Effective Financial Management: A key to business success amidst uncertain times

Published April 14, 2021, 8:00 AM

by MB Business

Every financial decision a manager or business owner makes affects the success or failure of an institution. This involves choices in the aspect of utilization of finances — acquisition, sales, expansion, etc. Hence, sound financial decisions are crucial in effectively managing a business, including MSMEs. We must acknowledge however, that not all MSMEs are equipped with the right knowledge and understanding of financial management. 

According to Dr. Alvin Ang, an economics professor from the Ateneo de Manila University, regardless of the size of an enterprise, the need for financial management is just the same. “It means understanding how funds come in and go out of the firm in its operations.  Financial management means that the firm knows how the company operates and understands what is/are needed to expand or stop or shift in order to sustain its profitability over time.  It may involve raising more capital, borrowing, or simply cutting expenses.”

He further explains that without the ability to understand these, a person will have a difficult time operating a firm. Thus, making Financial Literacy an essential part of Financial Management.

The Department of Trade and Industry has been integrating financial literacy in our programs for MSMEs as we understand that it is key in equipping every MSME owner/decision-maker to come up with financially-sound decisions.  The DTI has seen growth in the number of entrepreneurs, especially this time of pandemic, as noted in the number of business name registrations. This makes financial literacy even more necessary. 

Negosyo Centers nationwide offer key training programs on financial literacy while our Kapatid Mentor ME (KMME) program helps our micro and small entrepreneurs through mentors who teach them how to scale up and sustain their businesses. The program also includes training on business basics such as accounting, taxation, and finance.

One aspect of financial management is deciding on the need to raise capital to sustain or grow the business. When MSME owners are equipped with financial literacy, they are more guided on their decisions on sustaining or growing their businesses — whether or not they should raise their capital, where to access loans for business sustenance, etc.  

If the business owner deems it necessary (after thorough study and risk calculations) to raise capital in order to sustain or grow the business, the DTI can provide them access to further manage their company’s finances through loans for capital growth.  Under the MONEY aspect of the 7Ms Framework for Successful Entrepreneurship (MINDSET CHANGE, MASTERY, MENTORING, MONEY, MACHINE, MARKET ACCESS, and MODELS OF NEGOSYO), we have financing programs that are tailor fit for the needs of MSMEs.

Given the impact of the pandemic to businesses, especially MSMEs, we foresee more businesses realizing a need for financial assistance to sustain their operations. The pandemic is an example of an unforeseen event that could wreak havoc on businesses, especially those without a comprehensive continuity plan.  To address this, the DTI and the Small Business Corp. launched the CARES Program (COVID-19 Assistance to Restart Enterprises)  offering loans of up to P500,000. And while this might not be enough to cover all losses, it may serve as a seed for MSMEs to nurture and grow, given proper financial management.

Sound financial management is a must for any enterprise.  Through the pandemic, we’ve seen how the economy can be affected by VUCA (volatile, uncertain, complex, ambiguous) events. Being equipped with the right knowledge and a better understanding of running a business and managing our finances, safeguards our organizations. With some help from the government through the DTI and its programs, the MSME sector can manage to survive.