BUSS3 notes
Understanding Financial Objectives
Financial Aims: the broad, general goals of the finance and accounting function or department within an organisation.
Financial Objectives: the specific, focused targets of the finance and accounting department within an organisation.
Financial Strategies: long-term or medium term plans, devised at senior management level, and designed to achieve the firm’s financial objectives.
Financial Tactics: short-term financial measures adopted to meet the needs of a short-term threat or opportunity.
Financial Objectives
The examples set out below illustrate the types of financial objective that a business might pursue;
Cash Flow
Many businesses get into financial difficulties because of lack of cash flow rather than lack of overall profitability. Consequently, it is vital that businesses set themselves cash-flow targets to ensure they are able to keep operating. E.g.
Maintaining a minimum closing monthly cash balance, for example a minimum cash balance of £10,000 would be a sensible target for a small newsagents
Reducing the bank overdraft by a certain sum by the end of the year
For new start-up companies, it is likely an overdraft will be needed to support everyday expenses
Interest means it is not advisable to sustain an overdraft, therefore businesses may set objectives with this in mind
Creating a more even spread of sales revenue
Spreading costs more evenly
Achieving a certain level of liquid, non-cash items
Raising certain levels of cash at a particular point in time
Setting contingency funds
Cost Minimisation
A business that reduces its costs can benefit in two ways; keeping prices the same therefore having a higher profit margin, or reducing the selling price to attract more customers. E.g.
Achieving a certain cost reduction in the purchase of raw materials
Reducing wage costs per unit
Lowering levels of wastage
Relocating the business to the least cost site
Reducing the cost
Financial Aims: the broad, general goals of the finance and accounting function or department within an organisation.
Financial Objectives: the specific, focused targets of the finance and accounting department within an organisation.
Financial Strategies: long-term or medium term plans, devised at senior management level, and designed to achieve the firm’s financial objectives.
Financial Tactics: short-term financial measures adopted to meet the needs of a short-term threat or opportunity.
Financial Objectives
The examples set out below illustrate the types of financial objective that a business might pursue;
Cash Flow
Many businesses get into financial difficulties because of lack of cash flow rather than lack of overall profitability. Consequently, it is vital that businesses set themselves cash-flow targets to ensure they are able to keep operating. E.g.
Maintaining a minimum closing monthly cash balance, for example a minimum cash balance of £10,000 would be a sensible target for a small newsagents
Reducing the bank overdraft by a certain sum by the end of the year
For new start-up companies, it is likely an overdraft will be needed to support everyday expenses
Interest means it is not advisable to sustain an overdraft, therefore businesses may set objectives with this in mind
Creating a more even spread of sales revenue
Spreading costs more evenly
Achieving a certain level of liquid, non-cash items
Raising certain levels of cash at a particular point in time
Setting contingency funds
Cost Minimisation
A business that reduces its costs can benefit in two ways; keeping prices the same therefore having a higher profit margin, or reducing the selling price to attract more customers. E.g.
Achieving a certain cost reduction in the purchase of raw materials
Reducing wage costs per unit
Lowering levels of wastage
Relocating the business to the least cost site
Reducing the cost