1.5.3 Business Objectives

Question 1

What is the beginning aim of most businesses?

Answer 1

• to survive the initial entry into the market and to generate enough cash flow to remain in business
• effective cash flow management is more important than gaining an income or seeking profit maximisation
• once that has been achieved, the business objective usually switches to profit maximisation
• profits benefit shareholders as they receive dividends and increase the underlying share price
• an increase in the underlying share price increases the wealth of the shareholder

Question 2

What are other business objectives?

Answer 2

1. Sales maximisation:
   - generating the maximum revenue possible by selling its products/services
   - the firm should raise prices to achieve revenue maximisation when their products is price in elastic in demand
   - the firm should lower prices to achieve revenue maximisation when their produce is price elastic
2. Market share:
   - increase market share by producing and selling better quality products than its competitors
3. Cost efficiency:
   - crucial for companies that operate in highly competitive markets, as low costs enable them to compete with low prices
4. Employee welfare:
   - offering competitive wages, comprehensive benefits packages and promoting a healthy work life balance
5. Customer satisfaction:
   - delivering high quality products, providing excellent customer service and offering attractive pricing
6. Social objectives:
   - increasingly important for businesses that aim to operate sustainably and build a positive reputation