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Chapter 2

Review of Related Literature

This chapter is organized into two parts names; (1)

Budgetary Control and (2) Financial Performance.

The first part, Budgetary Control, discusses the

different studies concerning the purpose and assistance of

Budgetary Control to MSMEs.

The second part, Financial Performance, tells about the

importance and approach that can contribute to financial

performance.

Budgetary Control

Budgetary Control Budget is a tool in which is used to

evaluate their organizational, segmented, or individual

performance as well as to help in decision making process

(El-Kassar & Singh, 2019). Budgetary control is a system

used by Management to compare the planned revenue and

expenditure to that of which is actually used in order to

see if the plans are being followed or need necessary

adjustment to improve profit (Kamau et al. 2017). It helps

in cost management, facilitates resource allocation,

enhances financial discipline, and provides a framework for

decision-making. The purpose is to enable them to include

incentives for competitors, as this is essential for

encouraging spending plans because planning and budget

control are closely related (Harelimana, 2017).Rigidity in

budgetary constraints can hinder adaptability to unforeseen

circumstances or changes in the business environment,

impacting the effectiveness of budgetary control systems.

(Shinozki & Rao, 2020) During pandemic Philippines suffer

huge economic loss but now the Ph has moved to recovery,

however there are still micro small medium-sized enterprises

that are continuing to confront a sharp drop in demand and

revenue. Study like Fortuna (2021) state the impact of

budgeting practice on the profitability of small medium

enterprises in Isabella, Philippines. There is a difference

on the SME'S in regards to their type of business.

Furthermore, good integration of the budget process with

other activities, such as planning and management function,

provide better financial and program decision that leads to

improving operation. By implementing budgetary control,

businesses can better allocate resources, set achievable

targets, and improve overall financial performance.

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Financial Performance

Financial Performance The Government's implementation

of economic strategy indicate that it recognize the

importance of MSMEs in our nation, which certainly

contribute to the nation's output and increasing workforce (

University of the Philippines Institute of Small-Scale

Industries, 2020). Since there are regions in the

Philippines that still in the least MSMEs growth

particularly in local cities in Mindanao Islands like

Pagadian and Tagum city, the status of these enterprises has

changed brought by the pandemic (Tadeo & Marulla, 2022;

Tadeo & Mojica, 2022). Financial Performance is the business

financial condition that's why it's important to fucos on

this because it's fundamental in understanding the health of

the business and making informed decision that contribute to

its success and sustainability like for small medium-sized

enterprises. Financial performance is the organization's

ability to manage and control it's resources (IAI,

2016).Financial performance is crucial for businesses as it

reflects their overall health and sustainability. Businesses

like MSME in Philippines face numerous challenges in

securing their financial performance and because of this

challenges (ADB, 2015) MSME often rely on personal savings,

internal profits, and borrowing money from relatives or

friend. Overcoming these challenges requires effective

financial planning, risk management, and adapting strategies

to the dynamic business environment. Mendoza (2015) state

that MSME should connect financial performance to the large

external environment of the business so they will play an

important role in the economy growth. Since businesses like

enterprises help in economic growth it's important to

maximize their performances. By creating and implementing

budgets, small medium enterprises can establish financial

goals, allocate resources efficiently, and monitor their

financial activities. In the study of (Roselin, 2021) there

is a increase in the level of sensitization among management

and employee of the organization on the importance of

budgetary controls in enhancing financial performance. This

proactive approach helps prevent financial issues, enhances

cash flow management, and improves financial stability.

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