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Financial Objec tives and Cons t r ain t s
Financial objectives: Outline what a business wishes to achieve in financial terms during a
certain period of time.
Financial Constraints: Constraints are the internal and external factors that affect a firms
ability to achieve the Financial Objectives.
What should a business consider when deciding on it's financial objectives?
Ownership: In large companies, the owners are often the shareholders. They will want to see
a healthy and fast return on their investment and will often want to see greater short term
Management: In a small business, the management are often the owners. Management are
more likely to look into investing in the future success of the business such as through
growth and diversification that will reduce the short term financial gains of the shareholders.
Short Term/Long Term: Some business will be looking to grow/diversify over the long term.
This will result in a loss of profit initially and the financial objectives will have to reflect that.
Stakeholders: In some businesses, the pursuit of profit may cause conflict between the
stakeholders. For example, the rise in interest in the environment causing firms to spend
money reducing waste and becoming eco-friendly.
Quality: A financial objective could be to reduce variable costs. This could be done by
changing to cheaper suppliers, but this could have a negative effect on quality and therefore
the brand image.
Public Image: A firm may choose to spend money on charitable causes, this will create good
press and could actually increase long term profit.
The most obvious financial objective is to increase profit, however there are many more specific
objectives that companies will use to make themselves more competitive. For example:
· Increase Gross/Net Profit
· Return on Capital Employed
· Increase Revenue
· Ensure cash flow is healthy
· Cost minimisation
And don't forget, all objectives have to be SMART!
Specific | Measurable | Achievable | Realistic | Timebound
Gain 20% of the market for baseball bats by September 2015
The firm currently has 15%of the market
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There are many factors that will influence the way a firm can set it's objectives, these are call
constraints and they can be categorised as Internal/External Constraints.
Financial: The pursuit of financial objectives can be constrained by the lack of cash flow,
particular at a time of rising demand.
Personnel: Does the business have the necessary skill sets to achieve the goals? If a business
lacks manpower, projects can end up incomplete and this could lead to objectives not being