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THE FINANCIAL OBJECTIVES OF THE BUSINESS

Financeis central to the operation of any business. More or less every activity a business undertakes will require some form of funding.Finance is needed to rent or buy premises,to purchase capital equipment, to hire labour and to obtain raw materials. Therefore, without finance a new business could not be set up and an existing business could not continue to function.

The most important objectives of any business are: Survival. This is the most fundamental objective of all businesses. In order to ensure survival there must be enough money flowing into the business to finance the necessary day-to-day expenditure, e.g. purchasing raw materials, paying employees' wagesand so on. This type of expenditure is cur­rent expenditureand will normally be financed from current income,that is the money generated from the sale of the business's goods or services.

Growth andDevelopment. While survival is the funda­mental short-runobjective of the business, in the long run businesses are concerned with growth and development. Old machinery must be replaced with more modern technology to maintain and increase efficiency in order for the company to remain competitive. Growth allows the firm to diversify its product range and open up new markets. With growth come the benefits of economies of scale and a more secure position in the market. To pursue these objectives the business requires capital finance.

Survival and growth and development are obviously close­ly related. A business, which does not develop and grow, will encounterproblems in the long run in maintaining its marketshare and its survival may be threatened. These objectives determine how a business uses financial resources,often referred to as a business's application of funds.

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