Impact of Financial Management Practices on Business Performance of

SME’s in Tagum City

Introduction

Financial management plays an essential role in the financial

performance of businesses. It is the discipline of making financial decisions
for long and short-term goals to ensure that the return on capital exceeds the
cost without putting too much money at risk. It clarifies practical financial
management principles and is applied in the workplace to adjust to changing
business conditions. It also includes practices from other organizations to
create an evaluating financial management method; because of the link
between them, it impacts organizational performance. Effective management
is the key to a company's long-term success (Admasu, 2021).

Financial Management also involves strategic planning, organizing,

directing, and controlling financial undertakings in an organization or an
institute. It also includes applying management principles to the financial
assets of an organization while also playing an essential part in fiscal
management (Mehta, 2018). Al's, a study conducted by Ntenge and Ringera
(2017) showed that financial management practices in making financial
decisions appeared to be the most significant predictor of financial
performance. Therefore, developing appropriate strategies and policies that
enhance this output will be critical for improving financial performance.

Various contextual factors determine how an organization operates.

According to Contingency Theory by Pike (1986), this study explains multiple
financial management concepts. This entails the ordinary investment
outcomes history, professional competency degree, and capital budgeting
control policy. The study's conclusion from the hypothesis is that some
financial management strategies may work effectively for specific
organizations but not for others. This is because the business environment
and external influences are different.

Furthermore, a theory developed by Myers and Maljuf (1985) named

Pecking Order is based on firms' financing decisions. The thesis argues that
firms always prefer internal sources of financing. Based on this theory, the
companies' decisions should be made with a certain level of experience,
which necessitates sound financial management techniques. Companies will
be able to manage their funds due to the methods efficiently. Hence the
theory implies that through understanding the financial management
practices, they may minimize any risks to improve the financial performance.

Moreover, this study is also anchored to the Tradeoff Theory by Black

and Sholes (1974). This theory assumes benefits associated with leverage
with the capital mix applied until an optimal capital structure is achieved. A
high level of debt in business entities is very risky since the investors will not
be interested in such a venture.

The study's general objective is to assess how financial management

practices affect college students in achieving their financial goals while
running a business. The purpose of this study will analyze the financial
literacy of college students that affects their behavior in economic
performance and allocate their income to aim financial goals. Considering that
money is an essential commodity that helps people run their lives.

The main objective of this study is to establish the significant

relationship between financial management practices and the business
performance of online sellers in Tagum City. Specifically, this study sought to
achieve the following objectives:

1. To ascertain the level of financial management practices among online

sellers in Tagum City in terms of:

1.1 Cash Management Practices

1.2 Capital Budgeting Practices

1.3 Financing Practices

2. To figure out the level of business performance of online sellers in Tagum

City in terms of:
 2.1 Financial Performance

3. To establish the relationship between financial management practices and

the business performance of online sellers in Tagum City.

The following hypotheses were tested at a 0.05 level of significance.

1. There is no significant relationship between financial management

practices and business performance, and there is no model that best
fits business performance.
 Method

This section of the study will discuss the participants,

materials/instruments, data collection, design, and procedure on how the
study will be conducted.

Participants

The respondents for this research will be small and medium-sized

enterprise (SMEs) owners located in Tagum City. The respondents will be
selected based on the following inclusion criteria: owner of any Small
Medium-sized Enterprise business in Tagum City, male or female, 18-60
years old online seller in Tagum City. For the determination of the sample
size, the study will utilize the sample size calculator using Slovin’s Formula.
Regarding the approach of selecting the respondents, the study incorporated
a probability type of sampling also known as random sampling. Random
sampling means that every item in the population has an equal chance of
being included in sample. One way to undertake random sampling would be if
researcher was to construct a sampling frame first and then used a random
number generation computer program to pick a sample from the sampling
frame (Zikmund, 2002).

 Materials/Instruments

Survey research is defined as "the collection of information from a

sample of individuals through their responses to questions" (Check & Schutt,
2012, p. 160). This type of research allows for a variety of methods to recruit
participants, collect data, and utilize various methods of instrumentation. It
can range from asking a few targeted questions of individuals on a street
corner to obtain information related to behaviors and preferences, to a more
rigorous study using multiple valid and reliable instruments. Survey research
is a useful and legitimate approach to research that has clear benefits in
helping to describe and explore variables and constructs of interest. These
surveys were often provided through the mail and were intended to describe
demographic characteristics of individuals or obtain opinions on which to base
programs or products for a population or group. The survey questionnaire was
designed to gather information from online sellers regarding their financial
management and its effects to their business performance. The
questionnaires were adopted and modified by the researchers. However, as
pointed by Bird (2009), to produce a valid and reliable questionnaire, the
wording of the items should be precise and unambiguous. The wording of the
questionnaire went through a rigorous test exercise through the use of senior
academics and other researchers who verified their validity. There were two
parts in the questionnaire. In Section A, four indicators of the independent
variable were included. In the second part encompasses questions of
dependent variable. The questions were adapted and modified from past
research (Cahyadi, et.al.2019, Mtmeri 2017, Merrimack Education
Center1978). The literature review indicated financial management and its
effect to business performance. The indicators were categorized into Cash
Management Practices, Financing Practices, Capital Budgeting Practices and
Business Performance. These four categories were specified as such in the
questionnaire and were based on the other research instruments used in
similar studies specifically the Effect of Financial Management Practices on
the Financial Performance of the Companies which was developed by
Michael Mwangi Muguchia.

The interpretation scale was calculated based on the standard formula

in interpreting the values in a five (5) point Likert-type scale (Sullivan & Artino,
2013). Below are the reference values to interpret the collected data:

Score Parameter Descriptive Description

Value level
5 4.2-5.0 Strongly Agree  Very High level of self-efficacy.
Student has a very high connection
to the statement presented.
4 3.4-4.1 Agree  High level of self-efficacy.
Student has high connection to the
statement presented
3 2.6-3.3 Neither agree Neutral.
nor disagree 
 Student has a neutral connection to
the statement presented.
2 1.8-2.5 Disagree  Low level of self-efficacy.
Student has a neutral connection to
the statement presented.
1 1.0-1.7 Strongly Very Low level of self-efficacy.
disagree Student has a very low connection
to the statement presented.

Design and Procedure

The study is a quantitative research utilizing a correlational design. A

quantitative research involves the use of questionnaires to collect numeric
data and find the relationships between data by thorough analysis (Rutberg &
Bouikidis 2019). In relation to the study’s correlational aspect, according to
Price, Jhangiani & Chiang (2020), a correlational design involves two
variables which are measured by the researcher and the statistical relation
between them is evaluated with little to no attempt to monitor foreign
variables. The study design enabled the researchers to fittingly assess
whether the factors belonging to each of the hierarchy of needs affects the
behaviour or decision of accounting students in which career area to pursue
after graduation quantitatively, as it entailed the use of numeric scales, and
subsequently the tabulation of the mean scores to produce the results. 

To address this study’s problem, the following steps will be employed

in gathering the data. Following the approval of the panel members, the
researchers will draft a letter to the dean of college, requesting permission to
get the population of BSA students at UMTC. Upon the approval, a letter of
endorsement was requested to allow the researchers to administer the survey
questionnaire to the study's respondents. Furthermore, because physical
surveys are not possible, the survey questionnaire is through Google Forms.
The researchers manually tallied the data after obtaining it, and it will be
tabulated and evaluated using two statistical tools: mean and Pearson r.
  Mean is a statistical tool that is used to determine the impact of
financial management practices to the business performance of online sellers
in Tagum City. On the other hand, Pearson r refers to the statistical tool that is
use to employ the significance on the relationship between financial
management practices and business performance of online sellers in Tagum
City.