The basic financial objective of a company

For those who have little relation to finance, they tend to think that the main financial objective of a company is the maximization of profits, since we must take into account that when the business objectives are established, they establish a kind of frame of reference that Help decision making and if the administrator focuses the decision making only to reach maximum utility there is a danger that this will not guarantee the future of the company. Since profit maximization is a short-term criterion.

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Can you imagine then, what kind of decisions could an entrepreneur have that only aims to maximize their profits?

Surely the actions that would take to achieve this purpose would be: Reduced costs and expenses, for which could focus on the use of cheap and low-skilled labor, use of raw material of dubious quality, reduction of maintenance costs and control Quality, high sales prices, limited after-sales service, little investment in advertising and downsizing and who knows what else else would do.
It is possible that with this kind of strategy the company will initially generate high profits, but do you think that such a situation can be sustainable in the current competitive conditions in the market?
Well, as you are thinking, I also think that it would not be sustainable, since cheap unskilled labor generates unproductive and deteriorates the quality, the machinery wears quickly and the most serious that the customers sooner or later emigrate, that is to say Are removed.
In this way it is impossible for the company to achieve two important goals: to grow and to remain.
So far, it is very important to note that our business culture is very much inclined to focus on reducing costs and expenses when there are two more far-reaching alternatives to achieving the basic financial objective; these are:
Income generation and resource management . And this is so because the cost reduction has a limit while the other two alternatives offer a large infinity of options.
Let's look at an example of a company that practices the strategy of reducing costs and expenses to increase profits, and that this company attends its market with several products and at any moment decides to abandon several of them to dedicate to produce the most profitable. This strategy is likely to improve profitability in the short term, but it could open up the possibility that competition will take advantage of the gap in the unattended market with less profitable products and direct a penetration strategy towards other customers. Long term would mean a loss of market penetration with the consequent effects on profits.
This decision to eliminate product lines should go beyond mere consideration of the utility they produce and should include other strategic factors that could lead the company to accept the sacrifice of profits in the short term in order to guarantee the Permanence and growth in the long term.
In view of the above, the following can be concluded:

• The basic financial objective understood as the maximization of profit, does not guarantee the permanence and growth of the company.
• The maximization of profits alone is a short-term concept
• Profiting must be based more on a long-term strategy than on the uncontrolled exploitation of the different opportunities that the market offers to the company
• The basic financial objective should be viewed from a long-term perspective because in many cases it is possible that sacrifices of utility in the short term will contribute to guarantee permanence and growth.