Purpose of Businesses

• Key business objectives

  • Profit
  • Growth
  • Survival
  • Cash flow
  • Social
  • Ethical
• Business

  • An organisation that exists to provide goods and services on a commercial basis to customers
• Mission Statement


  The overriding goal of the business, the reason for its existence, a strategic perspective, a vision for the future
• Common Criticisms of Mission Statements

  • Not always supported by actions of the business
  • Often too vague and general
  • Merely statements of the obvious
  • Seen as a PR exercise
  • Regarded cynically by staff
  • Not a true reflection of reality
  • Must be supported wholeheartedly by senior management
• Reasons why businesses set objectives

  • Implement the mission
  • Provide a clear focus for decision making
  • Provide a target
  • Motivate employees
  • Facilitate control of actual performance
  • Provide criteria for evaluating performance
  • Reduce uncertainty
  • Provide a sense of unity
• Relationship between Mission and Objectives

  Mission statement is at the top of the hierarchy, corporate objectives are derived from the mission statement, departmental and functional objectives are set from corporate objectives
• What makes a good Mission Statement

  • Contains a formulation of objectives enabling progress measurement
  • Differentiates the business from competitors
  • Defines the markets or business in which the firm wants to operate
  • Is relevant to all major stakeholders
  • Excites, inspires, motivates & guides
• SMART Objectives

  • Specific: state exactly what is to be achieved
  • Measurable: capable of measurement
  • Achievable: realistic given circumstances
  • Relevant: relevant to people responsible
  • Time Bound: set with a time-frame in mind
• Profit is the difference between a business's total revenue and total costs. It is the reward that business owners want to achieve from taking risks and making investment.
• Most businesses exist to earn a financial return for the business and profit is a key motive for many businesses, although other reasons exist for starting a business
• Why businesses set objectives

  • Implement the mission
  • Provide a clear focus for decision making
  • Provide a target
  • Motivate employees
  • Facilitate control of actual performance
  • Provide criteria for evaluating performance
  • Reduce uncertainty
  • Provide a sense of unity
• Profit


  The reward that business owners want to achieve from taking risks and making investment
• Components of profit

  • Total Revenue
  • Total Costs
• Revenue

  The value of revenue achieved in a given period is a function of the quantity of product sold multiplied by the price that customers paid
• Examples of fixed costs

  • Rent & rates
  • Salaries
  • Advertising
  • Insurance, banking & legal fees
  • Software licences
  • Consultant and adviser costs
  • Design and development
• Revenue


  Arises from the trading activities of a business
• Variable Costs


  Costs which change in relation to output
• Calculating total costs

  1. Total Costs (TC) = Fixed Costs (FC) + Total Variable Costs (TVC)

  2. Total Variable Costs = Variable Cost per Unit x Number of Units Sold
• Profit

  The difference between a business's total revenue and total costs
• Fixed costs increase the risk of a start-up
• Variable costs lower the risk for a start-up as no sales mean no variable costs
• Revenue formula


  Total Revenue = Number of Units Sold x Selling Price Per Unit
• Profit is important as without the possibility of earning a profit, what would be the incentive to take risks by setting up a business or investing in expanding and growing an existing business?
• Fixed Costs


  Costs which do not change in relation to output
• Examples of variable costs

  • Raw materials
  • Packaging
  • Wages based on hours worked or amount produced
  • Marketing costs based on sales (e.g., % commission)