Financial Objectives vs Financial Benefits

Businesspeople typically state the highest level objective for profit-making companies as “earning profits.” Note, however, that the business school professor might prefer to say the goal is “increasing owner value, by earning profits.” In any case, companies can use profits in only two ways.

  • Firstly, pay profits directly to owners as dividends.
  • Secondly, keep profits as retained earnings, thereby increasing owners equity.

In any case, most other objectives in private industry exist at least in principle to support the high-level profit objective.

Any action outcome that arguably contributes to the profit objective qualifies as a business benefit. Note that results such as increasing sales revenues, or cost savings meet this criterion. When one can estimate the contribution to profit, then the benefit’s financial value is also known. Such might be the case for instance, if a marketing program (the action) raises profits, by bringing revenue increases that exceed expense increases. Expected contributions to profits, in other words, provide one basis for establishing and measuring benefits.

Businesses typically have other financial objectives that support the profit objective, such as Increased sales revenues, increased margins, cost control, staying within budget, cost savings, or avoided costs.  All outcomes that contribute directly to meeting these objectives are financial benefits.

Note that the highest level objectives for government and non-profit organizations are not” earning profits.” High-level objects for these groups appear in mission statements about service delivery and the populations they serve. These organizations, nevertheless, also pursue revenue and spending objectives such as these:

  • Obtaining funding
  • Staying within budget
  • Controlling costs
  • Minimizing costs
  • Improving cost efficiency
  • (In some cases) Generating revenue

Outcomes that help to meet objectives like these are no less “financial benefits” that are similar outcomes in private industry.