Text 4 Starting a new business

Starting a new business carries with it the greatest degree of risk. It may be possible to begin on a very small scale without risking too much capital. You will also have greater freedom of action. You will not be limited by decisions other people have taken in the past if you buy an existing business. Starting a new business requires finance. There are just three ways in which a business acquires money:

0. from the money invested in the business by the owner or owners, including any profit which they decide to reinvest.

1. by borrowing money from private individuals or from another organisation.

2. by buying goods and services on credit, i.e. having the use of the goods and services before they are paid for.

The basic principles of acquiring capital may be simple but the reality is far more complex. Each business will have its own particular requirements based upon such factors as:

0. the size of the business.

1. the stage of development it has reached. For example, two businesses with a similar number of employees and making a similar profit, may have totally different capital requirements. One business might be able to fund future investment from profits already made, but its future investment potential might be limited. The other business may need a large injection of capital if it is to take advantage of the market.

2. maintenance of control; that will mean loans to expand the capital rather than sharing the ownership with other people.

3. the organisations that make money available to businesses.

Let’s look at some basic definitions and the ways in which a very small business just starting up might find its capital in the first years of life.

1. The owner of the business invests money in it. This can come from savings or the sale of possessions. The important thing to remember is that it is the owner's money, to be spent as she/he wishes. If the money is lost, it is the owner's loss.

2. Money can be borrowed using possessions as a security. This statement means simply that if someone cannot repay the money then the person or organisation who lent that money can claim or sell that possession in order to recover the money they have lent. Mortgages are a specialised form of a loan on security. The security in this case is always property. All loans are usually made for a fixed period of time, for a fixed amount and at a fixed rate of interest.

3. Hire purchase and credit sales for equipment have a great deal in common. The difference lies in the ownership of the item. If a business buys a display refrigeration unit on hire purchase it does not own it until the last payment has been made. If it is a credit sale, it will own the refrigeration unit as soon as the initial payment has been made.

4. Trade credit is a system whereby a business receives the ownership of goods or services and does not have to pay for them immediately. The time involved can vary. In some businesses the goods or services bought in can be used and have brought in income before they have to be paid for.

Businesses can also lease equipment. If the equipment is needed for only a relatively short period of time then it is sensible to hire it. If the equipment is going to be used continuously then it is better to lease equipment.

2. Comprehension check.

Read the text again more carefully. Are the following statements true or false? Correct the false ones:

1. If you decide to buy an existing business it is sensible to start on a large scale without risking too much money.

2. The finance invested in the business, borrowings from natural persons or from another organization, purchasing commodities or credit are the possible ways through which a recently set up business obtains money.

3. There are four basic factors determining particular requirements of each business.

4. Money invested in a small business just starting up can be obtained from savings or the sale of possessions.

5. If a person fails to pay back the money then the lender can divest that possession.

6. Hire buying and credit sales facilities have many discrepancies.

7. Trade credit requires to pay promptly for the ownership of goods and services.

8. It is sensible to hire the equipment if it is going to be used continuously.

Pre-listening task

1. The words and word combinations in A are in the dialogue you will hear. Use your dictionary if necessary and match each of them with a definition in B.

A loan store to plan profitable business origin customer money to pay back estimate interest security to borrow property to own

B to repay to posses an organization that buys or sells products or services for money what someone earns, saves, invests and uses to pay for things money provided by a bank to a customer for an agreed purpose assets something one intends to do and makes arrangements to achieve a statement telling a customer how much money you will charge if they employ you to do a particular piece of work property or goods that you agree to give to someone who has lent you money if you can not pay the money back the country, race or social situation that someone comes from shop to receive and use something that belongs to someone else and promise to give it back to them later how someone are charged for borrowing money client lucrative

Listening

T ¹. The conversation you are going to hear gives a tip on starting a new business.

Listen to it and answer the questions:

1. Where did this conversation most likely take place?

2. Who are the participants of the conversation?

3. Give the main idea of the dialogue.

Pre-reading task

The words and word combinations in the box make a key vocabulary of the text you are going to read. Use your dictionary if necessary.

What is this text about?

ultimate clerical

secure price elasticity

to hinder attitude

labour force pressure group

obsolete to mount a campaign

labour costs impact

competitive to reassess

implications to modify

costing circumstances

production cost to take into account

Reading

1. Read text 5 and think of the suitable title.

TEXT 5

A business, like the people who run it and the society in which it exists, is constantly changing. The way in which it develops and its ultimate success or failure depend upon:

1. People The person who starts a business might be prepared to work long hours to make it a success. As it becomes more secure she/he might prefer more leisure time to increased profits. The way in which the business develops can be helped or hindered by the available skills in the labour force.

2. Technology Changes in technology can make a product or a production method obsolete, that is old-fashioned or out of date. New products will have to be found, new machinery bought and the labour force retrained.

3. The economy A high level of unemployment in an economy can mean a reduction in labour costs. It can also mean less demand for the product and a more competitive market. This will have implications for the costing, pricing and marketing of a product. It can also lead to changes in production methods and will certainly affect profitability.

4. The government Governments make laws. A change in the laws governing health and safety in the workplace can lead to increased production costs. Other laws might increase the clerical work required of a business. The government can also affect the general level of demand in an economy by the way in which it raises money and the way in which it spends it. If the government decides to increase the tax on a particular type of good then it is likely that the demand for that good will fall. The extent to which the demand falls will depend on its price elasticity.

5. Other organizations The attitudes and activities of trade unions, the activities of pressure groups can also affect the development of a business. A powerful and active trade union can influence working practices and raise the labour costs of a business. A political pressure group might mount a campaign to stop people buying certain types of goods.

6. The market The markets in which a business operates will also affect its development.

The impact of these forces will vary from business to business and will depend, amongst other things, upon the size of the business, the quality of its management, the finance available to it and the way in which it has developed in the past. Whatever the effect on a business the business plan must be constantly reassessed and modified to take changing circumstances into account.

2. Comprehension check.

Here are some answers about factors affecting the development of a new business. Write the questions.

a) What ?

The way in which a new business moves forward or fails depends upon six factors.

b) Why ?

To make a new business a success.

c) In what case ?

The available skills in the labour force.

d) What ?

New product will have to be found, new machinery bought and the labour force retrained.

e) What ?

A high level of unemployment in the economy means a reduction in labour costs, less demand for the product and a more competitive market.

f) In which ways ?

By the ways in which the government raises money and spends it.

g) Who ?

A powerful and active trade unions.

h) Why ?

To take changing circumstances in which a business exists into account.

Discussion

Work in pairs.

Using the key vocabulary from the Pre-reading task, discuss what you have learned about factors affecting the development of a new business.

Give your ideas and motives for starting your own business.

Unit 3

What is financial management?