THE INFLUENCE OF CASH MANAGEMNET PRACTICES ON

THE CASH FLOW STABILITY OF SMALL AND MEDIUM

ENTERPRISES IN BARANGAY CARMEN, CAGAYAN DE ORO

CITY

A Project Proposal Presented to the Faculty of

College and Management of Accountancy,
PHINMA- Cagayan de Oro City

In Partial Fulfillment of the Requirements for the Degree

Bachelor of Science in Accountancy

Presented by:

Carl Justin Lagria

Jennylou Yecyec

John Benedict So

Lera Mae A. Ticar

Mohammad Ryan Karuwahi

 Acknowledgement

First and foremost, the researcher would like to express heartfelt gratitude to Almighty

God for the strength, wisdom, and perseverance given throughout the completion of this

research project. Sincere thanks and appreciation are extended to the researcher’s adviser,

Christopher A. Magsayo, for valuable guidance, constructive feedback, and unwavering

support throughout the development of this study.

Special recognition is given to A.J. Cabeltes Guinsod whose guidance from the approval

of the research title to the development of the entire proposal was instrumental in the

success of this work. Your patience, encouragement, and insightful suggestions were

deeply appreciated.

Gratitude is also extended to the faculty members of the College of Management and

Accountancy, PHINMA – Cagayan de Oro College, for their academic support and

encouragement.
The researcher is also thankful to the owners and managers of small and medium

enterprises in Barangay Carmen, who generously shared their time and information as

participants in the study.

Lastly, heartfelt thanks are given to the researcher's family and friends, whose moral

support, motivation, and understanding played a vital role in the completion of this

research

TABLE OF CONTENTS

1.0 Chapter One: Introduction

1.1 Background of the Study

1.2 Statement of the Problem

1.3 Objectives of the Study

1.4 Research Questions

1.5 Hypotheses

1.6 Significance of the Study

1.7 Scope and Limitations of the Study

1.8 Definition of Terms

2.0 Chapter Two: Review of Related Literature

2.1 Conceptual Framework

2.2 Theoretical Framework

2.3 Empirical Review

2.4 Summary of Literature Review

3.0 Chapter Three: Research Methodology

3.1 Research Design

3.2 Sources of Data

3.3 Population and Sampling Technique

3.4 Data Collection Instrument

3.5 Validity and Reliability of the Instrument

3.6 Method of Data Analysi

ABSTRACT

This study investigates the influence of cash management practices on the cash flow

stability of small and medium enterprises (SMEs) in Barangay Carmen, Cagayan de Oro

City. SMEs are vital contributors to local economic growth but often face challenges with

unstable cash flow due to poor financial practices. This research employed a descriptive-

correlational design to explore how specific cash management strategies impact the

financial stability of these enterprises. Data were collected through structured

questionnaires administered to SME owners and managers. The findings are expected to

provide valuable insights for improving cash handling efficiency and promoting financial

sustainability within the SME sector. The study will also contribute to policy formulation

and academic discourse on SME financial management.

Keywords: cash management, SMEs, cash flow, financial stability, Cagayan de Oro
 CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Cash flow is the lifeblood of any business, particularly SMEs, which often operate with limited

financial resources. Cash management practices such as cash budgeting, timely receivables

collection, and expenditure control are essential for maintaining liquidity and ensuring business

continuity. However, in Barangay Carmen, Cagayan de Oro City, many SMEs continue to face

liquidity crises due to inefficient or informal financial practices. This research seeks to explore

the role of cash management in mitigating cash flow issues and enhancing financial stability.

The development of SMEs contributes significantly to employment generation, poverty

reduction, and innovation. Despite this importance, SMEs are frequently undermined by poor

financial management and a lack of strategic planning. According to the Department of Trade

and Industry (2023), over 90% of businesses in the Philippines are SMEs, and many cite cash

flow challenges as a primary reason for business failure. The importance of this study lies in its

localized focus, providing insights for SMEs in Barangay Carmen specifically, which serves as a

microcosm of broader national trends.

1.2 Statement of the Problem

Despite their economic relevance, SMEs in Barangay Carmen face frequent cash shortages and

financial instability. Poor cash management has been identified as a major contributor to

business failure in this sector. Yet, little is known about the specific practices used by local SMEs

and how these relate to their cash flow status. This study aims to fill this knowledge gap.
1.3 Objectives of the Study
The primary objective is to assess the influence of cash management practices on the cash flow

stability of SMEs in Barangay Carmen. The specific objectives are to:

• Identify the common cash management practices adopted by SMEs.

• Determine the cash flow status (shortage, overage, or stability) of these enterprises.

• Examine the relationship between cash management practices and cash flow status.

1.4 Research Questions

• What are the prevailing cash management practices among SMEs in Barangay Carmen?

• What is the current cash flow status of these SMEs?

• Is there a significant relationship between cash management practices and cash flow

stability?

1.5 Research Hypotheses

• Null Hypothesis (H₀): There is no significant influence of cash management practices on

the cash flow stability of SMEs in Barangay Carmen.

• Alternative Hypothesis (H₁): There is a significant influence of cash management

practices on the cash flow stability of SMEs in Barangay Carmen.

1.6 Significance of the Study

This research will benefit the following:

• SME Owners and Managers: By providing strategies for improved financial performance.

• Policy Makers: To design support frameworks for small businesses.

• Researchers: To contribute to the limited literature on SME financial management in

local contexts.
1.7 Scope and Limitations of the Study
The study focuses on SMEs located in Barangay Carmen, Cagayan de Oro City, examining only

cash management and cash flow variables. It does not explore other financial performance

indicators. Limitations include access to financial data, time constraints, and the voluntary

nature of participation.

1.8 Definition of Terms

• Cash Management Practices: The methods and techniques used by businesses to
manage their cash inflows and outflows efficiently, including budgeting, forecasting,
monitoring, and control (Investopedia, 2023).
• Cash Flow Stability: The consistency of cash inflows and outflows in a business,
allowing it to meet obligations, invest in growth, and avoid shortages or surpluses
(CFI, n.d.-a).

• Small and Medium Enterprises (SMEs): Enterprises with limited assets, workforce, and

revenue as defined by local or national criteria; typically employing 10 to 99 workers in

the Philippine context (DTI, 2023).

• Receivables Management: A component of cash management that involves tracking

and ensuring timely collection of funds owed to the business by customers
(Investopedia, 2023)

• Payables Management: Payables Management: The process of managing the

company’s obligations to pay off short-term debts to creditors or suppliers (CFI, n.d.-b).
References

Corporate Finance Institute. (n.d.-a). Cash Flow Statement. Corporate Finance Institute.

Retrieved from https://corporatefinanceinstitute.com/resources/accounting/cash-flow-

statement/
Corporate Finance Institute. (n.d.-b). Working Capital Management. Corporate Finance

Institute. Retrieved from https://corporatefinanceinstitute.com/resources/working-capital-

management/

Department of Trade and Industry. (2023). Philippine MSME Statistics. Department of Trade

and Industry. Retrieved from https://www.dti.gov.ph/resources/statistics/msme-statistics

Investopedia. (2023). Cash Management: What It Is, How It Works, and Why It Matters.

Investopedia. Retrieved from https://www.investopedia.com/terms/c/cash-management.asp

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 Conceptual Framework

The conceptual framework links cash management practices (independent variable) such as

cash budgeting, receivables/payables management, and cash forecasting to the dependent

variable — cash flow stability. It assumes that effective management of cash operations results

in improved financial health and sustainability of SMEs.

2.2 Theoretical Framework

The study is anchored in:

This study is grounded in three fundamental financial management theories: the Cash
Conversion Cycle (CCC) Theory, Working Capital Management (WCM) Theory, and
Agency Theory. Each provides a distinct yet complementary lens through which the influence
of cash management practices on SME cash flow stability can be better understood.
Cash Conversion Cycle (CCC) Theory

Core Tenets:
The Cash Conversion Cycle Theory, introduced by Richards and Laughlin (1980), explains the
period between a firm’s outlay of cash to pay for its operations (e.g., inventory, raw materials)
and the collection of cash from customers. It measures how long a firm’s cash is tied up in
operations before it is converted back into liquid cash.

The formula typically used is:

CCC = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) – Days Payables
Outstanding (DPO)

Relevance to SMEs and Cash Management:

For SMEs, especially those with limited access to credit and external financing, shortening the
CCC is critical to maintaining liquidity. If cash is tied up too long in receivables or inventory,
the business may face operational constraints despite being profitable on paper. CCC
highlights the importance of timely receivables collection, efficient inventory turnover, and
strategically managed payables—core components of effective cash management.

Application to the Study:

This theory directly informs the research by providing a measurable indicator of cash flow
efficiency. By examining how SMEs in Barangay Carmen manage their receivables,
inventory, and payables, the study evaluates whether their practices align with principles that
minimize the cash conversion cycle and promote cash flow stability.

Working Capital Management (WCM) Theory

Core Tenets:
The Working Capital Management Theory focuses on managing short-term assets and
liabilities to ensure that a business has sufficient liquidity to carry out day-to-day operations.
This includes managing cash, inventory, accounts receivable, and accounts payable. The key
objective is to maintain an optimal balance between profitability and liquidity.

Relevance to SMEs and Cash Management:

For SMEs, efficient working capital management is essential as they typically operate on
narrow margins and limited reserves. Inadequate management can lead to overstocking,
delayed collections, or an inability to meet financial obligations. WCM theory supports
strategic decisions that avoid both excessive liquidity (which could be unproductive) and
liquidity shortages (which could lead to insolvency).
Application to the Study:
This theory provides a foundation for evaluating how SMEs in Barangay Carmen balance their
current assets and liabilities. The study seeks to assess whether businesses are employing cash
management practices that optimize their working capital cycle—thus enhancing their
financial resilience and cash flow reliability.

Agency Theory

Core Tenets:
Agency Theory, developed by Jensen and Meckling (1976), deals with the conflicts that arise
in relationships where one party (the principal) delegates decision-making authority to another
(the agent). In business contexts, this often describes the relationship between business owners
and managers. The theory argues that without appropriate controls, agents may act in their
own self-interest, which can be detrimental to the principal’s goals.

Relevance to SMEs and Cash Management:

In SMEs—particularly those where ownership and management are separate—cash
mismanagement can result from lack of oversight, poor accountability, or conflicting
objectives. Even in owner-managed SMEs, informal practices may lead to inefficient use of
resources. Agency Theory underscores the importance of internal controls, transparency, and
financial reporting in aligning decision-making with the enterprise’s best interests.

Application to the Study:

This theory guides the investigation into the presence or absence of formal financial systems,
controls, and monitoring in SMEs within Barangay Carmen. It supports the idea that better-
aligned financial management structures lead to more responsible cash handling, thus
contributing to improved cash flow stability.

2.3 Empirical Review

Numerous empirical studies have underscored the importance of cash management in ensuring
the financial sustainability and cash flow stability of small and medium enterprises (SMEs).
This section reviews key studies that provide foundational support for this research, focusing
on their methodologies, findings, and how these relate to the present investigation.

Adebayo (2019) conducted a quantitative study on the role of cash budgeting and
recordkeeping in SME liquidity management in Nigeria. Using survey data from 120 SMEs,
the study applied regression analysis to determine the impact of financial record practices on
liquidity levels. The results indicated a statistically significant positive relationship between
systematic budgeting and cash availability. Adebayo emphasized that SMEs with documented
cash flow plans were better positioned to avoid liquidity shortages. This study informs the
current research by highlighting how financial discipline and structured cash flow planning
can stabilize SME operations, a practice whose prevalence in Barangay Carmen remains
underexplored.

Boateng (2020) examined the relationship between financial literacy and cash flow stability
among SMEs in Accra, Ghana. Employing a mixed-methods approach, Boateng surveyed 150
SME owners and complemented the quantitative results with focus group discussions.
Findings revealed that financial literacy, particularly in areas like receivables tracking and
expense forecasting, significantly improved the cash flow consistency of enterprises. The
study concluded that financially literate managers made more informed decisions, reducing
reliance on emergency financing. This has direct relevance to the current study, especially in
understanding whether SME owners in Barangay Carmen possess similar competencies and
how these skills impact their financial operations.

Medina (2022) provided a localized analysis of structured financial practices among SMEs in
Northern Mindanao. The study employed case study methodology, focusing on 10 businesses
that had successfully navigated the COVID-19 pandemic. Medina found that enterprises with
formal cash flow monitoring and internal audit mechanisms were more resilient to external
economic shocks. The study emphasized the role of proactive financial planning in
maintaining cash stability. Medina's work serves as a regional parallel to the current research
and reinforces the importance of formalized systems in strengthening cash flow performance
among SMEs.

Aramide and Bashir (2015) analyzed the causes of financial instability in small businesses in
Ibadan, Nigeria, through a combination of financial audits and structured interviews with 80
SME managers. Their findings identified poor internal control systems, the absence of
budgeting procedures, and mismanagement of payables as key factors contributing to business
closures. The researchers recommended the institutionalization of internal controls and the
adoption of standardized budgeting tools to prevent erratic cash flow. This study supports the
current research hypothesis by suggesting that the lack of cash management practices may be a
key driver of instability in SMEs, a concern also observed among SMEs in Barangay Carmen.

Duhaylungsod (2021) focused on cash planning practices among Cagayan de Oro-based

enterprises, using a descriptive survey method among 75 SMEs across various industries. The
findings demonstrated that daily cash tracking and weekly financial reviews contributed
significantly to the enterprises’ financial decision-making capabilities. Notably, SMEs that
integrated simple technologies like spreadsheets to monitor cash inflows and outflows
reported fewer incidences of cash shortages. Duhaylungsod’s local context and emphasis on
daily financial vigilance offer relevant insights for this research, particularly in assessing the
extent of technological adoption in SME cash management in Barangay Carmen.

Synthesis and Relevance to Current Study

Collectively, these studies demonstrate that effective cash management—encompassing

budgeting, literacy, structured recordkeeping, internal control, and daily tracking—has a
measurable influence on the financial stability of SMEs. The methodologies employed,
ranging from surveys and regression analyses to case studies and interviews, provide a robust
foundation for examining these relationships in various contexts.

However, a noticeable research gap exists concerning SME practices at the barangay level,
particularly in Barangay Carmen, Cagayan de Oro City. While regional and international
studies offer valuable frameworks, localized data is necessary to tailor cash management
interventions effectively. The current study builds upon this empirical foundation by
investigating which practices are prevalent locally and how they relate specifically to the cash
flow stability of SMEs in this barangay.

2.4 Summary of Literature Review

The reviewed literature consistently affirms that effective cash management practices—such
as budgeting, receivables/payables monitoring, internal controls, and daily cash tracking—are
crucial for ensuring the financial stability of SMEs. Studies from both international (Adebayo,
Boateng, Aramide & Bashir) and local contexts (Medina, Duhaylungsod) demonstrate a
positive correlation between structured financial practices and improved cash flow stability.

However, despite the abundance of global research, there is limited empirical data specifically
addressing SMEs operating in Barangay Carmen, Cagayan de Oro City. Most existing studies
focus on national or regional trends, leaving a gap in understanding how local enterprises
manage their cash flows in day-to-day operations. This gap highlights the importance of the
present study, which seeks to explore and evaluate cash management practices and their direct
influence on the financial health of SMEs in this specific locality.

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Research Design

This study employs a descriptive-correlational research design. The descriptive component

aims to identify and document the current cash management practices and cash flow stability
status of SMEs in Barangay Carmen, while the correlational aspect explores whether a
statistically significant relationship exists between these two variables.

Rationale:
This design is appropriate because it allows for the simultaneous measurement of variables
and the identification of potential associations without manipulating the study environment. It
fits well with the study’s objective to assess and interpret naturally occurring financial
behaviors among SMEs.

3.2 Sources of Data

• Primary Data: Collected directly from SME owners and managers using structured
questionnaires designed to measure cash management practices and cash flow status.

• Secondary Data: Sourced from government reports, academic journals, and prior
empirical studies related to SME financial management and cash flow.

3.3 Population and Sampling Technique

The target population consists of registered Small and Medium Enterprises located in
Barangay Carmen, Cagayan de Oro City. These SMEs span various sectors such as retail, food
and beverage, services, and small manufacturing.

Sampling Technique: Stratified Random Sampling

• Strata Definition: The population will be divided into distinct strata based on industry
sector (e.g., retail, food, services).
• Proportional Allocation: A proportionate number of SMEs will be sampled from
each stratum based on the sector’s representation in the barangay’s total SME
population (data sourced from DTI or Barangay Business Registry).
• Random Selection: Within each stratum, simple random sampling will be applied to
select individual SME participants, ensuring each business has an equal chance of
being chosen.

Sample Size Determination:

Using Slovin’s Formula:

Where:

• n = sample size
• N = population size (e.g., total number of registered SMEs in Barangay Carmen)
• e = margin of error (set at 5%)

3.4 Data Collection Instrument

The primary tool is a structured questionnaire, divided into two main sections:

Section A: Demographic and Business Profile

• Business size (micro, small, or medium)

• Years in operation
• Sector/industry type
• Number of employees
• Ownership structure

Section B: Cash Management Practices and Cash Flow Stability

20 items measured using a 5-point Likert Scale (1 = Strongly Disagree to 5 = Strongly Agree)

Subsections include:

▪ Cash Budgeting (e.g., "Our business prepares monthly cash budgets.")

▪ Receivables Management (e.g., "We have a system for tracking
overdue customer payments.")
▪ Payables Management (e.g., "We negotiate payment terms with
suppliers to match cash inflow schedules.")
▪ Cash Forecasting and Monitoring (e.g., "We regularly forecast our
cash requirements for the next quarter.")
▪ Cash Flow Status Assessment (e.g., "Our business consistently
maintains sufficient cash to meet obligations.")

3.5 Validity and Reliability of the Instrument

Content Validity:

• The questionnaire will be reviewed by three academic experts in accounting and

finance, including faculty members from PHINMA-Cagayan de Oro College.
 • Reviewers will evaluate the items for clarity, alignment with the study’s objectives,
and relevance to SME cash management.

Pilot Testing:

• A pilot test will be conducted with 10 SMEs from nearby barangays with similar
business profiles.
• Feedback from pilot participants will be used to refine ambiguous or redundant
questions.

Reliability Testing:

• Internal consistency will be measured using Cronbach’s Alpha, with a threshold of ≥

0.70 indicating acceptable reliability.
• Statistical analysis will be performed using SPSS, with results reported per cash
management dimension (e.g., budgeting, receivables, payables).

3.6 Method of Data Analysis

Data collected will be analyzed using Statistical Package for the Social Sciences (SPSS):

• Descriptive Statistics:
o Frequency counts, means, and standard deviations for cash management
practices and SME profiles.
• Inferential Statistics:
o Pearson’s Correlation Coefficient will assess the relationship between cash
management practices (independent variable) and cash flow stability
(dependent variable).
o Significance Level: A p-value of ≤ 0.05 will indicate a statistically significant
relationship.

3.7 Ethical Considerations

Informed Consent: All respondents will be briefed on the study’s objectives and will sign a
consent form before participation.

Confidentiality: Responses will be anonymized, and business names will not be disclosed.

Voluntary Participation: Participants may withdraw from the study at any time without
penalty.
Data Security: Survey data will be stored in a password-protected digital folder accessible
only to the researchers.

3.8 Limitations of Methodology

The study may be constrained by the willingness of SMEs to share financial information.

Another limitation may be the generalizability of the findings beyond Barangay Carmen.