<1.5 BUSINESS/ STAKEHOLDER OBJECTIVES>

• PROFIT refers to the DIFFERENCE BETWEEN TOTAL REVENUE (Money coming into the business from sales) and TOTAL COST (Money leaving the business to pay for raw materials, staff, rent etc...)

  • • WHY IS PROFIT IMPORTANT?

      • • INCENTIVE TO START BUSINESS: Without the 'PROFIT MOTIVE' entrepreneurs wouldn't start the business in the first place as they desire to have a RETURN on the RISKS they have undertaken.

        • LESS CHANCE OF BANKRUPTCY: A profitable business will likely suffer fewer financial issues and be able to pay all its debts on time.

        • ABLE TO REINVEST & INNOVATE: A profitable business can reinvest its extra earnings ('RETAINED PROFITS') into R & D and make sure that its product(s) are innovative and attractive to consumers.

        • LESS NEED FOR EXTERNAL FINANCE: A profitable company has less need to sell shares and take loans for financing, which means less repayments of interest and dividends.

        • EASIER TO SECURE FINANCE FROM BANKS: A profitable business is LESS RISKY and thus can secure loans form banks at much reduced/low interest rates.

        • EASIER TO SELL SHARES: Investors are only interested in profit, as such they will be easier to attract if the business is profitable.

• Profit is pointless without the ability to sustain it over longer periods which can only be achieved by STAYING COMPETITIVELY PRICED, and HAVING MORE THAN ONE SOURCE OF REVENUE (E.g. Domestic sales of a single product) as such GROWTH IN SCALE is a very common objective:

  • • • LOWER AVERAGE COSTS: A larger scale of production will allow the firms to attain 'Economies of scale' such as BULK DISCOUNTS that will  LOWER AVERAGE COSTS.

      • LARGER MARKET SHARE: If these falling average costs are 'PASSED ON TO THE CUSTOMER' in the form of LOWER PRICES then the firm may be able to capture more of a % of the entire market's customers.

      • ABILITY TO SPREAD RISK THROUGH DIVERSIFICATION: As the firm grows in size it can enter into new product and overseas markets, and this will help spread the risk of relying on the sales of just one product in one location.

• MARKET SHARE is equal to the % of total market sales captured by the firm. (Company sales / Total market sales) It can be viewed as a way of measuring popularity amongst the consumer base and gives the firm a lot of MARKET INFLUENCE and POWER which in turn means...

  • • • INCREASED CONSUMER DEMAND: The leading firm in the industry is often seen by consumers as the most reliable and is always in demand.

      • INCREASED RETAIL OUTLET EXCLUSIVITY: With such a large consumer base they can exert pressure on retail outlets to only sell their products and not their competitors (This is called 'Exclusivity') under threat that they will withdraw their products, which can help them maintain their market share.

      • INCREASED SUPPLIER EXCLUSIVITY: As a large supplier, they are also a large consumer of raw materials meaning they can exert pressure on their suppliers to only sell their parts to them and not to their competitors under threat that they will withdraw their demand.

      • REDUCED THREAT OF COMPETITION: As exclusivity can limit the output and sales of competitors they will be able to drive out potential threats to their market share.

• SURVIVAL is often a short-term goal for a new firm, as they will need to spend a lot on promotion, as well as offer a low price, to attract customers and gain market share. only then can they start to focus on profitability.

• However it can be an objective for all firms when the economy is in a deep-recession, then all firms will be mainly concerned about survival.

• CORPORATE SOCIAL RESPONSIBILITY (CSR) refers to a strategy undertaken by companies to not just grow profits, but also to take an active and positive social role in the world around them through 

• MAXIMISE SOCIAL & ENVIRONMENTAL WELFARE

• SOME FIRMS ARE SET UP BY PEOPLE (‘SOCIAL ENTREPRENEURS’) IN ORDER TO HELP SOLVE SOCIAL AND ENVIRONMENTAL ISSUES RATHER THAN FOCUS ON PROFITS. THESE FIRMS ARE CALLED ‘SOCIAL ENTERPRISES’.

• ENVIRONMENTAL OBJECTIVES

• SOCIAL OBJECTIVES

• FINANCIAL  OBJECTIVES: IN ORDER TO REMAIN OPERATIONAL OR TO EARN MORE MONEY TO REINVEST IN THEIR SOCIAL & ENVIRONMENTAL OBJECTIVES, THESE FIRMS MUST ALSO HAVE TYPICAL FINANCIAL OBJECTIVES

• SOCIAL ENTERPRISES:

FOR EXAMPLE, THE MRT PLEDGES TO CUT EMISSIONS BY 30% OVER THE NEXT 15 YEARS. 

FOR EXAMPLE, THE GOVERNMENT SETS UP A HOMELESS SHELTERS AND SOUP KITCHENS FR THE POOR. 

A HEALTHY & EDUCATED WORKFORCE BENEFITS THE WHOLE OF SOCIETY, SO TO ENSURE LOW-INCOME FAMILIES CAN ACCESS THEM, THESE ENTERPRISES PROVIDE PUBLIC SERVICES FOR FREE OR AT LOW PRICES.

AS THE OPERATIONS ARE FUNDED BY TAX REVENUE THE FIRMS NEED TO KEEP THE COSTS UNDER CONTROL AND NOT WASTE THE FUNDS.