‘’The Correlation Between Cash Flow Management and Economic Sustainability of Micro and Small

Enterprises’’

Dependent Variable - Economic Sustainability of Micro and Small Enterprises: This is the outcome being

studied, whether the businesses can survive.

Independent Variable - Cash Flow Management: This is the factor believed to influence economic

sustainability.

Importance

For accounting students, this research study on the relationship between cash flow

management and the economic sustainability of micro and small enterprises (MSEs) is beneficial

because it bridges the gap between knowledge and application, enabling students to see how

accounting concepts like cash flow statements, budgeting, and financial forecasting are integral to

a critical business function. Additionally, the study develops critical thinking skills by requiring

students to examine financial data, spot trends, and make meaningful conclusions about business

performance—critical thinking that is essential for a successful accounting career and can even

lead to specialized fields like small business consulting, financial advising, and entrepreneurship.

Beyond its academic significance, this research study holds broader implications. MSEs serve as

the backbone of many economies, driving job creation and economic growth. Their financial well-being

and the critical role that cash flow management plays can be understood by this research, which

enables investors, policymakers, and support groups to create policies that will effectively promote

progress. Furthermore, since many MSEs are locally owned and run, the findings of this study can

help guide community projects that aim to improve their financial stability and foster sustainable
economic development in nearby communities. In the end, the results of this study offer insightful

information for prospective business owners, highlighting the vital role that cash flow management

plays in starting and growing a profitable company.

Objectives

The objective of this research is to determine whether cash flow management practices

have a positive or negative impact on the growth of micro and small enterprises (MSEs), as well

as which cash flow management practices are most important for guaranteeing the economic

sustainability and success of these businesses, this study intends to examine the relationship

between effective cash flow management practices and the economic sustainability of MSEs.
Introduction

Micro and Small Enterprises (MSEs) are regarded as a critical driver of the nation's

economic development, but despite their contribution to Filipinos, they still face a number of

challenges that hinder their expansion. Because microenterprises are small, even a small

management error can result in business failure. According to the Department of Trade and

Industry Micro enterprises constitute 90.43% (1,127,058) of total establishments, followed by

small enterprises at 8.82% (109,912). MSEs are categorized by the Department of Trade and

Industry according to the size of their assets and workforce. Micro businesses are defined as those

with assets of PHP 3,000,000 or less and one to nine employees, while small businesses are defined

as those with assets of PHP 3,000,001 to PHP 15,000,000 and 10 to 99 employees.

Management errors in handling the company's finances cause financial suffering that is

unavoidable and ultimately leads to collapse. For Micro and Small Enterprises (MSEs), effective

cash flow management is paramount for survival and growth. Limited resources, unpredictable

income, and intense competition heighten the risk of cash flow issues. Delayed payments from

customers and unexpected expenses further strain their finances.

By diligently managing cash flow, MSEs can make informed decisions, improve

profitability, reduce the risk of failure, access credit more easily, and fuel sustainable growth. This

research aims to investigate the critical link between effective cash flow management practices

and the economic sustainability of Micro and Small Enterprises (MSEs). By examining the

correlation between these two factors, this study seeks to understand the extent to which cash flow

management practices contribute to the economic sustainability and growth of MSEs.

The purpose of this study was to investigate the correlation between cash flow management and

the economic sustainability of micro and small enterprises. It specifically aimed to answer the following

questions:

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

Enterprise profile

1.1. number of years in operation

1.2. number of employees

2. What is the nature and extent of cash flow management practices employed by MSEs in Sta. Ana,

Pampanga?

3. What factors contribute to the Economic sustainability of MSEs in Sta. Ana, Pampanga?

4. How does effective cash flow management contribute to the economic sustainability of MSEs?
Research Methodology

Research Design

This study employs a quantitative research design specifically utilizing the correlational

method. The correlational method aims to determine the strength and direction of the relationship

between two or more variables. In this case, the study will investigate the correlation between Cash

Flow Management and Economic Sustainability of Micro and Small Enterprises (MSEs).

Quantitative methods rely on numerical data and statistical analysis. This is crucial when

examining the correlation between cash flow management and economic sustainability, as both

concepts can be quantified. Studying a significant number of micro and small enterprises (MSEs)

can provide a more comprehensive understanding of the relationship between cash flow

management and economic sustainability.

Population and Sampling

The target population for this study will be owners/managers of Micro and Small

Enterprises (MSEs) operating within Sta. Ana, Pampanga. This research will employ cluster

sampling to select the Micro and Small Enterprises (MSEs) for the study. The target population

will be divided into clusters, such as geographical areas (barangays, municipalities) or industry

sectors. A random sample of clusters will then be selected. Within each selected cluster, all or a

random sample of MSEs will be included in the study. Cluster sampling is advantageous because

it reduces the cost with reaching and surveying a large and potentially dispersed population of

MSEs across various locations.

In this study, the researchers will utilize an existing research questionnaire as the primary

data-gathering instrument. However, the researchers will adapt a questionnaire to ensure its

suitability and relevance to the specific context and objectives of this particular research. This

adaptation process may involve minor modifications to the wording of questions, the inclusion or

exclusion of specific items, and adjustments to the response options to make sure the research

accurately reflects what we're studying.

Data Collection

Data for this research will be primarily collected through a structured questionnaire

administered to owners or managers of Micro and Small Enterprises (MSEs) within a specific

geographical area or industry. Prior to data collection, the questionnaire will undergo rigorous pilot

testing to ensure its validity, reliability, and clarity. The finalized questionnaire will then be

administered to a representative sample of MSE owners or managers through face-to-face survey

or online survey. For each completed survey, the researcher will verify that all of the questions

were answered by the respondents.

Statistical tool

The mean scores of the two variables will be calculated to determine the average level of

cash flow management practices among the respondents. Mean is a statistical measure used to

calculate the average value of a set of data points. In this context, the mean scores of cash flow

management practices and economic sustainability indicators provide a central tendency measure

for each group of variables.

According to Aren and Sibindi, 2014 inadequate cash flow management is the main reason

why most failed SMEs fail, it is crucial to have good cash flow management. Poor cash flow

management can also result in small business failure. Cash flow management is crucial for

business continuity, particularly for small enterprises. According to these results, cash flow is the

main measure of business health and is the lifeblood of all companies.

According to Uwonda and Okello, 2015 SMEs failures are closely linked to the intended

personal objectives of the owners/directors who registered their companies primarily with the sole

aim of obtaining government contracts which require public procurement procedures. The majority

of SMEs are new, lack experience in contract work, and occasionally have no money in their bank

accounts, so they consistently fail to meet procurement requirements and are knocked out at the

preliminary stages of evaluation, according to the research findings. The service sectors of SMEs

studied fought an uphill battle from the beginning, primarily due to cash flow management issues,

but stabilized after five years.

Dolorso (2023) conducted a study to assess the effectiveness of financial management

practices of microenterprises in Quezon City. The results showed that microbusinesses failed to

adequately monitor their cash flow since they failed to retain or deposit their funds at the bank on

a regular basis. They were oblivious to potential loss because they took for granted one of the most

crucial financial controls, which had an immediate impact on how the business operated.

According to the study, respondents said cash management techniques were the least successful.
Since cash flow is the most crucial resource for keeping a business operating, microenterprises

should follow stringent cash management procedures to maintain adequate cash flow.

Moreover, Wadesango, Tinarwo, and Sitcha’s study, 56% of the respondents indicated

that they are not aware of the cash flow movements in the business while a 44% indicated they are

aware of every cent that comes into the business and moves out of the business. Small business

owners who are knowledgeable about cash flow management are the only ones with profitable

companies and enough cash on hand to secure their companies' continued existence. The study

also found that a large number of small enterprises are hesitant to implement cash management

procedures. The study's statistics showed that a large number of small enterprises are ineligible to

get financial institution loans, which is a hindrance to small enterprises' ability to survive.
References:

Aren, A., & Sibindi, A. (2014). Cash flow management practices: An empirical study of small

businesses operating in the South African retail sector. Risk Governance and Control: Financial

Markets and Institutions, 4(2), 87-100. https://doi.org/10.22495/rgcv4i2c1art1

Uwonda, G., & Okello, N. (2015). Cash Flow Management and Sustainability of Small Medium

Enterprises (SMEs) in Northern Uganda. International Journal of Social Science and Economics

Invention, 1(03), 153 to 173. https://doi.org/10.23958/ijssei/vol01-i03/02

Wadesango, N., Tinarwo, N., Sitcha, L., & Machingambi, S. (2019). The Impact of Cash Flow

Management on the Profitability and Sustainability of Small to Medium Sized Enterprises.

International Journal of Entrepreneurship, 23.

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Karadağ, H. (2015). Financial Management Challenges In Small And Medium-Sized

Enterprises: A Strategic Management Approach. Emerging Markets Journal, 5, 26-40.