Every business venture new or established should have financial objectives. Understanding the objectives and placing emphasis on them sets the organization in the right path to success financially. Classically there are four financial objectives a venture should pay attention to. These are profitability, liquidity, efficiency and stability.

Profitability

Businesses are set up for profitability . The primary goal of every entrepreneur is among other things to make a positive returns on their investment to be economically independent . Profitability refers to the ability to earn profit or returns on the venture. Traditionally startup ventures do not make profit in the first three years but to remain viable, they are expected to make profit.

Liquidity

A business venture has short term financial obligations like account payables, salaries and wages and other working capital requirements. Liquidity is a company’s ability to meet all its short term financial obligations and commitments. To be able to do this successfully, a company must manage its account receivables and inventories very well. If a firm has high levels of either inventories or account receivables, it might not be able to keep enough money for its short term obligations. that is when it runs into working capital difficulties .like

Efficiency

Efficiency refers to the ability of the firm to use its resources to the optimum in relation to its revenue and profits. An underutilization of a business’s resources like plant and machinery or human capital is a loss to the organization. The implication is that it either does not need that much of resources or it is being inefficient. Resources are acquired to aid production t boost profitability but when they are idle, they are not being productive and thus money is being lost.

Stability

The stability of the finances of a venture refers to the strength and vigor of the businesses overall financial position. A profitable firm is that one that is posting profits and able to pay its short term bills on time-liquid and able to keep its debt in check. A firm with a high debt to equity ratio is tilting towards insolvency and eventual demise. Small businesses must therefore endeavor to keep their finances stable through a good balance of their borrowing Patten and profitability.

Culled from a Paper delivered at a business forum