Business objectives: financial and non-financial
This unit is about what a business is trying to achieve, who owns it, which sector it works in and where it sets up.
Both papers examine it.
On Paper 1 you meet it through a small business: the owner's own aims, whether to stay a sole trader or change the form of ownership, and where to put the next site.
On Paper 2 the same ideas come through a large business: definitions such as public limited company, franchise, multinationals and public corporation, and a choice between kinds of site for a chain.
Most marks from this unit have come as one-mark Define items, multiple-choice questions in Question 1(a), short State and Outline items, and the occasional Justify or Evaluate on ownership, location or objectives.
Why a business needs objectives
Every business starts with an aim: a broad statement of what the owners want, such as "to become the best bike repair shop in Moshi".
An aim on its own does not tell anyone what to do on Monday morning.
So the owners turn it into objectives: specific targets that can be measured and checked, such as "to repair 40 bikes a week by December" or "to make a profit of TZS 10 million this year".
Objectives matter for three reasons:
1. They guide decisions. If the objective is to grow sales, the owner spends on advertising and a second workshop. If it is survival, the owner cuts costs and avoids risky spending.
2. They let the business measure success. At the end of the year the owner compares the result with the target. A miss is a signal that something must change.
3. They pull everyone in one direction. Employees, managers and owners know what counts as doing well.
You need to know that businesses can have several objectives at once, of two kinds: financial and non-financial.
Financial aims and objectives
You need to know five: survival, profit, sales, market share, financial security.
- Survival. A new business, or one hit by a sudden problem, first needs to keep trading. It must bring in enough cash to pay its suppliers, staff and loan repayments. Survival is the main objective in the first year or two, and again in a crisis.
- Profit. Profit is what is left from revenue once all costs are paid. Owners want profit as a reward for their risk, and profit can be put back into the business to help it grow.
- Sales. A sales objective is a target for revenue or for the number of items sold, often as growth ("raise sales by 15% this year"). Higher sales can bring lower costs per item and a stronger position against rivals.
- Market share. Market share is the business's sales as a percentage of all sales in its market. A business with a bigger share is better known, can bargain harder with suppliers and is harder for rivals to push out.
- Financial security. The business wants enough cash, savings and low enough debts that it can survive a bad year without being forced to close. For the owner of a small business it can also mean a steady personal income.
Non-financial aims and objectives
You need to know four: social objectives, personal satisfaction, challenge, independence and control.
- Social objectives. Aims that benefit people or the environment: training young people, using less plastic, paying fair prices to farmers, serving a community. Some businesses are set up mainly for these (social enterprises, later in this unit).
- Personal satisfaction. Many owners run a business because they enjoy the work and are proud of what they make or the service they give.
- Challenge. Some people start a business for the challenge of building something from nothing and testing their own skills.
- Independence and control. Being your own boss: choosing your hours, your products and your customers, and keeping the decisions in your own hands.
Non-financial objectives are most important in small businesses, where the owner and the business are almost the same thing.
In a large business they appear as stated values (social objectives about the environment or the community), while the shareholders expect financial objectives first.
A small business and a large business
Kesho Bike Repairs is a small business in Moshi, Tanzania, run by Rehema Kisanga.
She left a job at a car dealer three years ago because she wanted to make her own decisions.
She now employs three mechanics who repair bicycles and motorbikes, and she takes on two school leavers each year as trainees.
The chart shows her revenue and total costs in her first three years.
Rehema's objectives have moved with the business.
In Year 1 her costs were higher than her revenue, so her objective was survival: to keep the workshop open until regular customers found her.
In Year 2 she made her first profit, so profit became the target.
In Year 3 she is aiming at sales growth, because she plans a second workshop.
Her non-financial objectives have stayed the same: independence and control (her reason for leaving the car dealer), personal satisfaction, and a social objective of training young people from the town.
Rehema's workshop is a typical small repair business: a few skilled mechanics, a trainee learning beside them, and customers bringing in bikes and motorbikes, as below.
Brivanta Telecom plc runs mobile phone networks in nine countries in Africa and South Asia and employs about 22 000 people.
Its directors set objectives for every country: a market share target (to be the first or second largest network), a sales target for mobile data, a profit target that pays dividends to its shareholders, and financial security (keeping enough cash to pay for new masts without heavy borrowing).
It also has social objectives: putting masts in villages that have no signal and giving free connections to rural schools.
Objectives can conflict
Objectives pull against each other, and the owners must choose which comes first.
- Growth against survival. Kesho's second workshop could raise sales, but the loan and rent could put the whole business at risk if the new site is slow to attract customers.
- Social objectives against profit. A mast in a remote village costs as much as one in a city but earns far less. Each one Brivanta builds lowers its profit in the short run.
- Market share against profit. Cutting prices to win customers from rivals raises share but lowers the profit on each sale.
- Independence against growth. To grow quickly, Rehema might need a partner or investors, who would then share the decisions she left her old job to control.
How a business settles these conflicts depends on its size, its age, its owners and its situation.
That is why the best answers to Evaluate questions on objectives finish with what the choice depends on.
This links to measuring success at the end of unit 1b: the business compares what it achieved with these same objectives.
It also links to unit 3b, where profit is calculated.
- Objective: a specific, measurable target a business sets to help it achieve its aims.
- Financial objectives: targets measured in money or numbers: survival, profit, sales, market share, financial security.
- Non-financial objectives: targets that are not measured in money: social objectives, personal satisfaction, challenge, independence and control.
- Survival: continuing to trade by bringing in enough money to pay the business's costs.
- Market share: a business's sales as a percentage of the total sales in its market.
- Social objective: an aim that benefits society or the environment.
Use the chart of Kesho Bike Repairs' revenue and total costs.
(a) Find the profit or loss in each year.
(b) Find the percentage change in profit from Year 2 to Year 3.
(c) Say what the results mean for Rehema's objectives.
1. Profit or loss = revenue − total costs. Year 1: 38 − 41 = −3, a loss of TZS 3 million. Year 2: 52 − 47 = 5. Year 3: 69 − 57 = 12.
2. Percentage change = (new − old) ÷ old × 100 = (12 − 5) ÷ 5 × 100 = 140%.
3. A loss in Year 1 shows why survival came first: Rehema had to cover the gap from savings until revenue grew. Profit more than doubled from Year 2 to Year 3, so she met her profit objective.
Answer: a loss of TZS 3 million, then profits of TZS 5 million and TZS 12 million; profit rose by 140%.
With profit secure, sales growth is a sensible next objective, as long as the second workshop does not push her back into survival.
State one non-financial objective that Rehema Kisanga may have for Kesho Bike Repairs.
(1)
Model answer: To keep independence and control by making her own decisions, which is why she left her job at the car dealer (1).
Or: a social objective of training two school leavers from Moshi each year as mechanics (1).
"Personal satisfaction" on its own scores 0: it is a correct objective but has no context.
"Independence for Kesho Bike Repairs" scores 0: the name is already in the question.
A financial objective, such as profit, scores 0 because the question asked for non-financial.
Rehema turns down a well-paid contract to repair a delivery company's motorbikes, because the contract would tell her which jobs to do first and which hours to open.
Which one of the following objectives explains her decision?
Select one answer.
A Survival B Market share C Independence and control D Profit
Answer: The only correct answer is C (1).
A is not right: a well-paid contract would help the business survive, not threaten it.
B is not right: more work would raise her share of local repairs.
D is not right: turning down well-paid work lowers profit.
She is protecting her right to make her own decisions, a non-financial objective.
Brivanta Telecom plc builds masts in villages with no signal and gives free connections to 600 rural schools. Its shareholders expect a dividend every year. Evaluate the importance to Brivanta Telecom of its social objectives. You should use the information provided as well as your own knowledge of business. (12)
Model answer (Level 3):
[AO1] A social objective is an aim that benefits society or the environment, such as better access to communication.
It is a non-financial objective, alongside financial objectives like profit and market share.
[AO2] Brivanta's masts bring a signal to villages that had none, and its free connections reach 600 rural schools.
[AO3] Villagers who get a signal for the first time often stay with the first network they join, so Brivanta wins customers before its rivals arrive.
As incomes grow, these customers buy more data, so the social objective can raise market share and sales in the long run.
[AO3] Governments decide who gets licences to run networks.
A record of connecting rural schools improves Brivanta's reputation with them, which makes it easier to win licences in new countries.
[AO4] However, a rural mast costs as much as a city mast but earns far less, so each one lowers Brivanta's profit in the short run.
[AO4] Brivanta is a public limited company.
If profit and dividends fall, shareholders may sell their shares, and the falling share price makes it harder to raise money for new masts.
[AO4 judgement] Social objectives are important to Brivanta because, in its markets, rural customers and government licences are where future growth will come from, so the social objective also serves its market share objective.
How important they are depends on how fast rural customers start paying for data: if they stay too poor to pay for years, Brivanta should slow the rural programme and focus on profit until the masts are affordable.
Why Level 3: accurate knowledge, the case used throughout (villages, 600 schools, shareholders, licences), developed chains on both sides, and a judgement that adds a new point (rural customers as future market share) and says what it depends on.
A weaker answer: "Social objectives are good because they help people and the environment and make customers like the business.
They also give it a good image.
However, they cost money.
In conclusion, social objectives are important."
This lists general points with no use of Brivanta's masts, schools or shareholders, and the conclusion only repeats: Level 1.
A State item on objectives needs two things: the right kind of objective (financial or non-financial, as asked) and one detail from the case.
Copying the business's name is not context.
Tie the objective to something the case tells you: the owner's reason for starting, a plan, a product or a customer group.
- Mixing up the two kinds. Survival and financial security sound non-financial, but both are about having enough money: they are financial objectives. Independence and control is non-financial.
- "The objective of every business is profit." Many owners rank independence, satisfaction or a social aim above profit, and a new business ranks survival first. Fix: read the case for the owner's real aims.
- Aims and objectives used as the same thing. An aim is the broad goal; an objective is a measurable target that serves it. Fix: give objectives a number or a date where you can.
- Social objectives treated as charity. A social objective can help a business earn money too, through reputation and loyal customers. Fix: in an Evaluate, show both the cost and the benefit.
Check your understanding
1. A business owner says: "In our first year, all I want is to be able to pay our rent and our suppliers every month." Which one of the following objectives is the owner describing? (1) Select one answer.
- A Survival
- B Market share
- C Challenge
- D Social objective Total [1]
2. Which one of the following is written as a measurable objective? (1) Select one answer.
- A To be a better business than our rivals
- B To be popular with young customers
- C To increase sales by 10% within two years
- D To have happy employees Total [1]
3. Define the term profit. (1) Total [1]
4. Rehema Kisanga plans to open a second Kesho Bike Repairs workshop in Arusha next year. She will borrow TZS 30 million to fit it out and will pay rent of TZS 900 000 a month. State one reason why survival may become the main objective of the new workshop. (1) Total [1]
5. Brivanta Telecom plc plans to offer cheap phone credit to small farmers so they can check crop prices before they travel to market. Outline one reason why Brivanta Telecom has this social objective. (2) Total [2]
6. Explain one reason why a business may set market share as an objective. (3) Total [3]
7. Rehema Kisanga wants Kesho Bike Repairs to grow. Her plan is to double sales in three years by opening workshops in Arusha and Tanga. She would need to borrow money and hire six more mechanics. At present she knows every customer and checks every repair herself. Evaluate the effects on Kesho Bike Repairs of making sales growth its main objective. You should use the information provided as well as your own knowledge of business. (12) Total [12]
Answers
1. The only correct answer is A (1).
- B is not the correct answer as market share is about winning a percentage of the market's sales, not paying the bills.
- C is not the correct answer as challenge is a non-financial aim about testing the owner's skills.
- D is not the correct answer as a social objective benefits society or the environment.
2. The only correct answer is C (1).
- A, B and D are not the correct answer as none of them gives a number or a date that could be checked.
3. What is left after total costs are taken from revenue (1). NB "The money a business makes" scores 0: it could mean revenue.
4. AO2, 1 mark. For example: the TZS 30 million loan must be repaid even before the Arusha workshop has regular customers (1); or the TZS 900 000 monthly rent must be paid from the first month, when few customers know the new workshop (1). NB "New businesses often fail" with no detail of the Arusha plan scores 0.
5. AO2, 2 marks. Award 1 for a reason and 1 for a linked development in context. For example: farmers who use the cheap credit to check crop prices will come to rely on Brivanta's network (1), so they are likely to stay as customers and buy more data as their incomes grow (1). Or: helping small farmers earn more improves Brivanta's reputation (1), which helps it win and keep government licences in the countries where it operates (1). With no context anywhere, 1 mark.
6. AO1, 3 marks. For example: a larger market share makes the business better known to customers (1), so more shops are willing to stock its products (1), which raises its sales and makes it harder for rivals to win customers from it (1). Or: a large share lets it buy in bigger quantities (1), so suppliers give it discounts (1), which lowers its costs and raises profit per item (1). NB A list of reasons earns 1 mark only.
7. AO1 3, AO2 3, AO3 3, AO4 3. Indicative content:
- [AO1] Sales growth is a financial objective: a target to increase revenue or units sold. Growth can bring lower costs per item, but it raises risk.
- [AO2] Rehema would open in Arusha and Tanga, borrow money and hire six more mechanics.
- [AO3] Two more workshops reach customers in two more towns, so revenue could double, and buying parts in larger quantities could lower costs, raising profit.
- [AO3] A bigger business with three sites is better known, so it could win contracts from businesses that run fleets of motorbikes.
- [AO4] However, the loan repayments and two new rents must be paid even if the new workshops are slow to find customers, so the business could go back to a survival objective.
- [AO4] However, Rehema cannot check every repair at three sites, so quality may fall and the reputation built in Moshi may suffer; she would also lose some of the independence and control she started the business for.
- Judgement, for example: growth is likely to benefit Kesho in the long run because profit has risen strongly, but the effects depend on how quickly the new workshops attract customers and whether Rehema can find a trusted mechanic to run each one. A safer route is to open in Arusha first and expand to Tanga only once Arusha is profitable.
- Level 3 (9 to 12): accurate knowledge, the case used throughout, both sides developed and a judgement that says what the outcome depends on. A one-sided answer, or one with no use of Arusha, Tanga, the loan or Rehema's checks, stays in Level 1 or 2.