understanding the nature and purpose of a business

• Business objectives

  Goals that businesses set themselves to achieve
• Common business objectives

  • Profits and profit maximisation
  • Growth
  • Survival
  • Cash flow
  • Social and ethical objectives
  • Diversification
• Profit

  The surplus of total revenue over total costs for a business over a trading period
• Cash flow

  The movement of cash into and out of a business over a period of time
• Dividends

  A sum of money paid regularly to shareholders out of a business's profits
• Cash flow

  • It is essential for businesses to be able to pay debts on time, especially those with long cash cycles
  • Failure to set cash flow objectives could result in a business having to cease trading
• Social objectives


  Targets that relate to matters such as providing employment or improving facilities for local people
• Ethical objectives


  Objectives based on moral principles, such as protecting the environment or ensuring fair and prompt payment to suppliers
• Social and ethical objectives


  • They have received much attention in recent years due to increasing awareness from stakeholders
  • Some investors will only invest in businesses with ethical or social objectives
  • Can result in a positive and attractive image for the business
• Diversification

  An objective where a firm produces an increased range of unrelated goods and services to spread its risk
• Short-run objectives

  Objectives focused on short-term survival and making short-term profit
• Long-run objectives

  Objectives focused on long-term growth and direction of the business
• Corporate objectives

  Goals of the business as a whole
• Functional objectives

  Objectives of each department, more detailed than corporate objectives and specific to each department
• Reasons for setting objectives

  • Ensure everyone is working towards the same goal
  • Improve coordination and organisational performance
  • Enable review of success of plans
  • Motivate employees