Business English / Деловой английский язык
Metro-Polo Office Cleaning is a franchise organisation. Its founder is Arturo Foscatelli, whose head office is in Rome. The small businesses which join his franchise are given training, allowed to use the Metro-Polo brand name and benefit from Metro-Polo's advertising. In return, each franchisee pays a quarterly subscription to the franchisor. In this lesson we see if Metro-Polo's newest franchisee can manage to run the business and cope with all the financial paperwork involved.
You may also be interested in "Accounting and taxes" lesson by lion Leo (click on him for details)
|Arturo Foscatelli||is president of Metro-Polo Office Cleaning. He is Italian.|
|Patrick Flynn||runs a Metro-Polo office cleaning franchise. He is British.|
|Vocabulary||Bookkeeping; overheads; cash flow.|
|Skills||Understanding and explaining accounts; explaining what the figures mean.|
|Structures||Figures; present tense and future time.|
|Documents||A trial balance; a postage ledger; a profit and loss account; a balance sheet.|
Looking at the trial balance
14.1 Listen and read
Patrick Flynn runs a Metro-Polo office cleaning franchise. He gets a visit from Arturo Foscatelli, the company's president. Listen to what they say. Why is Arturo visiting Patrick?
|ARTURO||Mr Flynn? Good morning. I'm Arturo Foscatelli.|
|PATRICK||Hello, Mr Foscatelli. Come on in - do sit down.|
|ARTURO||Thank you. As I explained on the phone, I make a point of visiting new members of our organisation at least once during their first year of operation. In your case, it seems that things are going well: lots of contracts, and morale is high.|
|PATRICK||Well, yes, as long as you don't mind working sixteen hours a day!|
|ARTURO||Yes, indeed! Now, I wonder if we can put some figures on the performance so far. You've completed your first three months' trading. Do you have any idea what your turnover was, roughly?|
|PATRICK||Er - yes - getting on for thirteen thousand pounds.|
|ARTURO||Mm. That's well on target. Now, how about the outgoings , especially the overheads? That's always something we have to watch in a new business.|
|PATRICK||I must say, Mr Foscatelli, I think this is where I probably need your advice. I've been recording all my transactionsvery carefully on the computer, and everything seems to be OK. But I don't really understand this idea of 'double entry'.|
|ARTURO||Don't the figures balance?|
|PATRICK||Oh, yes, they balance, but I don't understand what they mean. Look. This is the trial balance I printed out for the first quarter.|
14.2 Document study
This is the trial balance that Patrick prepared. Read through it carefully. Which of the names here are probably those of Patrick's customers? Why does the name Metro-Polo appear here?
14.3 Writing practice: figures
Look again at the trial balance in 14.2. Then answer the questions below.
|1||What are the total sales for the period?
|2||How much cash has Patrick Flynn got in the bank?
|3||How much money did he draw out of the business?
|4||How much stock did he have at the start of the period?
|5||How much does he owe the franchisor?
|6||These figures are for one quarter. What's his wages bill going to be for a year, at this rate?
|7||Roughly how much money do people owe him?
14.4 Listen and read
Arturo explains the trial balance to Patrick. Listen to what they say. Is Metro-Polo a creditor or a debtor of Patrick Flynn?
|ARTURO||Yes, that seems reasonable. What's the problem?|
|PATRICK||I know I did a training course on this, but I never really got the hang of it.Which side is which?|
|ARTURO||Well, briefly, the left-hand column shows you the debits - that's where the money went to. The right-hand column is the credits - where the money came from. Or we can say that the right-hand side represents the sources of funds, and the left-hand side the uses of funds.|
|PATRICK||But I thought debit meant that you owed money to somebody?|
|ARTURO||It depends who 'you' are, doesn't it? Look at these four people here - Midland Furniture, Goodies, Wonder-Bar and Smith and Sons. They owe you money, right? They are your debtors. Metro-Polo and All-Clean Supplies, on the other hand, are your creditors - you owe money to them.|
|PATRICK||But that's money going out, so why is it on the right-hand side, with sales, which is money coming in?|
|ARTURO||Because creditors are people you haven't paid yet! As long as you don't pay them, All-Clean and the others are lending money to your business. In effect, they are giving you free use of their money. So you benefit, just as you do from sales.|
|PATRICK||Ah! So Midland Furniture and Goodies and the other debtors - they're doing business with my money?|
|ARTURO||Well, until they pay you, yes.|
|PATRICK||I'll get on to them right away!|
14.5 Find the right word: bookkeeping
Read the text below on bookkeeping. Write a word from the box to fill each of the gaps.
a - b bookkeeping is a system which enables the business manager to record all money coming in (c ) and all money going out (d ), and to work out the company's progress and present position. For every e , there are two f in the ledgers. In one ledger, it is shown on the g side, and in the other, as a h . Each ledger records transactions of a particular type. By adding the transactions for a period of time, you find the amount needed to i the account. All the balances from the different ledgers are added together in the trial balance. If everything has been entered correctly, their totals must j - that is, they must be equal. The bookkeeper can then go on to prepare the profit and loss account and finally the balance sheet, which shows the state of the business on the date it was drawn up. You can see at a glance the k and uses of funds.
14.6 Structure practice: present tense and future time
|1||Really, we're doing business with our creditors' money - is that right? Yes, ...
|2||As this is our first order, will the suppliers want cash on delivery? - Yes, ...
|3||Our suppliers won't refuse to go on supplying us, will they? - No, ...
|4||They'll go on giving us credit, won't they? - Yes, ...
Entering a transaction in the ledger
14.7 Listen and read
Arturo asks Patrick how he finds his customers. Listen to what they say. What is Patrick's most successful method?
|ARTURO||Judging from your trial balance, most of your customers are quite small. How do you attract them? Just by advertising?|
|PATRICK||I spend quite a bit on advertising, as you can see. I think I've done better, though, with direct mail . I keep adding to the mailing list . That reminds me, I bought another fifty pounds' worth of stamps today; I must put them on the computer. Er - now...|
|ARTURO||'New transaction.' Right, now it's asking you in which ledger you want to enter the transaction.|
|PATRICK||'Purchases'. No! 'Postage'.|
14.8 Document study
The print-out below shows the entries in Patrick's postage ledger. Read through it carefully. You will need it for 14.9.
14.9 Listen and read
Patrick asks Arturo about the postage ledger. Listen to what they say. Why does Patrick keep a separate ledger for postage?
|PATRICK||Suppose I had put postage stamps in the 'Purchases' ledger - what would happen?|
|ARTURO||Nothing. The computer won't know that you made a mistake. The figures will still balance, but you won't know how much you've spent on stamps.|
|PATRICK||Right, fifty pounds. Now, why does it ask me how I paid for them?|
|ARTURO||Because every transaction has to be entered twice. You've debited the postage account, so another ledger has to be credited, and then they balance. How did you pay?|
|ARTURO||Right, so hit 'C' for 'Cash' - then the computer credits the cash ledger. And there you have the principle of double-entry bookkeeping. Invented by Italian merchants in the twelfth century, incidentally.|
|PATRICK||Ah! It seems so simple when you explain it. If only I'd paid more attention on the induction course.|
|ARTURO||Speaking of induction courses, did you make up a profit and loss account at the end of your first quarter?|
|PATRICK||No! Should I have done?|
|ARTURO||Well, it is a condition of the franchise agreement, but don't worry, you can still do it. Watch! If you select 'Profit and Loss' from the menu, and key in the date for the last day of the quarter, the computer will do the rest for you.|
14.10 Find the right word
Read the text below on bookkeeping. Write a word or phrase from the box to fill each of the gaps.
In Britain, the a - b side of the ledger is the debit side, the c - d side is the credit side. Suppose you sell something for £20, and you allow your customer, Mr Smith, credit. He says he will pay at the end of the month. You enter this in the e ledger, as a credit - after all, it's money f . To make your books g , you must also record it on the h side of a ledger that has Mr Smith's name at the top of the page. You i his account £20, because that is the amount he j you. At the end of the month, Mr Smith pays his debt of £20. You write this on the k side of his ledger, so that it l . But what about the m ledger? That £20 must now be recorded somewhere else - but where? It depends how Mr Smith paid. If he gave you a cheque, you n the bank ledger; if he gave you a £20 note, it is recorded as o .
14.11 Document study
This is an example of what Patrick Flynn's profit and loss account might look like. Read through it carefully.
Reading the balance sheet
14.12 Document study
This is Patrick Flynn's balance sheet. It is very unusual for fixed assets to be shown on a balance sheet as 'nil'. Why? Is this a problem for Patrick?
14.13 Listen and read
Arturo starts to comment on Patrick's balance sheet. Listen to what they say. Why does Patrick sound pleased?
|PATRICK||Why do you say we ought to do the balance sheet now? I thought the accountants only looked at the balance sheet once a year.|
|ARTURO||For a small business it can be very useful to look at your balance sheet every quarter, or even every month, especially when you have a computer to do the work for you.|
|PATRICK||Well - how am I doing?|
|ARTURO||Considering you've only been in business three months, not badly.|
|PATRICK||Sales are way over target - we've even made a nice profit!|
|ARTURO||Yes, that's good, and that's one reason for keeping accounts, to see how well you've done in the past. But another reason is to see your present position, and to get some idea of where you're going. There are one or two indicators here that you may need to watch.|
14.14 Listen and read
Arturo continues to comment on Patrick's balance sheet. Listen to what they say. What problems does Arturo see?
|ARTURO||You're running this business of yours on a shoestring; I suppose you realise that. You're under-capitalised, and with no fixed assets you'll find it difficult to get a bank loan or an overdraft . You've very little to fall back on.|
|PATRICK||Well, it was you who approved my application for the franchise! You knew how I stood - what my situation was.|
|ARTURO||Yes, yes! And I've every confidence in you. All I'm saying is, don't relax. For example, you drew more out of the business in the last quarter than you put in by way of profit.|
|PATRICK||Well! Living expenses - you know - what with inflation and all that...|
|ARTURO||Don't look so miserable! You're going to do all right! In fact, there are some very good figures here, but you've got to learn to recognise which they are.|
14.15 Listen and read
Arturo continues to comment on Patrick's balance sheet. He sees two further problems. What are they? Does Patrick agree?
|ARTURO||Do you remember, on the course, what they told you about accounting ratios?|
|PATRICK||Er - oh - current assets over current liabilities, that was one of them.|
|ARTURO||That's the current ratio. It's a test of whether a company can meet its liabilities - whether it can pay its bills.|
|PATRICK||Well, all my assets are current assets, so my ratio is about three and a half to one! That ought to be high enough.|
|ARTURO||On the contrary, it's much too high. More than half your capital is just sitting in the bank. I hope at least it's in an interest-bearing account. You've also got a lot of working capital tied up in stock.|
|PATRICK||Well, those are all cleaning materials, chemicals - you know - what d'you call them - consumables!It's much cheaper to buy in bulk.|
|ARTURO||On the other hand, your stocks are tying up capital you may need somewhere else, and they cost money to store, and they are liable to depreciate in storage.|
|PATRICK||No, Mr Foscatelli, I can tell you, I went into all that very thoroughly. I know I've got that bit right.|
|ARTURO||Now that's what I like to hear. It suggests you're keeping an eye on the cash flow, and that's a key factor in financial management. By the way, perhaps you can let me have a cheque for your franchise subscription. Then you won't have so much surplus cash floating about in the bank!|
14.16 Find the right word: cash flow
Read the text below on cash flow. Write a word or phrase from the box to fill each of the gaps.
The movement of money through a firm is called a b . The company may be successful and c and may own valuable fixed d , but if, at the end of a month, there are e to be paid and no cheques have come in, its financial position may be weak. On the other hand, if the accountant allows a large amount of f to stay in the bank, when it should be invested and earning g , the board of directors will not be pleased. Control of cash flow is, as Arturo says, a key h in financial management.
Managers complain that i are slow to pay and j want to be paid at once. New firms are often short of k . Early success can be dangerous. If Patrick Flynn gets a lot of office-cleaning contracts, he will have to buy stock and take on staff. This will cost money, so his l capital will increase, and it will be m in things like vacuum cleaners which will not show a return for several weeks or even months.
14.17 Writing practice
Arturo Foscatelli likes to write a report whenever he visits a franchisee. Write the report on Patrick Flynn for him. Make notes on all the good things and the bad things he discovered, and quote figures to support what you say.