Chapter 2

REVIEW OF RELATED LITERATURE AND STUDIES

This chapter includes the review of related literature and studies which the

researchers have perused to shed light on the topic under study.

Literature refers to discussions of facts and principles to which the present

study is related. These materials are usually printed and found in books,

encyclopedias, professional journals, magazines, newspapers, and other

publications (Reyes, 2014).

Synthesis

A synthesis of the earlier work provides an overview of the research topic.

Material drawn led to the development strategies for cash management towards

the profitability of food businesses, and provided the context for identifying data

collection requirements, as well as creating the data collection tools for the

primary research.

Small and medium-sized food industries are heavily affected by the

COVID- 19, as Bauer (2020) and Fairlie (2020) pointed out in their articles. Many

of them choose to shut down. In the Philippines, using the statistics from the

Asian Development Bank (2020) that 89.8% of the businesses under the

accommodation and food industry are not more than 50% operational. The plan

created by the business for their day to day operation may not be sufficient to

address the fast-changing variables caused by COVID-19 according to the article

“Responding to the potential business impacts of COVID-19” (2019) and also in

the article “Navigating The Impact Of Covid-19 On The Food Industry” (2020),
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the contingency plans may not be that functional since this emergency is different

and not expected to be experienced for more than a year. However, according to

Reardon et al. (2021), the work of the food industry remains as important, during

this time since it is part of humans’ necessity. Yet this continuous operation

would not guarantee their continued existence just like how Dato-on et al. (2015)

state in their journal, that most SMEs lack an established standard credit policy,

many of which also have the least concern for working capital and financial

position. Due to the mismanagement of its working capital, some SMEs struggle

to survive in the industry.

SMEs’ existence and their business operation play a significant role in

developed economies according to Karadag (2015). Both Pradas ( 2017) and

Smirat (2016) found out that the SME owners have no sufficient knowledge and

fail to implements cash management practices and cash control procedures.

Cash management includes liquidity management, accelerating collections,

maximizing investment earnings; supporting accurate financial reporting, and

forging strong banking relationships (Modlin, 2014). If these procedures

ineffective according to Nobanee & 2 Abraham (2015), it will be hard for the

owner to manage its business. For Praas( 2017), Zariyawati et al. (2017), and as

cited in the study of Corpuz and Bool (2021), good working capital management

practices have significance to SMEs' performance. It helps SMEs operate

efficiently, increase sales, attract customers' loyalty, and aids in building up long-

term relationships with customers.

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Small and Medium-Sized Food Industries

Restaurants and food-service businesses were some of the first

economic activities severely impacted by the COVID-19 pandemic. Dining-in

restaurants virtually stopped overnight in cities and states as social distancing

guidelines took effect, according to Bauer (2020). In the article “Responding to

the potential business impacts of COVID-19” (2019), the existing business

continuity plans may not be sufficient to address the fast-changing variables

presented by COVID-19. Especially its cash flows.

As stated in the working paper of Fairlie (2020), stores, factories and

many other businesses have closed by policy mandate or downward demand

shifts. Many of these closures may be permanent because of the inability to pay

ongoing expenses and survive the shutdown. The impact on small businesses

around the world is likely to be severe. Although the effects of COVID-19 on the

economy showed up quickly in the stock market, the real estate market and

unemployment claims, the effects on small business are not well known because

of the lack of timely business-level data released by the government.

According to the article of “Navigating the Impact of COVID-19 on the

Food Industry” (2020), companies also need to review and adjust their

contingency plans to ensure they function optimally during this emergency.

Existing plans for many organizations will be centered on catastrophic single

events but this situation is very different with most of the population remaining

healthy and therefore able to work. These decisions can be very difficult for

business leaders. The decision to stay open or close can result in life or death,

and the effects on the long-term viability of the business can be enormous.
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 Although the corona virus pandemic has dramatically changed how

business is done, the work of the food industry remains as important, and as

challenging, as ever. Restaurants, caterers, food product makers, and meal

plan services have been hustling to keep customers and communities fed during

this challenging time. However, their operation is still not guaranteed to be

successful if they will not properly manage their business. According to Reardon

et al. (2021) that the shocks induced food industry firms to make major changes

in their strategies and practices. Adaptations by firms to changing market and

other context conditions (such as climate shocks) can be continuous or discrete,

marginal, or major.

According to the article of Asian Development Bank (2020), for

accommodation and food services including the tourism industry here in the

Philippines, 89.8% of firms in this category reported not more than 50%

operational while 10.2% reported more than 50% operational. For other

services, 68.9% of firms in this category reported not more than 50% operational

while 31.1% reported more than 50% operational. Small businesses are vital for

employment and job creation in the Philippines. In addition to the cited

problems above, the lack of support in terms of cash management knowledge

and services for small businesses forms part of the motivation of this study.

In the journal of Dato-on et al. (2015), majority of SMEs lack an

established standard credit policy, many of it also have a least concern for

working capital and financial position. It was revealed that various components

in working capital management like cash flow and accounts receivable

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management, accounts payable and inventory management greatly affect the

liquidity and profitability of SMEs. Due to the mismanagement of its working

capital, some SMEs struggle in order to survive in the industry.

Cash Management

The results of small business operations play significant economic role in

developed economies (Karadağ, 2015), yet in the United States, approximately

50% of small businesses fail within the first 5 years of operation (SBA, 2017).

The general business problem is that some small business owners embark on

small business initiatives without adequate financial literacy, making it difficult for

them to take full advantage of cash management strategies.

A small business owner must possess proper cash management

strategies to ensure that adequate cash is available to meet obligations as they

come due and to invest excess cash to maximize investment returns (Prasad,

2017). Small business owners who fail to implement cash management

strategies risk experiencing liquidity and performance problems (Prasad, 2017).

The underlying processes of cash management include liquidity

management, accelerating collections, maximizing investment earnings;

supporting accurate financial reporting, and forging strong banking relationships

(Modlin, 2014). If these processes are ineffective, small business owners may

find themselves limited in their ability to build cash reserves, remain solvent, and

manage day-to-day operations effectively (Nobanee & 2 Abraham, 2015).

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 Zariyawati et al. (2017), found out that working capital management

on firm performance between large firms and small firms is different. A

small firm can increase its profit by reducing the investment in working capital,

which can be done by shortening the collection period and reducing inventory

turnover.

As cited in the study of Corpuz and Bool (2021), according to Abimola

and Kolawole (2017), good working capital management practices have

significance to SMEs' performance. It helps SMEs operate efficiently,

increase sales, attract customers' loyalty, and aids in building up long-

term relationships with customers. Likewise, Bandara and Rathnasari (2016)

concluded that working capital management (WCM) is vital and an integral part

of financial management that affects profitability, liquidity, risk, and value

creation.

In contrast, Smirat (2016) found out that the SME owners have no

sufficient knowledge in cash management practices and cash control

procedures. As an effect, SMEs fail to keep track of their cash payments and

receipts, seldom prepare the cash budget and maintain bank accounts mostly in

current accounts.

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 Conceptual Framework

 Techniques used by the small and medium-sized food industry in managing

their cash flow for profitability:
- Accelerating Collection of Accounts Receivable;
- Stretching of accounts Payable
- Cost Cutting;
- Regular Cash Flow Monitoring;
INPUT - Wisely Using Banking Service; and
-Upgrading with the Technology?

 Effects of techniques to the cash management of small and medium-sized

food industries

 Effectiveness of the above techniques of managing cash flow to the

profitability of the small and medium- sized food industry

 Survey Questionnaire
PROCESS  Analysis and Interpretation of Date Gathered using Statistical
Tools

 Generating a guideline about proper handling, controlling and

OUTPUT management of cash that is highly effective in improving the
profitability of present and future entrepreneur small and medium-
sized food industry owners.

Research Paradigm
Fig. 1

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