Theme 1
Topic 1.3
Topic 1.3: Putting a business idea into practice (In progress..)
1.3.1 What business aims and objectives are
What motivates someone to become an entrepreneur? For many people this will be the idea of increasing their wealth. The chance to earn significant profits, buy a yacht, take numerous holidays, buy designer goods and send the kids to the best private schools. Profit and personal wealth may well however, not be the real motivation. Evidence suggests that there are many more reasons why someone wants to start a business.
Every business starts small. However, if the entrepreneur takes some calculated risks, shows a lot of determination and has some luck, a start-up business can become very large, profitable and valuable. However, not every entrepreneur wants to build a big business and earn a fortune. The objectives when starting a business can be broadly split into two categories:
financial objectives
and non-financial objectives.
The purpose of business aims and objectives
Aims and objectives provide a direction for any business. Without clear objectives, a business may provide goods and services that are not appropriate to why the business was set up. This may result in the business not being successful. Having objectives just written down however, is not enough to ensure business success. In order for objectives to be effective, they must be implemented and monitored over time. Some of the benefits to a business of having clear objectives are as follows:
provide direction
help employees to focus, if the employee's know what the aims of the organisation are, then everyone can work together to achieve them
allows planning, the business can then devise the steps they need to take in order to achieve, and any resources needed such as land, labour or capital, can be acquired
allows a business to measure success, this can be activating certainly when it is achieved, through a business reviewing its objectives, it would be able to see if it had achieved them or not or whether it was on the way to achieving them. This means that the business can then correct or change its business strategy if it is not working.
Financial objectives
There are 5 common financial aims a business may have:
Survival – over half of new businesses fail within five years and many new businesses do not survive much beyond their launch. Often entrepreneurs discover that their business idea was not as good as they originally thought and therefore the business cannot run profitably or it runs out of cash. Changes in the business environment also may make it harder for a business to be successful. The first priority of a business is therefore always to survive.
Profit – making profit is the main objective for most businesses. This is the reward to the entrepreneur for their hard work and the risks undertaken, often with their own savings they have invested. Ideally, the profit earned is sufficient to provide the entrepreneur with enough income to live on. Profits may also be kept in the business to allow it to expand or develop further (this is known as retained profit).
Financial security or personal wealth. Working for someone else might mean the loss of a securely paid job, which means the entrepreneur would have no financial security. Some entrepreneurs have a longer term objective. They aim to build a valuable business that can substantially increase their future wealth. They could be aiming to build up the business and sell it, or make it so it will provide a substantial future income for them, with no risk to them of being made redundant!
Increasing Sales (or sales maximisation) – some businesses will be more concerned with increasing their sales so that they will increase their revenues. They may accept lower profits in the short term, in order to increase sales, this links closely with the aim below...
Market share- many business will want to increase their market share (the proportion of the customers that a business has in the whole market), this will enable them to establish their brand and potentially be a market leader.
Non-Financial objectives
Although most businesses will be focused on financial objectives, there are many other priorities that will exist for new and small businesses. In many cases, non-financial objectives will link to or be consistent with financial objectives, but not always as sometimes even for a small business quality might conflict with profit. Therefore when businesses set and use objectives, they will prioritise the areas which are most important to their organisation and the owners.
Here are some of the non-financial motives that are often a focus for businesses:
Social objectives such as benefiting the environment or a local charity
Work life balance- More control over working life , for example a more flexible and convenient work schedule, including being able to work from or close to home; this motive is an important reason behind the many home-based business start-ups
Independence is a major motivator as many entrepreneurs will want to to choose what kind of work is done; rather than being directed by someone else.
Control- the need for greater ownership over decisions, where the entrepreneur makes the decisions rather than someone else.
Personal satisfaction/challenge- Wanting the feeling of achievement can be the motivator for many who want to succeed in doing something they have not done before