Business Objectives

Businesses can have a range of objectives when they start up

These objectives may change over time

 The aim of most start up businesses is to survive the initial entry into the market and to
generate enough cash flow to remain in business

 Effective cash flow management is more important than gaining an income or seeking profit
maximisation

 Once that has been achieved, the business objective usually switches to profit maximisation

 Profits benefit shareholders as they receive dividends and increase the underlying share price

 An increase in the underlying share price increases the wealth of the shareholder

Other Business Objectives

Business objectives may change over time

The core objective usually remains profit maximisation, but the business may choose to also focus on
a range of other objectives

E.g. If a business focuses on employee welfare, it will increase its costs but raise the morale and
productivity of its workers

The increased costs will reduce the level of profit in the short term

However, it may lower costs in the long term as they can retain employees, which lowers
recruitment and training costs
  The focus is on generating the maximum revenue possible by selling
its products/services
 The firm should raise prices to achieve revenue maximisation when
Sales their product is price inelastic in demand
maximisation  The firm should lower prices to achieve revenue maximisation when
their product is price elastic in demand (see subtopic 1.2.4 for more
information)

 Market share refers to the percentage of total sales in a particular

market that a company holds
Market share  A business may aim to increase its market share by producing and
selling better quality products than its competitors

 Cost efficiency refers to a company's ability to produce and deliver its

products at the lowest possible cost
 This objective is crucial for companies that operate in highly
Cost efficiency
competitive markets, as low costs enable them to compete with low
prices

 This objective refers to a company's commitment to providing a

healthy and safe working environment for its employees
Employee  A business may aim to promote employee welfare by offering
welfare competitive wages, comprehensive benefits packages and promoting
a healthy work-life balance

 A business may aim to achieve customer satisfaction by delivering

high-quality products, providing excellent customer service and
offering attractive pricing
Customer
o E.g. A restaurant may aim to achieve customer satisfaction by
satisfaction
offering a welcoming atmosphere, friendly service and
delicious food

 Social objectives refer to a company's commitment to addressing social

or environmental issues
 This objective is increasingly important for businesses that aim to
operate sustainably and build a positive reputation
Social
o E.g. Superdry aims to reduce its environmental impact by using
objectives
sustainable materials and minimising waste, while also
promoting fair labour practices and contributing to social causes
in the communities where it operates
 Forms of Business

Sole trader

 A business that has a single owner (although they may still hire employees)
 Advantages include
o They are easy and inexpensive to set up
o The owner has complete control over the business
o All profits belong to the owner
o Simple tax arrangements
 Disadvantages include
o The sole trader is responsible for any debts the business incurs
o Limited access to finance and capital
o Limited skill set of the single business owner

Partnership

 Two or more people join together to form a business

o Examples of this type of business include lawyers and accountants
 Advantages include
o Easy to set up and inexpensive
o Shared responsibilities and decision-making
o More skills and knowledge are available
o Increased access to finance and capital
 Disadvantages include
 o Partners have unlimited liability
o Potential for disputes between partners
o Profits are often shared equally, regardless of the contribution
o Difficult to transfer ownership

Private limited company

 The ownership of the business is broken down into a specified number of shares
o These shares can be sold by the owner, usually to friends and family or to venture
capitalists
o Decision-making often rests with the person appointed to run the company, often
called the Managing Director or CEO
 Advantages include
o Limited liability, meaning the owners are not personally responsible for the
company's debts
o Access to greater finance and capital
o Easier to transfer ownership
o Can have a professional image and reputation
 Disadvantages include
o More expensive and time-consuming to set up
o More complex legal requirements and regulations than sole traders
o Annual financial reporting and auditing are required
o Shareholders have little control over the company as the founder usually
imposes their agenda

Other Forms of Business

 Several other forms of business have also gained prominence in recent years, including
franchising, social enterprises, lifestyle and online businesses
 There is a growing trend in setting up lifestyle businesses as people demand flexibility
and a better work-life balance

Franchising

 Franchising is a business model where an individual (franchisee) buys the rights to

operate a business model, branding, and support from a larger company (franchisor) in
exchange for an initial lump sum plus ongoing fees
 The franchisee operates the business under the franchisor's established system and
receives training, marketing support, and ongoing assistance
o E.g include Domino's Pizza, KFC, Burger King

Social enterprises

 A social enterprise is a business that has the primary purpose to create social or
environmental impact (in addition to generating profits)
  Profits are usually reinvested back into the business or used to create positive social
change or address an environmental issue
 E.g. Warby Parker is an eyewear company that donates a pair of glasses to someone in
need for every pair of glasses sold

Lifestyle businesses

 Lifestyle businesses are typically small, owner-operated businesses that prioritise a

specific lifestyle or personal interest of the owner over profits or growth
 These businesses are often run from home or in a location that allows the owner to
maintain a particular lifestyle or work-life balance
o E.g include yoga instruction, personal training, business coaching

Online businesses

 Online businesses often have low overhead costs and can operate from anywhere with
an internet connection
 These businesses are still required to have a legal structure, such as a sole trader or
private limited company

Becoming a Public Limited Company (PLC)

 When a business is growing rapidly, it may require a significant amount of capital to
fund its expansion
 To secure this funding, it may choose to transition from a private limited company
(LTD) to a public limited company (PLC)
 This is a complex process with many legal requirements and involves undergoing a stock
market flotation
The Benefits of becoming a Public Limited Company (PLC)

Advantage Explanation
 Significant amounts of capital can be raised very quickly
 This is often a more cost effective way to raise capital than
Access to Capital
borrowing money from banks or other lenders

 The risks associated with ownership are spread among a larger

group of shareholders
Shared risks
o This reduces the financial risk to any individual

 A company's shares become more liquid (they can be bought and

sold more easily) on a public stock exchange
Increased
 This can increase the value of the company's shares and make it
liquidity
easier for shareholders to buy/sell shares

 The company will have a board of directors made up of independent

directors and representatives from major shareholders
Extended
 This can extend the decision-making process and bring in additional
decision-making
expertise/perspectives that can help the company grow and expand

 Becoming a PLC can raise a company's public profile and increase

its visibility with customers, suppliers, and potential investors
Greater public
 This increased visibility can help the company attract new business
profile
and grow its customer base
 TRANSITIONING FROM AN ENTREPRENEUR TO LEADER

Moving from an entrepreneur to a leader can be a challenging transition

The skills and mindset required to successfully launch and grow a business are often different
from those required to lead and manage a team

Entrepreneurial leadership versus CEO Leadership

 Some entrepreneurs are unable to make this transition and have to hire a CEO with
whom they can work very closely to drive the business forward

Difficulties Faced by Entrepreneurs in Transitioning to a Leader of a Growing Business

Difficulties Faced by Entrepreneurs in Transitioning to a Leader of a Growing Business

The need to delegate Trust and verify Learning to listen
 As a leader, it's
important to trust your
 Entrepreneurs need to team members to do
learn to delegate tasks their jobs effectively
 Entrepreneurs are often
and responsibilities to  It's also important to
driven by their ideas and
others verify that tasks are
visions
 This can be difficult for being completed
 As a leader, it's important
entrepreneurs who are correctly and on time
to listen to the ideas and
used to having control  Finding the right
perspectives of others
over every aspect of their balance between
business. trusting your team and
verifying their work can
be a challenge
Having an open mind Being less reactive Developing emotional intelligence
 Leaders need to be able to
 Entrepreneurs are often
understand and manage
used to taking quick
their own emotions, as
action and making
 Leaders need to be open well as the emotions of
decisions on the fly
to new ideas and willing their team members
 As a leader, it's
to adapt to changing  Many entrepreneurs are
important to take a
circumstances used to being driven by
more strategic and
passion and enthusiasm
measured approach to
rather than emotional
decision-making
intelligence and empathy