a

company's normal business operations. Operating cash flow indicates whether a

company can generate sufficient positive cash flow to maintain and grow its operations,

otherwise, it may require external financing for capital expansion. Operating cash flow

represents the cash impact of a company's net income (NI) from its primary business

activities. Operating cash flow—also referred to as cash flow from operating activities—

is the first section presented on the cash flow statement (Brock, 2022).

Operating cash flows concentrate on cash inflows and outflows related to a

company's main business activities, such as selling and purchasing inventory, providing

services, and paying salaries. Any investing and financing transactions are excluded

from the operating cash flows section and reported separately, such as borrowing,

buying capital equipment, and making dividend payments. Operating cash flow can be

found on a company's statement of cash flows, which is broken down into cash flows

from operations, investing, and financing (Brock, 2022).

Operating cash flow is an important benchmark to determine the financial

success of a company's core business activities as it measures the amount of cash

generated by a company's normal business operations. Operating cash flow indicates

whether a company can generate sufficient positive cash flow to maintain and grow its

operations, otherwise, it may require external financing for capital expansion (Brock,

2022).
Net Profit Margin

Net profit margin, also known as net income margin or net margin, is the ratio of

profit a company or business unit earns to the total amount of revenue (net sales) the

company or business unit generates. Net profit margin is expressed as a percentage.

Net profit is what remains after accounting for all expenses, including operating costs,

interest, and taxes. In a nutshell, net margin is the percentage of a company's revenue

that it keeps as profit. Calculating a company's net profit margin helps investors

evaluate the relative amount of profit the company produces from its revenue. A key

indicator of overall financial health, net margin is also an excellent metric to use to

compare a company with its competitors. This metric can signal whether a business is

doing a comparatively better or worse job of controlling its expenses (Johnson, 2019).
 Chapter III

METHODOLOGY

Research Design

This study will be use descriptive statistics as a research design, which will use

quantitative in nature and focused on objective measurements and statistical analysis of

data collected through online surveys (Babbie, 2018). It will use descriptive research to

collect data and explain phenomena using survey questions, as well as to evaluate or

measure the outcomes against some known or speculative norms (Hubbard, 2017). As

a result, the 5.0 Likert scale was employed to assess the impact of pandemic on

profitability of micro-enterprises in City of Mati.

Research Locale
 The study will be conducted in four major barangay in City of Mati, Davao

Oriental. This place was selected in order to study and analyse the impact of covid-19

on financial management on selected micro-enterprises in Mati City.

Sources of Data

Primary and secondary data sources will be used to supply and gather data for

this investigation. The major data came from respondents' responses to the proponents'

standardized questionnaires. Furthermore, secondary data will be gathered from books,

previous study, journals, and websites related to the topic.

Sample Size

Presented in the table are the respondents of the study, the 100 respondents who

are owner of micro-enterprise business in City of Mati, Davao Oriental.

Distribution of Respondents

Name of Hotel No. of Respondent

Central 25

Matiao 25

Sainz 25

Dahican 25
Sampling Technique

The researchers will utilize the quota sampling. More specifically a controlled

quota sampling technique. Quota sampling is used when the researchers are short of

time or the budget of researching on the topic is limited. In the context of this study, this

sampling method is appropriate given the time constraints of the researchers to finish

the study (Etikan, at al. 2017).

According to (Lavrakas 2011). Quota Sampling is a type of non-probability

sampling method. This means that elements from the population are chosen on a non-

random basis and all members of the population do not have an equal chance of being

selected to be a part of the sample group.

Controlled quota sampling involves introduction of certain restrictions to limit

researcher’s choice of samples. The target 50 sample respondents who are owner of

micro enterprises in Mati City will be based on the quota with the following criteria.

Data Collection Procedure

The study will begin with the formulation of the problem and the identification of

the variables, as outlined in the research paradigm, using the procedures outlined

below for data collection:

Seeking Permission to Conduct the Study. First the researchers will secure a

permission to conduct the study from the research panels and the Dean of the Institute.

Then, researchers will write a letter to the small food business owner, requesting
permission to conduct a survey on effects of pandemic to small food business City of

Mati, Davao Oriental.

Construction of Questionnaires. The researchers subsequently made the

questionnaires, which are then validated by the panel of experts. The reliability of the

questionnaire will also be tested They were also tested for their reliability using

Cronbach Alpha after a pilot testing to 10 customers with te reliability of the Cronbach’s

Alpha reliability coefficient score at or above 0.70.

Distribution of Questionnaires. The questionnaires will be sent to the study’s

respondents, who will be asked to answer the questions honestly so that accurate and

reliable data could be gathered. Given the restrictions in the time of pandemic, the

researchers will follow the minimum health standards implemented by the Inter-Agency

Task Force (IATF) just like wearing of face mask and face shield as well as maintaining

social distancing.

Retrieval of Questionnaires. The responses will be double-checked and statistically

analyzed.

Analysis and Interpretation. The findings will be examined and interpreted in the light

of the study’s objectives. The output of this study will be submitted to the Institute of

Business and Public Affairs. It will be archived after 3 to 5 years.

Data Treatment

Descriptive statistical tools were utilized for data analysis. For the demographic

survey, frequency count and percentage were used to describe the characteristics of

the observations. Meanwhile, weighted means were used to measure the perception of

the respondents regarding the impact of Covid-19 to the enterprise.

Research Instrument

The research instrument utilized in the study was a questionnaire. There are two

parts to the questionnaire. For the first part, the organizational profile, and the second

part, the economic impact of COVID-19. The demographic profile consisted of industry,

area, and size of the business. On the other hand, the questions on the impact of Covid-

19 were adopted in the questionnaire of Shafi et al. (2020) in their research entitled

"Impact of COVID-19 Pandemic on the impact of covid-19 on financial management on

micro enterprises in Mati City.

Ethical Considerations

This study will be subject to some ethical issues to establish and safeguard

ethics in conducting this research. The following will be strictly observed:

The names of the respondents will not solicit in any part of the research. During

the floating of the questionnaires, the respondents have the right to decline and not

forced to do what they do not want. The researchers also guaranteed that the questions

in the questionnaires would not hurt any person or organization and ensured the
responses would just be utilized for research. These, will be to make sure that no one

would be harmed physically or emotionally.

Proper document sourcing and referencing of materials will be done to ensure

and promote copyright law. The researchers explained the research instruments to the

respondents.
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Arreola, R.H. (2020). The “New Normal” of Increased Online Business Transactions,

and Revisiting Revenue Memorandum Circular No. 55-2013. KPMG.

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onlinebusiness-transactions.html

Bolido, L. (2020). Small businesses, big economic impact. Inquirer.net.

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James, S. and Sargent, T. (2006), The Economic

ADAM HAYES, 2022 https://www.investopedia.com/terms/c/cashconversioncycle.asp

THOMAS BROCK, 2022 https://www.investopedia.com/terms/o/operatingcashflow.asp

 THE EFFECTS OF COVID-19 ON FINANCIAL MANAGEMENT ON MICRO

ENTERPRISES IN MATI CITY

SURVEY QUESTIONNAIRE

PART I.DEMOGRAPHIC PROFILE

This is part of a survey. Rest assured all information herein shall be treated with utmost

confidentiality.

NAME: (Optional) ________________________

Age: Gender:

Civil Status: Occupation:

Year of Residency: Religion:

PART II.

Direction:

Please put a check mark (√) that correspond to your answer. Use the scale below.

5. Highly Agree 2. Disagree

4. Agree 1. Highly Disagree

3. Neutral
 CASH CONVERSION CYCLE 5 4 3 2 1

Use technology to make and accept payments.

Collect all Account’s Receivables on or before they are

due.

Promise faster delivery for customers who pay their

invoices in full and on time.

Provide better credit terms for customers who

consistently pay in full and on time.

Make sure invoices are clean, clear, and error-free.

OPERATIONAL CASH FLOW 5 4 3 2 1

Prepare cash flow statement to understand how much

money is available.

Check cash flow statement for the month, and previous

months to understand if there is a positive or negative

cash flow.

Review your cash flow statement to analyse past

spending and earnings.

Collect accounts receivable and ensure that buyers pay

on time.

Review records of sales and expenses. Ensure to have

up-to-date figures available.

 MEASURE OF PROFITABILITY

SALES 2019 2020 2021

Number of Units Sold

Unit Price

Total

RETURN ON INVESTMENT 2019 2020 2021

Net Income

Capital

Total

NET PROFIT MARGIN 2019 2020 2021

Sales Revenue

Net Income

Total