Ex. 7.2. Read and translate the following text:

INITIAL IDEA

 

Someone has an idea for a new business (a 'start-up'). Maybe they spot a gap in the market or maybe they have an idea that is similar to existing offers, but with a competitive edge. Potential sources of finances for this new business include self-funding, backers such as friends and family members, a bank loan, and a venture capital firm. A bank will want some sort of security in case the loan is not repaid, and sometimes the person's house is offered as collateral. The fourth option, venture capital (VC), is attractive for businesses with a high profit potential in the medium term, but high start-up costs. A VC company will offer funds and take on the risk of the business failing, but in exchange will want a large number of shares. They aim to sell these later, when the business goes public. When financing is in place, the business is registered as a legal entity: sole trader, partnership, limited company, etc.

 

 

Early months and growth phase

 

Now the business can start trading. The risk of failure in the first two years is very high. Often the problem isn't sales, but cash flow: the company has to wait for its invoices to be paid, and meanwhile the debts are piling up. The bank will only extend its line of credit up to a point.

But hopefully the business achieves a critical mass of customers and establishes itself in the marketplace. It ends a growth phase. This early growth tends to be organic - turnover increases, the company employs more staff, it develops a supply network, etc. The majority of small companies just continue in this way – growing or shrinking year by year depending on their managerial skills and general market conditions.

 

Selling the business

 

However, there are other possibilities. The founder of the company may decide to sell the business as a going concern. They might sell to a competitor or to a company wanting to expand into that market. The buyers here are looking to grow through a strategy of acquisitions (takeovers), an alternative to the strategy of organic growth.

 

IPO

 

Another possibility is that the founders may decide to go public (= float/list on the stock exchange). Here, they sell their original privately-held shares at an IPO (initial public offering). This brings in a huge amount of money, some going directly to the owners as reward for their hard work, the rest going back into the business as reinvestment.

 

TEN REASONS WHY A NEW BUSINESS CAN FAIL

 

REASON	CAUSE	SOLUTION
Poor initial market research	starting a business with a good idea, some money and a lot of enthusiasm	take some time to research the market thoroughly
Cash flow problems	buying too much stock, customers paying late or not at all, suppliers needing to be paid on time	produce realistic cash flow forecasts and pay strict attention to budgets
Failure to listen to customers	sticking with your own original ideas for too long	actively seek the views of customers, and act on what they say
Bad business location	false economy = cheap lease in the wrong neighbourhood	remember that accessibility for customers is crucial
Ineffective marketing	thinking that a good product will sell itself	be creative, constantly review the marketing plan
Overexpansion	being too ambitious	be realistic
Overspending	spending your seed money too soon	planning, keeping some cash in reserve
Poor customer service	behavior of some employees	training, monitoring company culture
Underestimating the competition	assuming that you have customer loyalty	watch competitors closely
Failure to change	complacency after initial success, lack of innovation	be flexible, recognize opportunities, adapt