1.1.1 - Business aims and objectives
Businesses need a sense of what they are trying to achieve before they can choose how to use their money, time and people. This lesson explains financial and non-financial objectives, why a business can pursue several at once, and why higher sales do not always mean greater success.
Aims and objectives
A business aim gives a broad direction, while an objective sets a target that helps the business work towards that direction.
A business supplies goods or services to customers. Goods are physical products, such as shoes; services are activities, such as haircuts. The people who own a business decide what they want from it, although managers may make many of its day-to-day decisions. A small business might be one shop, while a large business could operate hundreds of shops across several countries.
Aim and objective
An aim is a broad goal that a business wants to achieve. An objective is a target that guides its decisions and against which its progress can be judged.
For example, an illustrative bicycle-repair shop in Kenya could have the aim of growing its business. Its objective might be to increase the number of repairs completed each month from 100 to 120 by the end of the year. The objective makes the direction more precise: the owner can compare actual repairs with the target before deciding whether to employ another repairer. An aim such as helping the community can also lead to an objective, such as providing 30 discounted repairs for students each month.
Businesses can have several objectives at the same time. Financial objectives concern money or financial performance. Non-financial objectives concern achievements other than money, such as independence or a social benefit. Non-financial does not mean that costs can be ignored: the business still needs resources to provide its goods or services.
Survival and financial security
Survival concerns keeping a business operating, while financial security concerns making its finances more dependable.
Survival means continuing to operate rather than closing. It can be especially important to a new business, which may have few regular customers but must still pay for premises, materials and staff. A large established business can also put survival first during a severe downturn. Size does not remove the risk of failure.
An illustrative new café in Jordan has enough money to pay its bills for only two more months. Its immediate objective could be to attract enough paying customers to keep trading, rather than to open a second branch. Spending its remaining money on another shop would add bills before the first café has a dependable income.
Financial security means having sufficiently reliable income and financial resources to meet commitments and cope with difficulties. An owner might seek a steady income from the business rather than the highest possible profit in one month. Building a reserve of money, keeping borrowing manageable or developing repeat customers can reduce the chance that one unexpected cost threatens the business. Security reduces risk; it does not guarantee success.
Survival and financial security are related but distinct: keeping the business open is the immediate outcome; more dependable finances make that outcome easier to sustain.
For an illustrative international hotel group, several busy hotels may help support one hotel during a quiet season. A reserve could also help it pay employees when bookings temporarily fall. These actions support financial security and make survival more likely, but money kept in reserve is not available for every expansion project.
Sales and profit
Selling more goods or services can increase income, but the costs of making those sales determine whether profit rises.
Sales can be measured as the number of items sold or as revenue, the money earned from selling goods or services. A sales objective should make clear which measure is intended. Profit is the amount left when total costs are subtracted from revenue over the same period. Costs are the amounts spent or incurred in running the business, such as ingredients, wages and rent.
Revenue and costs must refer to the same period and currency. A negative result is a loss.
In an illustrative month, a small bakery in Vietnam earns revenue of $8,000 and has total costs of $6,500. Its profit is $8,000 − $6,500 = $1,500. In the next month, discounted bread and longer opening hours raise revenue to $9,000, but costs rise to $8,200. Profit is now $800. Sales revenue rose, yet profit fell because costs rose by more than revenue. The dollar amounts here are illustrative figures in a common currency, not a claim about local prices.
A business may pursue higher sales to reach more customers or establish its product. A large international streaming business might initially accept lower profit while it attracts subscribers. This is a choice with a cost: extra sales are useful only if the business can afford to provide the service and achieve its wider objectives.
A profit objective seeks to earn or increase the surplus after costs. Profit can reward owners for the money and effort they put at risk. Profit kept in the business can also pay for better equipment or expansion, so the business may rely less on borrowing. Pursuing profit does not mean that every business must maximise it at the expense of all other objectives.
Market share
Market share compares a business's sales with the total sales in the market in which it competes.
Market share
Market share is the percentage of total market sales made by one business over a particular period.
A market brings together buyers and sellers of a particular good or service. The comparison must use the same product market, period and sales measure. A phone seller's annual revenue should not be divided by the whole electronics market's monthly unit sales.
Use either sales revenue for both figures or the number of units sold for both figures.
Illustrative business data: A local bottled-juice producer sells 500 bottles in a month. All sellers in its local bottled-juice market sell 2,500 bottles that month, including its own 500. Its market share is . One fifth of the bottles sold in that market came from this producer.
Next month, it sells 600 bottles while the whole market sells 4,000. Its share becomes . Its own sales increased, but its market share fell because the total market grew faster. An objective to increase sales and an objective to increase market share therefore measure different things.
A large international sportswear producer might aim to increase its share of a particular country's footwear market. Winning customers from competitors can strengthen its market position. However, price cuts or advertising used to win those customers may increase costs or reduce the profit earned per sale. Market share alone does not show that profit or financial security has improved.
Personal satisfaction, challenge and independence
An owner may value what running the business lets them achieve personally as well as the money it earns.
Personal satisfaction is the enjoyment or sense of achievement gained from the work. An illustrative furniture maker in Chile might enjoy designing well-made tables and receiving positive customer feedback. The owner may choose a smaller profitable workshop over a much larger factory if making the furniture personally is the main source of satisfaction.
Challenge is the desire to set and overcome demanding goals. An owner might enjoy solving a difficult design problem or building a business in an unfamiliar market. Challenge concerns attempting something demanding; satisfaction concerns the fulfilment gained from the work or achievement. They can reinforce each other, but they are not identical.
Independence means having freedom to make one's own business choices rather than working under another employer's direction. Control concerns retaining the ability to decide what the business does, such as its products, opening hours and pace of growth. An illustrative software developer in Canada may start a business to choose which projects to accept. The developer might reject an investor's money if the investor would require decisions that conflict with the owner's plans.
Independence is not unlimited freedom: customers still choose whether to buy, and businesses must meet legal obligations and financial commitments. Keeping control can also restrict growth if the owner refuses funding that would require sharing decisions. For a large family-owned food producer, retaining control might matter even when expansion abroad could raise sales. These personal objectives are not confined to very small firms, and individual owners need not value them equally.
Social objectives and competing priorities
A social objective seeks a benefit for people or the environment, and it can be pursued alongside financial objectives.
Social objectives include improving community welfare, providing opportunities for disadvantaged people or reducing environmental harm. An illustrative repair business in South Africa may offer affordable repairs so that lower-income households can use their appliances for longer. An illustrative large clothing producer could aim to reduce fabric waste or improve conditions for workers in its supply chain. A large business can have social objectives even when it also seeks profit.
Social objectives differ from personal satisfaction because their intended benefit reaches other people or the environment. An owner can feel satisfied by helping others, so the same activity may serve both objectives. To identify an objective, ask what outcome the business is trying to achieve.
A business pursuing a social objective still needs a way to pay for wages, materials and other commitments. Charging affordable prices might attract customers and support its social purpose, but very low prices may leave too little revenue to cover costs. Financial survival allows the business to keep providing the service. Profit can also finance future social projects; financial and non-financial aims do not always conflict.
When they do conflict, the business must set priorities. Offering a lower price may help households but reduce profit if sales and costs otherwise stay unchanged. Reducing waste may initially cost money for new equipment yet lower material costs later. The effect depends on the decision, its time period and the owner's priorities. A business can therefore have several objectives without being able to achieve all of them to the greatest possible extent at once.
Quick recap
Financial objectives include survival, profit, sales, market share and financial security. Non-financial objectives include social benefits, personal satisfaction, challenge, independence and control. Their importance depends on the business and its owners, and progress towards one objective may support or constrain another.