Profit maximisation

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It is often argued that the main aim of private sectors business is to maximise their profit. This is achieved where the differences between the total revenue earned by the business form selling its products and the total costs of those products is the greatest. It is very difficult for businesses to achieve profit maximisation thus is because a business must have the lowest possible running costs. They might pay staff low wages, buy in bulk have zero waste, turn off all lights.

Ryan air is an example of a business aiming for profit maximisation. It charge customers for excess luggage, drinks etc and pays staff low wages. In some cases they are so extreme that they refuse to let staff charge their mobile phones form the mains in which they work. Most businesses aim to get reasonable profits. This is called satisfying Growth Many businesses pursue growth as their main objectives. Business people argue that firms must grow in order to survive. Failure to growth might result in a loss of competitiveness, a decline in demand and eventual closure. If a firm is able to grow and dominate the market, in the future it may be able to enjoy some monopoly power and raise its price.

By growing, a firm can diversity and reduce the risk of business enterprise. It can sell to alternative markets and introduce new products. If one market or product fails it will have a range of other to fall back on. Firms can exploit economies of scale if they grow large enough for example Tesco. This will enable them to be more efficient and enjoy lower costs. Sainsbury cannot dominate its market because it has competitions form Tesco’s, Asda and Somerfield.

Sainsbury’s has reported what it describes as “strong” half- year result with profits up 20%. Pre-tax profit hit �232m in the 28 weeks to 6th October, compared with �194m in the same period a year ago. This amount of increase is a fairly huge chunk to achieve in one year. Like – for- like sales, which strip out the impact of new stores, were up 4% excluding fuel, while total they are gaining a huge amount of profit. Although they are 3rd in terms of market share between their competition, this still shows that Sainsbury’s are gaining strength, this is shown by the fact that their sales has risen. These results prove that Sainsbury’s is fulfilling their main objectives which are to make profit, this also come under aims such as “treat your own” and “great service drives sales”.

A number of people might benefit from growth Employees may find their jobs will be more secure (although, this might not always be the case if growth involves purchasing more machinery). Sale revenue maximisation This is different from profit maximisation because sales is the money made before you pay off all your costs. A company pursuing this objective give up same profit to get the highest sales Sale manager and sales reps benefit from.

A stakeholder is a party who affects, or can be affected by, the company’s actions. The stakeholder concept was developed and championed by R. Edward Freeman in the 1980s. It has gained wide acceptance in business practice and in theorizing relating to strategic management, corporate governance, and business purpose. Meet stakeholder needs Stake holders are people who are affected by the activities of a business, Example of stakeholder are employees, suppliers, directors, customers, the local community and shareholders. Customers are stakeholders because they are affected by the product range, prices, customer services, returns policy ect.

Survival

Survival, this is an aim if the business is just starting up. When a business is starting up it would be important for it to run at least two years. 60% of new businesses fall within their first two year. Reasons for business failure include lack of finance, lack of experience or poor location. Survival can be an aim for a large existing business. This can be the case if it is affected by strong competition. Mark and Spencer has lost sales in their clothes section of products due to competition form Next and other stores alike 5 years ago its share price halved in value from 5 a share to 2.50. this meant that it was under treats form being taking over- they almost did by BHS- Philippe Green. Even multi- nationals can have basic survival as there objective, not just small companies.

For Sainsbury’s this means that at some point survival would have been one of there main objectives, however this would have been very early on. As Sainsbury’s has been opened for over one hundred and thirty years it’s unlikely that Sainsbury’s would even consider having survival as one of their main objectives now. However if Sainsbury’s was to take a bad marketing step or financial step and their share prices dropped then survival would come back into action and they would need concentrate on this, as I have explained already its not just small companies that have survival as one of there basic objectives or aims.

Survival is also important when trading becomes difficult. During recession a business could face falling demand, bad debt and low confidence. In the UK recession of 1990-92 many well known companies ceased trading. In 1992 around 73,000 businesses collapsed. Improved trading conditions in the 1990’s Individual businesses or industries may face difficulties due to competition form rivals, falling demand for their products or the effects of poor decisions. The Treat of takeover Treats of takeover firms sometimes becomes targets for other firms to take over. When this happens the survival of the firm in its existing form may be the main objective. One way to achieve this is to persuade the owners (shareholders) not to sell share to the person or company budding for them.

In the long term it is unlikely that survival would remain the only objectives, expect perhaps for the small businesses. Business owners tend to be ambitious and so pursue other objectives. Over the years Sainsbury’s has constantly been in the media concerning takeovers. In early November this year the royal family of Qatar contemplated a full takeover offer for the supermarket, the family’s investment vehicle, Delta Two, announced that it had upped its stake in the supermarket chain form 17.6 % to 25%. They also announced that they had bought 123million Sainsbury’s shares at 595 pence per share, making �732m in all. This possibility of a takeover sent in the supermarket to record highs.

The Qatari royal family first unveiled its interest in Sainsbury’s when in April Delta two announced it had bought 17.6; of the group. This takes the Delta two stake to just over 25% which is well ached of that held collectively by the Sainsbury’s family. Delta is run by Paul Taylor, who was once chief of an investment vehicle of property magnate Robert Tchenguize. Tchenguize also own roughly 5% of Sainsbury’s shares.

Most people assumed this takeover would go ahead but where surprised to find that the company decided to withdraw the bid because of “turmoil in global credit markets” it also said concerns about funding Sainsbury’s, which employee pension schemes had led to the move. Shares in Sainsbury’s, which had yet to back the offer, dell nearly 21% in response to the news and this would have hit Sainsbury’s quite badly. Although the word takeover often sounds like a bad thing it may also be a good thing for some companies for example if this company had taken over Sainsbury’s.

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