Financial literacy crucial for SMEs

CEBU, Philippines - Good financial management is very crucial to succeed in business however most of today’s micro, small and medium entrepreneurs lack the knowledge in handling their finances.

Financial management is a certain aspect that businessmen need to hone to be at par with large enterprises in terms of business performance, said Maximo S. Eleccion, the vice president of Cebu Bankers Club.

Among other business skills, small entrepreneurs should attain financial literacy and how they can access financial services to fund their operations, noted Eleccion, who is also a preferred banking relationship manager of the Bank of the Philippine Islands.

These entrepreneurs also need to have good level of competence in managing finances such as monitoring profit and loss, control and access to source of low interest funding or loans and cash planning. Experts say a poor monetary plan can become a major factor in business failure.

The lack of idea on how to make a financial statement is one real problem. “There are some basic requirements of banks to be able to avail credits,” the vice president said in an interview with The FREEMAN yesterday. “For example, some – if not most – micro, small and medium entrepreneurs do not have financial statements.”

A financial statement is simply a written report of the financial status of a business. The statements include the balance sheet, statement of changes in net worth, income statement and statement of cash flow.

A Bangko Sentral ng Pilipinas official said there is a need to know how financial management can be applied and taught to small enterprises. In simplest terms, managing finances means planning and directing the use of company’s monetary resources. Business owners must be able to understand and interpret financial statements, noted Gary Maningo, product manager of BSP’s Department of Loans and Credit.

Having a record on financial activities could help businessmen acquire and use funds properly, improve profitability, increase value of their firms and promote savings and financial decisions, Maningo advised people in the MSME industry during yesterday’s business seminar on financial management for MSMEs & access to microfinance.

The event was part of Cebu City’s celebration of Micro Small Medium Enterprise Development Week from July 21 to 25.

“That is actually the challenge for the sector especially those in the MSME industry,” Eleccion added, noting that banks can hardly provide loans, savings, insurance and money transfer services to MSMEs because of lack of financial information.

He cited that some of them do not have properties to use as collaterals when borrowing money from the banks. However, entrepreneurs who are at the same employed can actually use their “employment status” and proceeds of their business investments as collateral to be able to borrow from banks, he said.

“And this sector does not know that you can avail of credit using your personal capacity and the proceeds of what you invested in your business,” he said. “That’s a possibility but later on you have to do your financial statements.”

‘Boost culture of entrepreneurship’

Cebu City’s Vice Mayor Edgardo Labella emphasized the major contribution of MSMEs to the economic growth of the city and of the nation in general. But the culture of employment being taught to Filipinos is what hinders the rise of entrepreneurship in the community level, Labella said.

“Most of us fail to realize that what is more important than gaining employment is to have a business,” the city official added. “We need to develop the culture of entrepreneurship.”

In addition, Regan Rex King of Cebu Chamber of Commerce and Industry noted the country’s microfinance industry is boosting Philippines’ economic status. Microfinance is giving small loans and basic financial services to MSMEs.

King, the vice president of the chamber’s Business Development, said the supply of capital assets to these entrepreneurs is one way to reduce economic weakness.

Integration

“That is a very challenging event that will happen because they will be most affected when the integration comes,” BPI’s Eleccion reacted when asked how the MSME industry is positioning with the impending economic integration next year. Potentials challenges for the industry are keeping constant innovation and knowing the needs of potential customers. 

The CCCI stressed that the industry must now strengthen its competitiveness to prepare for the integration of ASEAN economies in 2015. (FREEMAN)