What should be the objective of your business?

You might be running your own business or you might be managing someone's business. I am sure plenty of people would have come up to you saying what would be the objective of your business, what would be your driving force, your business' aim in order to be successful.

So what is the objective of your business?Is it to maximise market share?
...maximise revenue?
...maximise profit?

Well, let's take a look shall we?

If the objective of your firm is to maximize the market share, what is the best way to generate market share? Marketing?
Advertising?
No. The best way to maximise market share is to give your products and services fro FREE. You will have loads of market share, but you will not be making any money.

Okay, what is the objective is to maximize revenue?Well, you could maximize your revenue by selling it as cheaply as possible, regardless of how much it costs. In the end, you could be raking in the revenue but not making money at all?

Okay, then let's target maximizing profit as the goal. That should be it. In order to make profit, you would have to take revenue and cost into consideration, hence that would be a good goal for your business. I say no to this too.

It is because the best way to make profit is to sell all products on very long credits or no collection at all. Everyone will be buying from you at whatever price you would be selling if they know you are (or your staff ) not going to collect it. You profit will balloon but so would your accounts receivable and provision for bad debt.

In corporate finance, it makes sense to say that the objective of the firm is to maximise the value of the firm by making three rights decisions about:

1. Investment
2. Financing; and
3. Dividends.

Comments and questions are welcomed.

---Friendly notice---

Yazdi occasionally holds and runs corporate finance workshops, where you could gather the financial sense required to succeed in business or at your workplace. His past participants included senior managements (including a CEO or two) and executives of financial industry (including fund managers, analysts) as well as business practitioners.

If you would like to know more about his upcoming workshop of corporate finance in general, please free to drop your email at this link, here. We will not spam your mailbox - let's keep that personal between us. We appreciate your support and if you could share this with whoever you think might benefit from this (like friends or colleagues), we thank you a gazillion times.