Financial aims and objectives are those that are linked to revenue, costs, Cash or profit.
There are 5 types of financial aims a business might have:
Remember for the exam:
Increasing revenue
Another financial Aim a business might have is to increase its sales revenue, also known as turnover. This is any money that the business receives from selling its good or services. Revenue does not take into account costs.
A business can increase its revenue in the following ways:
- Get more customers through promotions or offers
- Increase the average money spent on each purchase
- Increase how often customers buy
- Raise their prices (assuming the number of sales stays the same as higher prices could put customers off)
Reduction in costs
Over time a business may also aim to increase and maximize its profit. This means increasing revenue as shown above and decreasing costs.
A business can decrease costs in the following ways:
- Switch to a cheaper supplier
- Buy in bulk or buy lower quality/ cheaper raw materials
- Lease not buy equipment/ machinery
- Find cheaper rent/mortgage or utility providers
- Reduce employees
- Use free methods of advertising
Increasing profit margin
Almost all businesses will operate to make a profit. Profit is the owner’s reward for taking risks.
When revenue is higher than costs, a profit is made. When costs are higher, the business makes a loss.
Profit or Loss Per Unit = Selling Price per unit — Total costs per unit.
Profit for Given Output
Profit or loss = Sales revenue — Total costs.
Increase the value of the business
Business value is defined as the total worth, or value of a business, including all of its physical or tangible assets (things it owns that you can touch) and intangible assets (things you can’t touch, such as brand value).
Tangible Assets
– cash in the bank
– buildings
– land
– vehicles
– plant/ equipment
– stock/ inventory
Intangible Assets
– brand value
– brand image
– repeat customers
– business perception
– Customer service level
– patents/ copyrights
By increasing the value of the business, it means that the business can be sold for a greater value if the current owners wish to exit the company
Improve liquidity
Liquidity is the ability of a business to pay its debts. A business that can pay its debts is known as solvency. A business that cannot pay its debts is known as insolvent.
Solvency is a measure of cash flow; the movement of money in and out of the business. Cash flows into the business through sales revenue and flows out through costs.
Cash flow is NOT the same as profit. Cash flow refers to the movement of money in and out of a business and profit is what is left after paying costs.
