Every business needs a clear direction - just like you need to know where you're going before you start a journey. Business objectives are the goals that companies set to guide their decisions and measure their success. Think of them as a business's "to-do list" but much more important!
Financial objectives are particularly crucial because they focus on money - and let's face it, without money, businesses can't survive or grow. The two most fundamental financial objectives are survival and profit.
Key Definitions:
Imagine trying to play football without goalposts - you'd have no idea if you were winning! Business objectives work the same way. They help businesses focus their efforts, make better decisions and know when they're succeeding.
Survival might sound dramatic, but it's the most basic objective any business can have. It simply means staying open and continuing to operate. You might think this sounds easy, but many businesses fail within their first few years.
Survival becomes the main focus during challenging times. This could be when a business is just starting out, during economic downturns, or when facing tough competition. During these periods, making huge profits isn't the main concern - just staying afloat is enough.
Start-ups often focus on survival for their first 1-2 years. They need to prove their idea works and build a customer base before worrying about big profits.
During recessions or market crashes, even established businesses switch to survival mode. They cut costs and focus on keeping the doors open.
When competitors are taking customers away, businesses might need to focus on survival by adapting quickly or finding new markets.
When lockdowns hit in 2020, many restaurants had to completely change their business model overnight. A local Italian restaurant that normally relied on dine-in customers quickly pivoted to takeaway and delivery services. Their objective shifted from maximising profit to pure survival - keeping staff employed and paying rent. They reduced their menu, negotiated with suppliers for better payment terms and even started selling ingredients to customers. This survival focus helped them stay open when many competitors closed permanently.
Once a business has achieved survival, profit becomes the next major objective. Profit isn't just about making the owners rich - it's essential for growth, investment and long-term success.
Businesses can set different types of profit objectives depending on their situation and goals. Understanding these helps explain why companies make certain decisions.
This means making as much profit as possible. It's often the goal of established businesses with strong market positions. They focus on increasing prices, reducing costs, or both.
Sometimes businesses aim for "enough" profit rather than maximum profit. This might be to avoid attracting too much competition or to maintain good relationships with customers and suppliers.
Survival and profit aren't separate objectives - they're closely linked. Think of survival as the foundation of a house and profit as the walls and roof. You need a solid foundation before you can build upwards.
Most businesses follow a predictable pattern when it comes to their financial objectives:
Focus: Survival. New businesses often lose money initially as they establish themselves and build customer bases.
Focus: Increasing profit. Once survival is secure, businesses can focus on growing profits through expansion and efficiency.
Focus: Maintaining profit. Established businesses work to protect their profit levels against competition and market changes.
Amazon is famous for prioritising growth over short-term profits for many years. From 1994 to 2001, Amazon barely made any profit, sometimes even making losses. Founder Jeff Bezos focused on survival and market share rather than immediate profit. This strategy paid off - Amazon reinvested everything back into the business, eventually becoming one of the world's most profitable companies. This shows how survival and profit objectives can change over time as part of a long-term strategy.
Several factors influence whether a business focuses on survival or profit at any given time. Understanding these helps explain business behaviour and decision-making.
These are factors within the business's control:
If a business is running low on cash, survival becomes the priority. Good cash flow allows focus on profit growth.
Experienced managers might be more confident pursuing profit objectives, while new managers might focus on survival first.
These are factors outside the business's direct control:
During recessions, businesses focus on survival. In boom times, profit maximisation becomes more achievable.
Intense competition might force businesses into survival mode, while market leadership allows profit focus.
High demand supports profit objectives, while falling demand might trigger survival mode.
How do businesses know if they're achieving their survival and profit objectives? They use various measures and indicators to track their progress.
• Positive cash flow
• Ability to pay bills on time
• Maintaining customer base
• Keeping key staff employed
• Gross profit margin
• Net profit figures
• Return on investment
• Profit growth year-on-year
Many traditional high street shops have shifted from profit objectives to survival objectives due to online competition. Shops like Marks & Spencer and John Lewis have had to close stores, reduce costs and focus on staying relevant rather than maximising profits. They've invested heavily in online platforms and changed their business models - classic survival strategies. Meanwhile, online retailers like ASOS have been able to maintain profit-focused objectives due to their market position.
The best businesses understand that survival and profit aren't opposing forces - they work together. Smart business owners know when to prioritise each objective and how to transition between them.
Successful businesses think strategically about their financial objectives. They might accept lower profits in the short term to ensure long-term survival, or they might take survival risks to achieve higher profits.
Sometimes businesses sacrifice short-term profits to invest in survival strategies like new technology or staff training. This ensures they can make profits in the future.
Smart businesses always keep some focus on survival, even when profits are good. They maintain cash reserves and diversify their income streams as insurance.
Understanding survival and profit as business objectives helps explain why companies make certain decisions. Whether a business is a corner shop or a multinational corporation, these fundamental financial objectives drive most of their strategic choices. As you continue studying business, you'll see how these objectives influence everything from pricing strategies to investment decisions.
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