Chapter 4

“EFFECT OF MONEY UTILIZATION TO THE PROFITABILITY OF MICRO

BUSINESS IN DAET, CAMARINES NORTE”

This chapter describes each statement of the problem and the findings obtained

through an analysis of data. Chapter four starts with a restatement of the study intent

accomplished by an overview of each statement’s findings. The chapter ends with a

summary of the findings.

The purpose of this study was to examine the significant relationship of money

utilization to the profitability of micro business in Daet, Camarines Norte and to evaluate

the money management activities affecting the profitability of the business such as

investments, replenishment of inventories, payment of salaries, advertisement, taxes and

penalties, drawings for personal use, purchases of supplies and debt.

There are eight hundred fifty-five (855) micro businesses in Daet and by using

sample size calculator it resulted to a two hundred sixty-five (265) respondents and it is

stratified to different barangays of Daet, Camarines Norte. All of the two hundred sixty-

five (265) micro business owners and managers answered the questionnaires given to

them by the researchers.

36
 1. PROFILES

The researchers looked for the current and updated profiles of the 265

target micro businesses in Daet, Camarines Norte. This part was segmented into

four; the type of business, years of operation, number of employees and source/s

of capital.

Table 1.1

Types of Business

TYPES FREQUENCY PERCENTAGE

SERVICE 76 28.68%

RETAIL 148 55.85%

MERCHANDISING 37 13.96%

MANUFACTURING 4 1.51%

TOTAL 265 100%

Table 1.1 shows the number of micro business in Daet, Camarines Norte. Based

on the gathered data, 55.85% of the micro businesses are retail type, while 28.68% are

37
service type of business. Meanwhile. 13.96% of the total businesses are merchandising

type and the remaining 1.51% are manufacturing type.

Among the registered micro businesses, retail is the most dominant type of micro

business in Daet, Camarines Norte. Most retail business are sundry store that can be

found on every side of the town. It is because Daeteños have a culture of tingi and also,

for convenience of every neighborhood. They are grabbing the opportunity of having a

business by opening a retail store on their own home, along with schools, terminals and

in wet markets. The least type is manufacturing because it can be considered as a small or

a medium type of business because of its capital that may exceed the threshold of below

three million pesos (Php. 3,000,000) because most manufacturing type of business need

equipment, land and building to produce such products and it may need more than nine

(9) employees.

It implies that the dominance of retail stores or retailing industry in the local

communities can be linked with the buying and consumption preferences of consumers.

Retail stores typically offer a more convenient and affordable way of attending to the

purchase and consumption demands and needs of consumers due to the high accessibility

and considerable prices of retail products. Retailing is also the most practical and relevant

type of enterprise that directly cater to the multiple and various consumption needs of the

public. Moreover, local communities have already established a culture of patronizing

retail products, goods and services. In fact, most communities especially in the central

areas have crowded or numerous retail stores, making retail consumption typical and

indispensable among the public.

38
 According to Mordor Intelligence (2016), most Filipino consumers prefer both

cheap and best products. The traditional sari-sari convenience stores (variety stores)

dominates the market because the demand is mostly cheap goods. Philippine retail sector

is driven by rising income, consumer confidence and increasing high net worth

individuals. Majority of Philippines have relatively low income, because of less

agricultural production and disaster prone location.

Table 1.2

Number of Years of Operation

YEARS FREQUENCY PERCENTAGE

1-5 years 115 43.50%

6-10 years 74 27.79%

11-15 years 23 8.68%

More than 15 53 20%

TOTAL 265 100%

39
 Table 1.2 shows that out of the 265 micro businesses, majority or 115 or 43.50%

were operating for 5 years and less while 74 respondents answered that they were

operating for almost 6-10 years, representing 27.79% of the total population. However,

23 or 8.68% of the total populations operates only for 11-15 years. Lastly, 53 respondents

which represents 20% of micro businesses in Daet, Camarines Norte were operating for

more than 15 years.

Most of the micro business answered that they are operating from 1-5 years.Some

factors that affects the life of micro businesses in Daet are tight competitions between

business, strict compliance of permits, licenses and taxes and Daeteños cannot

established loyalty due to taste and preference. Also, some people engaged themselves in

business without proper knowledge and experiences.

It implies that being 1-5 years in the business would mean being a neophyte in the

business industry. It also shows that the foundation of these new business requires higher

level of reinforcement, experiences, trainings, improvements and strategies not only for

business survival but most of all towards sustainability and productivity. These newly

established businesses still need to explore on multiple and various opportunities and

innovations to augment their entrepreneurial competitiveness and success. It also shows

that these businessed still have more challenges and rigors that need to be surpassed in

order to attain the targeted stability and profitability. However, it is also fair to claim that

not all newly-established businesses are lacking in productivity and stability because

there are neophyte entrepreneurs who attain success at the earliest stages or levels of their

entrepreneurial undertaking. Therefore, it is not a matter of longevity, but a concern of

40
profound, established and effective implementation of strategies towards entrepreneurial

victory.

Businesses that reached 15 years and above had maintained their stability in the

business industry. It means that they have already know the tactics and strategies on how

to sustain their business. It concluded that the number of micro businesses in Daet are

declining as the year passes by.

In 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.

Table 1.3

Number of Employees

41
 NUMBER OF EMPLOYEES FREQUENCY PERCENTAGE

1-3 191 72.08%

4-6 62 23.40%

7-9 12 4.53%

TOTAL 265 100%

Table 1.3 shows that the 191 or 72.08% of the total micro businesses have

employee/s of not more than 3. While62 micro businesses or a total of 23.40% of the

respondents have employees of 4 to 6 and lastly, 12 micro businesses or 4.53% responds

that they have 7 to 9 employees.

Based on Table 1.3, most micro businesses have a number of 1 to 3 employees.

As based on Table 1.1, since the dominant type of micro businesses is retail, some

employees of micro business are usually their relatives. Also some micro businesses do

not require many employees because some owners can handle their businesses on their

own and they do not have enough earnings to pay for the salaries.

It only implies that the number of employees of most micro business stores reflect

the nature of retailing which is typically operating in household units, small scale extent

and usually family-oriented ownership. The limited number of employees of micro

42
businesses is one concrete and evident determinant or indication of the lowest extent or

scale of entrepreneurial operations of these businesses. Limited number of employees

also indicates the least capacity of micro business owners to manage employing

manpower in a greater extent. Moreover, most micro business owners prefer to manage

and operate their businesses on their own reflect their motivation to be hands-on and

more personally focused on their entrepreneurial undertaking and endeavor.

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

Micro and Small Businesses in Ilocos Norte, 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.

Sources of Capital

Table 1.4

SOURCES OF CAPITAL FREQUENCY RANKING

Personal Investment 251 1st
Love Money (from relatives) 49 4th
Lending 69 2nd
Loan 60 3rd
Government Grant 0 5th
Table 1.4 shows the sources of capital of the micro businesses. Based on the table,

personal investment ranks 1 as the sources of capital of the businesses while lending

43
ranks as the 2nd and loan is in 3rd rank. Meanwhile, love money ranks as the 4th sources of

capital and government grant ranks as the last.

Most micro businesses open up their business in their own investment. It is

because putting up a micro business is easy with a small amount of capital. Also, some

owners do not like the idea of lending and loaning some money because of the

requirements and high interest. Also, some of them lend and loans money only if they

needed additional capital for their business. While some businesses got their capital from

their relatives (love money). However, no businesses got their capital from the

government.

According to Carbajo (2019), many entrepreneurs don’t know where to obtain

funding when starting out or expanding. If you know where to look, you’ll find that there

are a lot of different sources for businesses to raise capital. However, not all source of

capital is appropriate for every business. One should choose one which meets the capital

structure that best fits their business. A business’ capital structure is the way that it is

funded, either through debt (loan) or equity financing. Financial backing usually includes

loans, grants or investor finding. Some of the top ways to raise capital are through

investors, venture capitalists, government grants and small business loans. There are

other methods for financing but these should be used only if needed and know the risk.

2. USAGE OF MONEY

44
 The study gathered the frequency usage of money in different business

activities of the 265 micro businesses and computed the weighted mean of each

indicator. This served as basis to answer the main objective of the study which is

to determine the significant relationship of money utilization to the profitability of

micro business in Daet, Camarines Norte.

Table 2

Usage of Money

Weighted Verbal Interpretation

Indicators Mean
I invest in my business (additional fixed assets and

others) 3.52 ALWAYS

I replenish my inventories. 3.80 ALWAYS
I pay for my worker’s wages/salaries. 2.78 SOMETIMES
I spend my cash for advertising. 1.64 NEVER
I pay my taxes (penalties & surcharges if delayed). 3.72 ALWAYS

I withdraw cash from the business for personal use. 2.29 SELDOM

I order supplies or inventories from suppliers other than 2.60 SOMETIMES

significant providers.
I borrow cash for extra finances if the business does not 1.71

45
have enough finances. NEVER
I invest my cash to other income generating activities. 1.75 SELDOM
I maintain idle assets. 1.37 NEVER

LEGENDS:

4 – 3.26 ALWAYS 2.50 – 1.75 SELDOM

3.25 – 2.51 SOMETIMES 1.74 – 1 NEVER

This data shows the frequency usage of money on each indicator. The result

shows that replenishing inventories has the highest weighted mean totaling of 3.80, while

maintaining idle assets has the lowest weighted mean of 1.37.

The respondents agreed that every business should replenish their inventories.

Efficient inventory replenishment operation has a major impact on profitability. Sales

through shelf availability are affected by the accuracy and effectiveness of store ordering.

It also has an impact on handling, storage, and wastage costs in stores and in other parts

of the supply chain. Proper and efficient management of inventories may lessen the costs

and increase the profitability of the business. All micro business always replenishes their

inventories because it is the primary source of their profits, one reason why we use

money for everyday transactions.

On the other hand, the respondents disagreed that owners should maintain idle assets.

Based on the responses, their starting capital or working capital are too low to have idle

assets. They assured that every cash and equipment they have are circulating and

operating for the profitability of the business. Having a low resource cannot assure a high

46
rate of profitability for the business. Most micro business does not have a large amount of

working capital to maintain such idle assets.

According to Boldvan (2016), optimizing the replenishment of inventories makes

you supply chain more productive and more profitable for your business. They only

worse thing is not being able to fulfil customer orders than having thousands of dollar

tied up in inventory that is months away from turning over.

According to Malyk (2013), because of “idle assets”, many manufacturing, trading

and technology companies face cash flow challenges. We all know that “Cash is King”.

Even a profitable company can be in danger due to liquidity problems without a positive

cash flow. The company’s unused resources tie up money but do little to generate cash

flow or profit.

3. LEVEL OF PROFITABILITY

The researchers gathered the level of the profitability of the 265 respondents based on

different profitability ratios and computed the weighted mean of each indicator. This is

served as basis to answer the main objective of the study which is to determine the

significant relationship of money utilization to the profitability of micro business in Daet,

Camarines Norte.

Table 3

Level of Profitability

47
 PROFITABILITY RATIO WEIGHTED INTERPRETATIONS

MEAN
Fixed Asset Turnover 3.28 VERY HIGH
Inventory Turnover and Age of Inventory 3.91 VERY HIGH
Gross Profit Margin 2.62 HIGH
Operating Profit Margin 2.36 LOW
Operating Leverage 2.88 HIGH
Working Capital 2.59 HIGH
Accounts Payable Turnover and Deferral 2.72 HIGH

Period
Times Interest Earned Ratio 2.65 HIGH
Return on Investment 2.65 HIGH
Return on Equity 2.59 HIGH

LEGENDS:

4 – 3.26 VERY HIGH 2.50 – 1.75 LOW

3.25 – 2.51 HIGH 1.74 - 1 VERY LOW

This data shows the frequency level of profitability. The result shows that the

inventory turnover or age of inventory has the highest weighted mean totaling of 3.91.

While the operating profit margin has the lowest weighted mean of 2.36.

The respondents agreed that their business have a high inventory turnover or age

of inventory because it is one of the major contributing factor profitability of the

business. Inventory turnover shows how many times a company has sold and replaced

inventory during a given period. The higher the ratio, the higher the sales will incur.

The respondents agreed that they have a low operating profit margin. Micro

business in Daet tends to have small amount of profit after deducting expenses because

most micro business owners combines their personal expenses and business expenses.

48
Since micro business have a low operating profit, it takes a lot of years to attain business

improvement and sustainability.

According to Avenir (2019), inventory turnover, or the number of times inventory is sold

over a given period, affects profitability. Keeping stocks that are obsolete and have a low

turnover slows down sales. Keeping stocks that are having a high demand boosts sales

levels. Inventory levels should consider demand levels to avoid overstocking and under

stocking. Proper inventory management is vital to maximizing operational efficiency and

profitability.

According to Wilkinson (2013), the operating profit margin ratio shows how

much profit a business makes after paying for variable production costs such as wages,

raw materials, etc. It is also the return obtained from standard operations and does not

include unique or one-time transactions

Table 5

Significant Relationship between Money Utilization and Profitability of Micro

Business in Daet, Camarines Norte

Usage of Money Profitability

Measures M SD M SD t

Competencies 2.42 0.82 2.81 0.46 .53

50
49
Note: N = sample size, * p<.05, ** p<.01

A Pearson Moment of Correlation was calculated comparing the mean score of

the relationship between money utilization and profitability among micro businesses, a

significant relationship was found at (t(9)=-2.538,p=<0.032). Hence, the mean of the

usage of money(M=2.42, SD=0.82) was significantly related from the mean of the

profitability (M=2.81, SD=0.46). It implies that money utilization and profitability of

micro businesses in Daet are significantly related. Therefore, the researchers conclude

that the null hypothesis is rejected.

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.

As stated by Woodruff (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

51
50
company. Every activity has an impact on their business’ financial performance and must

be controlled and evaluated by the owner.

Table 4

Recommended Strategies

Strategies Frequency Ranking

Setting a financial planner 219 1ST
Budgeting 50 7TH
Writing all expenses 140 2ND
Monitor spending 57 6TH
Collecting accounts receivable 9 11TH
Manage inventory 41 9TH
Separate personal fund 133 3RD
Cut cost and increase revenue 42 8TH
Have a cash revenue 91 4TH
Open to investors 81 5TH
Properly allocating the resources. 22 10TH

This data shows the frequency of recommended strategies. The strategies are

ranked from 1st to 10th based on their frequency from the response of the respondents. The

result shows that setting a financial planner ranked 1st with a frequency of 219. While

collecting accounts receivable is in the last rank with a frequency of 22.

The respondents agreed that setting a financial planner can help your business

more profitable. This is their top recommended strategies because it helps the business to
52
51
be more organized and it may avoid risks and some unnecessary costs that you’re

incurring in the business operation. Having a financial planner enables you to monitor

your spending, tracks the performance of your business, helps you to have a good

decision making and forecast on your business.

Collecting accounts receivable is in the last rank of the recommended strategies.

Based on the responses from the respondents, collection of accounts receivable does not

increase your profitability because most of micro businesses doesn’t put interest and most

of them do not lend to their customers.

According to Incorp (2015), it takes time for business to grow, so you need to

build a plan that has at least a five-year outlook. Every year, your business needs to

define how it will grow over the years. It will become more complicated as your business

grows over the years, which means that your financial plan needs to grow with your

business.This means that your strategy needs to define not only how you're going to make

money, but also how you're going to benefit most of the money you're generating.
53

Review your strategic plan constantly so that you know if the results you are producing

match your goals set.

52
 54
NOTES

Ligthelm, A. (2007 – 2011) The Viability of Informal Micro Businesses in South Africa:
A Longitudinal Analysis. 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, 3(7). Retrieved from: https://www.hrmars.com/journals.
Carbajo (2019). Top Sources of Capital for Business Owners. Retrieved from
https://www.thebalancesmb.com/discover-the-top-sources-of-capital-for-business-
owners-4049539

53
Boldvan (2016). How to Increase Profit by Optimizing Inventory Replenishment?
Retrieved from https://boldvan.com/blog/how-to-increase-profits-by-optimizing-
inventory-replenishment/

Malyk T. (2013). Are “Idle Assets” Holding Your Company Back? Retrieved from
https://www.empoweredbusiness.ca/are-idle-assets-holding-your-company-back/

Avenir R. (2019). Does Inventory Affect Profit and Loss? Retrieved from
https://smallbusiness.chron.com/inventory-affect-profit-loss-56297.html?

Wilkinson J. (2013). Operating Profit Margin Ratio. Retrieved from

https://strategiccfo.com/operating-profit-margin-ratio/

The Association of Chartered Certified Accountants (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.
Incorp (2015). 43 Ways to Improve Profitability of your Company. Retrieved from
https://www.incorp.asia/blog/43-ways-improve-profitability-company/

55
56

54