Different types of aims and objectives

Short-term aims and objectives

Financial aims and objectives

A business may set aims and objectives that it wants to achieve in a short period of time. These are known as short-term aims and objectives, usually to be achieved within a 1 year period (or less). Because these aims and objectives are to be achieved in quite a short space of time, they tend to be very focused and specific.

New businesses are likely to have lots of short-term aims and objectives, especially during the first few months of trading – survival will be the main objective! A new business may have a number of initial short-term aims and objectives that it is working towards – for example, it may wish to gain funding, appoint 2 new members of staff, secure 1 new client contract, break-even by the end of the year, etc. All of these are short-term objectives, but absolutely crucial to the overall success of the business. It is of little use for the business to set a major long-term objective to launch 12 new products over the next 5 years if they are unable to meet these short-term objectives first.

Long-term aims and objectives

In contrast to short-term aims and objectives, long-term aims and objectives are generally more wide ranging and aspirational – they are intended to be achieved over a period of up to 5 years. As the business and its market changes, so too may these long-term aims and objectives. A business will generally review and update its long-term aims and objectives every year, to make sure they are still relevant.

One good example of a long-term aim relates to growth and expansion. It is important for a business to be able to grow and expand, as it means they can potentially gain higher profit levels and make more money! However, it can take a long time for a business to grow, so this is often seen as a long-term objective – it cannot happen overnight!

A business can grow in a number of ways. For example, it can sell more, it can gain more customers, it can increase staff numbers and therefore productivity, and so on. All of these types of growth would be established as a long-term objective and the business would plan out a series of related goals and objectives to help achieve this overall growth objective.

Financial aims and objectives

If a business has aims and objectives relating to money, they are known as financial aims and objectives.

Most businesses will have objectives related to profit levels. For example, an established business could have a very specific aim to make £1 million profit by a certain point in time, while a new business might just want to make any profit (no matter how small)! Other financial aims and objectives could relate to increasing profit by a particular amount from one year to the next (for example, a 10% increase).

Profit is a major objective for most businesses. A small sole trader business will aim to make a profit so they are able to gain some reward for taking a risk in starting the business. Similarly, a large well-established business will aim to make a profit so that it can continue to operate in its current format and possibly grow the business in future years.

Non-financial aims and objectives

While most businesses will have financial aims and objectives, there are some businesses that are driven by non-financial aims and objectives.

For example, a business may focus its aims and objectives on providing outstanding customer service and achieving high levels of customer satisfaction. If the business achieves this objective, they will build up a strong brand, with a good reputation and loyal customers…this in turn will help the business to achieve good profit levels, but this has not been their main objective.

Providing a good service is an important objective for public sector organisations (for example, the fire service, the NHS, etc). As these organisations are government-funded, their objectives are more focused on providing services to the public, rather than making profits.

Similarly, the main objective for a charitable or social organisation will be to make as much money as possible for the cause they support – while this is a financial objective, it is not about making a profit for the business.

Financial aims and objectives

A business may have the following financial aims and objectives:

1. Break-even

A business will ‘break even’ when the cost of making its product or delivering its service is equal to the money it earns from selling the product/service. At this ‘break-even point’, the business is not making a profit, but it is also not making a loss. If the business has low levels of sales, it may not be making enough money (sales revenue) to cover costs and a loss is made. As sales levels increase, the total revenue will also increase and this will cover more of the costs. Note: Sales revenue is calculated as the amount of sales made multiplied by the price charged per sale.

2. Profitability

If a business is performing above the break-even point, its revenue will be higher than its costs. The revenue that is left over after all business costs/expenses have been paid is known as profit. The term ‘profitability’ is all about how able a business is to earn a profit (can the business generate profit easily and regularly, or is it difficult to achieve for some reason?) Many businesses will set profitability as one of its main objectives – if a business is not profitable, then it may struggle to survive.

3. Increasing revenue

If a business is aiming to increase profit levels, this can be done by increasing the amount of revenue that the business earns. An increase in revenue means that there will be more money (profit) left in the business after it has paid all costs and expenses. A business can look to increase its revenue through the following methods:

• Attracting more customers
• Increasing the amount of money customers spend every time they shop
• Increasing the frequency of customer transactions
• Increasing the prices that are charged for products/services

4. Profit maximisation

As you have already learned, profit is equal to total revenue minus total costs. Profit maximisation is achieved when the gap between total revenue and total costs is the greatest it can be.

Non-financial aims and objectives

A business may have the following non-financial aims and objectives:

1. Customer satisfaction

Having happy, satisfied customers is a very important factor in any successful business. If customers are happy with the product/service being offered, they will continue to buy from the business and they may also encourage their friends/family to do the same. A business may have a particular objective to achieve a certain level of customer satisfaction, perhaps by gathering feedback from customers via surveys, etc. For example, a business may aim to maintain 95% customer satisfaction based on responses to an online questionnaire.

2. Expansion

This is all about growing the business in order to make it more successful and secure – for example, this could involve employing more staff, moving into bigger premises, expanding the business to cover new geographical areas, or expanding what the business offers by launching new products/services.

3. Employee engagement/satisfaction

When employees are happy at work, they feel motivated to do a good job and this will have a positive impact on a business. For this reason, many businesses will have a particular goal around maintaining levels of employee satisfaction. A business can use a range of financial and non-financial incentives to maintain levels of employee satisfaction – for example, bonus schemes, employee of the month awards, pension schemes, social events, healthcare schemes, flexible working hours, etc.

4. Diversification

Diversification occurs when a business develops a new product or enters into a new market. This can be a useful approach for a business that has an existing product/service that is not selling very well – by diversifying and offering a new product to a new market, the business may see an increase in sales to counteract the negative effect of poor sales from other products/services.

Diversification does not always need to involve moving into completely new markets – some businesses may decide to expand into markets or products that are related to its current business. For example, car manufacturers can diversify by launching a new car or moving into a related market such as trucks or vans.

One excellent example of successful diversification is Apple – the company started out in 1977 selling personal computers, and since then the company has continually diversified by launching further products/services including smartphones, tablets, smart watches, TVs, online music, smart speakers and so on.

5. Ethical/corporate responsibility

Ethical business is all about doing the right thing and acting in ways that are both fair and honest. This means that instead of simply aiming to make money/profit, a business with ethical objectives will also think carefully about the impact of its actions and the effect they could have on the community and the environment.

Business owners may believe that acting ethically can cost more money and therefore reduce profit levels. For this reason, a business may prefer cheap, unethical options such as using child labour in developing countries due to the low wages. While this may save money for the business, customers may not agree with or support these unethical choices and decide to stop buying products from the business (and move to a competitor instead). Unethical practice can also lead to bad publicity, which can have a negative effect on sales and the overall popularity of the business.

The term ‘corporate responsibility’ is all about the actions a business can take to make sure that its activities have a positive impact on society, the environment and the economy. Businesses have a responsibility to the people and groups that they can affect (known as its stakeholders), and to the wider community/society.

Take a look at the following examples of corporate responsibility statements:

Our corporate responsibility programme ensures we operate in a way that is right for our customers, colleagues and suppliers, whilst making a positive contribution to society and taking good care of the environment.

Avon is committed to making the world a more beautiful and healthier place through our products, our people, our environmental sustainability and our support for women’s causes. We empower millions of women around the world financially through our earnings opportunity and support their health and safety through the Avon Breast Cancer Promise and Avon’s Speak Out Against Domestic Violence initiative.