I have observed three prevalent problems in Filipino micro-small businesses. First is that many Filipinos start a business and abandon it. Second is that business money is mixed up with household money and finally, owners are not able to collect sales.
Much of the observations are gathered from students who took my classes. For the sake of those students, I will not be using their real names.
Abandoning a business. Amy owns a drugstore. The business earns well but she decided to close the business months after it opened. I asked Amy for the reason. “It was tiring, I did everything from accounting to inventory. I was a one woman team,” said Amy. No wonder her business closed. One does not have the capacity to do such work. Entrepreneurship is not about doing everything. Train people and divide the labor. That is how it should be done and that is the only way to grow the business.
Managing Money. The money in the business belongs to the business entity and no longer to the person who put up the money. Borrowing money from the business, is like borrowing money from a real person, you have an obligation to pay it back and with interest (ideally). Therefore, if you or any family member loans money from the business, the money that was borrowed must be returned.
Raina makes fashion jewelries. She distributes them to shops, and sometimes sells them to friends. The business earns well but the owner is having a problem growing the business. “My husband gets the money and uses it to pay house bills, and that is the reason why I do not have enough cash to increase my inventory,” Raina said. And for sure, she does not have a proper accounting system because when I asked her if she gives everything including her profit, she could not give an answer. No matter how simple, a business needs to have an accounting system.
Collection. Gina sells imported bags with mark up of 60% per item. Her first shipment amounted to 20,000 and therefore her profit would sum up to 12,000. All the bags were sold out is less than a week, but she had a problem. She could not collect sales. The problem with not being able to collect is that money is tied to the inventory and therefore the owner could not buy fresh inventory or products.
There are several ways to prevent this: Ask for a deposit, post dated checks or give early payment discounts if you do not want to ask for deposits or post dated checks. Note that proper computation must be done before giving early payment discount.
Those are the 3 common problems in a Filipino micro-smal business based on my observation. These three are not serious problems as long as they are immediately recognized and fixed.