Start-ups and Business Objectives (SCQ)

Here is a suggested answer to one of the short-context questions (SCQs) featured in the 2017 AQA A Level Grade Booster workshop booklet. This one is on the benefits of setting business objectives by start-up businesses.

Explain one benefit to a small start-up business of setting business objectives (4 marks)

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One benefit of a small start-up setting business objectives is that objectives encourage the owners of the start-up to focus their limited resources on the most important activities when setting up the business. Most small start-ups have limited resources to begin with, particularly finance. So decisions about how to use those resources are particularly important since the opportunity cost of making the wrong decisions could be quite significant. A SMART objective of, for example, reaching a target number of repeat customers from a specific marketing budget would be one way in which the start-up would benefit from focusing on objectives that are relevant to establishing the business. The quicker a start-up can build a repeat customers, the faster monthly revenues and contribution towards fixed costs will grow, which in turn should enable the business to reach the crucial break-even point. Without such an objective, the start-up has an increased risk that limited resources are not allocated appropriately, increasing the risk of business failure.