Setting up a business


Hans Gast wants to set up his own road haulage business, based in Cardiff. He draws up a business plan and approaches his bank for start-up funding. Later, business is going well, and he and his partner, Andreas Tsoulas, decide that the time is right to expand - but first they have to persuade the bank to lend them the additional funding.

You may also be interested in "StartUp" business lesson by lion Leo (click on him for details)


Hans Gast is studying business in South Wales. He is German.
Richard Price is a bank manager. He is Welsh.
Andreas Tsoulas is a businessman. He is Greek.


Vocabulary Small businesses; start-up finance; banking services; business expansion.
Skills Presenting and discussing a business plan; looking for a way round a problem; reacting to a proposal or announcement.
Documents A business plan; a letter.

Presenting a business plan

19.1 Listen and read

Hans Gast is studying business in South Wales. He telephones his bank manager, Richard Price. Listen to what they say. What does Hans want to do?

HANS Good morning - is that the manager?
RICHARD Speaking.
HANS Hello. My name is Gast, Hans Gast. I'm from Germany, but I am living in Cardiff and I'm a customer of your bank. Why I'm calling, I've been taking a business course at Cardiff Polytechnic, and I would like to set up a small business of my own here in South Wales.
RICHARD Oh yes. And what sort of business do you have in mind?
HANS Well, I'd like to tell you about it personally, if I can come and see you.
RICHARD Of course. You're most welcome to come in here and have a talk, Mr ... Gast did you say?
HANS Yes, Gast, that's right.
RICHARD Do you have a business plan? It can save a lot of time if...
HANS A business plan? Of course, I have already prepared one.
RICHARD Splendid. Let me have a look in my diary. How about Monday morning, the seventeenth, at ten o'clock?
HANS Yes, ten o'clock Monday morning will suit me fine.
RICHARD I look forward to seeing you then, Mr Gast. Goodbye.

19.2 Writing practice: preparing for the meeting

Before Hans Gast arrives, Richard Price spends some time preparing a list of what he will need to ask Hans. Start the list for him. You will be able to add to it in 19.5.

{tip Exercise 19.2::There are many things that Richard could ask; this is a list of some of them:
What type of business?
How much finance altogether?
How much does he want to borrow?
How much capital will he put into the business?}Key{/tip}

19.3 Document study

This is the business plan that Hans prepared. If you were preparing an advertisement for Hans to put in specialist food distributors' magazines, which points would you use to describe his transport service?

Hans Gast


I wish to set up a refrigerated road transport business, with myself as sole proprietor. {tip (a) sole proprietor::a person who owns a business completely; there are no partners or shareholders.}see the meaning{/tip}

Initially, I shall have one truck with a load capacity of 1.5 tonnes. It will be fitted with a mobile phone. I shall undertake deliveries for chilled food distributors {tip chilled food::food which is very cold, but not frozen. It must therefore be delivered to retailers as quickly as possible.}see the meaning{/tip}, offering them a service on which they know they can rely at short notice and in case of emergency. I have made preliminary enquiries with a number of firms, which I contacted while following a marketing course at Cardiff Polytechnic. Their response was very favourable.

I shall drive the truck myself and also employ part-time drivers. My fiancée will help me with administration, bookkeeping and telephone enquiries. Her parents have offered us the use of a room in their house as an office, until we can find a small office to rent.

To finance this venture, I have £10,000 capital. My start-up costs will total £25,000. I am therefore seeking a bank loan of £15,000. I can offer the truck (estimated value £20,000) as security. {tip security::something of value which a borrower promises to give to a lender, if the borrower is not able to repay a loan or debt.}see the meaning{/tip}

I have prepared a detailed cash-flow forecast for the first year of operation, and this shows that the break-even point is reached after twenty-two months. {tip the break-even point::the time when income from sales equals the costs of production; it is neither a profit nor a loss.}see the meaning{/tip} This assumes a bank loan of £15,000 over five years at an annual percentage rate of 18.5%, with interest-only repayments during the first six months.

{tip Exercise 19.3::This is a model answer; there are many things you could choose.
- refrigerated road transport
- owner-managed
- radio control
- a specialist service for chilled food distributors
- reliable
- available at short notice and in emergencies
- always on call}Key{/tip}

19.4 Listen and read

Hans is in Richard's office at the bank, discussing his plan. Listen to what they say. Who seems to be more concerned with expanding the business?

RICHARD Well, Mr Gast, it's an interesting idea, everything's very nicely presented, and you've obviously done your homework. Though some of your figures are perhaps a little on the optimistic side. {tip a little on the optimistic side::a little too optimistic}see the meaning{/tip} And you appreciate the bank will need some kind of security for the loan?
HANS Naturally. But the only fixed asset I can offer you that's of any real value is the truck.
RICHARD Yes, I thought you might say that. Loans can be secured on motor vehicles.
HANS I've found a dealer who will sell me a brand-new one-and-a-half-tonne refrigerated truck for twenty thousand pounds. I think that ought to be acceptable as security for a fifteen-thousand- pound loan.
RICHARD Hm. Do you see this road haulage business {tip road haulage::the business of moving goods by lorry.}see the meaning{/tip} of yours starting to pay its way in a couple of years? {tip to pay its way::to make a profit.}see the meaning{/tip}
HANS Well - if we just stay with one truck, yes.
RICHARD Ah! So you might he looking to expand in a year or two. {tip you might be looking to expand::you might consider expanding.}see the meaning{/tip} If you're going to come back then to borrow more money, then obviously...
HANS To be honest, Mr Price, I want to see how the first year goes before I commit myself - and I'm sure the bank feels the same way.
RICHARD I see. Well, I'm happy to approve your application for a loan of fifteen thousand pounds, to be repaid over five years. You'll receive a letter of confirmation and a formal offer from the bank in a few days' time. Repayments will be monthly, by direct debit. {tip direct debit::a means of making regular payments directly from one bank account to another.}see the meaning{/tip} But remember, our service doesn't stop there. You have twelve months' free banking - no bank charges - provided you stay in the black, and the turnover on your account doesn't exceed a hundred thousand pounds in the year. And when you are ready to make your next move, you let me know.
{tip Exercise 19.4::Hans seems quite cautious, he says 'I want to see how the first year goes'. Richard seems more keen for Hans to expand, he says 'So you might be looking to expand in a year or two.'}Key{/tip}

19.5 Writing practice: following up the meeting

Richard Price can now complete his list from 19.2, and write short notes under each heading. Write the list and notes for him.


19.6 Find the word

This is the letter that Richard Price sent to Hans. Read through it, and write a word from the box to fill each of the gaps.

amount confirm debit period small terms
charges credit interest repayable sum turnover

Dear Mr Gast


Following our meeting on 17 October, I am glad to be able to b the Bank’s offer of a Small Business Loan on the terms set out below.

c of loan: £15,000 d of loan: five years from 1 November 1992 Rate of e : 18.5% Special f : interest-only payments for first six months Monthly payments: £231.25 until 1 May 1993 Thereafter £509.03 until 1 November 1997.

The enclosed leaflet gives details of some of the Bank’s services to new businesses. No bank g will be made during the first year of operation, provided h does not exceed £100,000 and the account remain in i .

If you will kindly check, complete and sign the acceptance form enclosed, we will arrange for the j of money shown above to be transferred to your account on 1 November. The loan will be k monthly over five years by direct l . On behalf of the Bank, I should like to wish you every success in your enterprise.

Yours sincerely

Planning for growth

19.7 Listen and read

It is now a year later, and Hans meets Richard Price again. Listen to what they say. How does Hans want to finance the new company?

HANS Richard, I'd like to introduce a friend of mine - Andreas Tsoulas. Andreas, this is Richard Price.
ANDREAS How do you do, Mr Price. Hans and I were students together at Cardiff Polytechnic.
RICHARD How do you do. So, I understand from what Hans has been telling me that both of you think it's time to expand the business and set up a limited company? see the meaning
HANS That's right. We want to transport chilled foods between the UK and Greece, via Germany. Eventually, of course, the network will extend much further. But to run a scheduled service between London and Athens, we need two 30-tonners. see the meaning
RICHARD Mhm. So you propose to put in twenty thousand pounds each as shareholders?
HANS As we show in our business plan, the authorised share capital will be fifty thousand pounds, and the issued share capital will be forty thousand.see the meaning
RICHARD Mm. And on that basis you want the bank to lend you two hundred thousand?
ANDREAS I should explain perhaps that my family owns a road-haulage business in Greece. My uncle died last year, and I've been asked to take it over.

19.8 Writing practice: making notes

Richard Price needs to make notes on Hans and Andreas's new proposal. Start the notes for him. You can add to your list after you have read 19.9.

{tip Exercise 19.8::Customers: Hans Gast, Andreas Tsoulas
Type of business: limited company, specialist international road haulage
Start-up capital £250,000: £50,000 authorised share capital; £200,000 bank loan
Assets: one truck, Andreas's road-haulage business in Greece - no definite information}Key{/tip}

19.9 Listen and read

The meeting continues. Listen to what they say. What do Hans and Andreas offer as security for the loan?

RICHARD Hans, this is certainly quite a different ball game from what you've been in so far. {tip quite a different ball game::very different from the previous situation.}see the meaning{/tip}
HANS Yes, but we're confident we can make it work. And my wife is going to be articled to an accountant in Cardiff next year {tip articled to an accountant::to enter a profession (such as accountancy or law), the student must have not only academic qualifications but also practical experience. Hans's wife will work as an articled clerk for at least two years while she studies for her final examinations.}see the meaning{/tip} - eventually she will be our Financial Director.
RICHARD Is she going to be a shareholder?
HANS Yes, she can be a shareholder right away. In fact, she owns the house we are living in. We can offer that as our security for half the loan.
ANDREAS Mr Price, the business in Greece has been valued at the equivalent of half a million pounds. That includes stock, goodwill, everything. {tip goodwill::a way of accounting for the extra value of a business from its name, brands or connections, in addition to its physical assets. In fact, the bank may not consider goodwill as security.}see the meaning{/tip}
RICHARD So although your company will be highly geared {tip highly geared::dependent on borrowed money, rather than shareholders' money.}see the meaning{/tip}, you do seem to have acceptable security - provided the bank can take a charge over the assets in Greece. {tip take a charge over the assets::obtain a legal document which will give the bank ownership of the assets if the company becomes bankrupt.}see the meaning{/tip} However, two hundred thousand is outside my limit as a branch manager. All I can do is to pass on your application to regional head office, with a recommendation. They'll want to see the numbers, so I hope you've got some good ones. {tip the numbers::the figures; Hans's trading figures and the cash-flow forecast for the expanded business.}see the meaning{/tip}
{tip Exercise 19.9::Hans and his wife are offering her house as security; Andreas is offering the Greek business. You should add this to your notes from 19.8.}Key{/tip}

19.10 Reading for key words

Find the words or phrases in 19.7 and 19.9 that tell you the following:

1 Hans has already given Richard some information about what he and Andreas are planning.
2 Their trucks will run to a regular timetable.
3 Andreas is anxious that Richard may reject their proposal without even hearing about the Greek assets.
4 Richard did not expect Hans and Andreas to need so much money.
5 Richard thinks that Hans and Andreas will be relying rather heavily on borrowed capital.
{tip Exercise 19.10::1 I understand from what Hans has been telling me
2 to run a scheduled service
3 I should explain perhaps that
4 this is certainly quite a different ball game
5 your company will be highly geared}Key{/tip}

19.11 Speaking practice: challenging a proposal

Listen to this conversation between a bank manager and a customer. Then listen again and speak the part of the bank manager.

CUSTOMER I've just bought this lovely old farmhouse in Tuscany. What I propose to do is to open a country hotel.
MANAGER Mm. To be honest, I haven't much experience of the hotel business. Have you?
CUSTOMER Well, not very much, but I believe I can make it work.
MANAGER I see. Let's try and assess its potential. How many bedrooms has it got?
CUSTOMER At the moment there are no bedrooms at all. I should explain that it needs complete renovation.
MANAGER I see. And how much money are you able to put into this?
CUSTOMER Not very much really. I was hoping the bank would be prepared to lend me the full amount.
MANAGER And when do you see the hotel starting to generate some income, so that you could repay the loan?
CUSTOMER I would think in about two or three years.
MANAGER And have you anything to offer as security in the meantime?
CUSTOMER Only the house itself, I'm afraid.
MANAGER I'd be interested to see the figures, but I'm not sure you've really thought this thing through.

19.12 Find the word

Read the text below about Hans and Andreas's business plans. Write a word from the box to fill each of the gaps.

charge family geared limited security valued
expand finance goodwill raise share

Hans's transport business has done well in its first year and he wants to a it. His friend, Andreas, has been asked to take over the b firm in Greece, which is c (if we include stock and d ) at about £500,000. The two men plan to set up a e company, which will be independent of the Greek company. They want to f nearly £250,000 altogether, and the bank manager is not sure that they can g such a large sum. Their h capital will amount to only £40,000. Andreas proposes his Greek assets as i for a loan; but it is not always easy for a bank to take a j over property in another country, even within the EC, and the other Greek shareholders may object. The loan would make the company highly k - that is, the ratio of loan capital to share capital would be high - and head office may find this unacceptable.

{tip Exercise 19.12::a expand b family c valued d goodwill e limited f raise g finance h share i security j charge k geared}Key{/tip}

Raising capital

19.13 Listen and read

Richard Price is meeting Hans and Andreas to tell them of the bank's decision. Listen to what they say. Why has the bank refused the loan?

RICHARD Briefly, gentlemen, the word from head office is that they have studied your proposals with great interest, but they feel you have not yet tried hard enough to exploit other sources of finance.
ANDREAS Other sources of finance?
RICHARD Well, this is a Development Area. I think they mean government grants. {tip government grants::money provided by the government to persuade companies to create new jobs, start up businesses in certain areas, etc.}see the meaning{/tip}
HANS How can they say we're not taking advantage of government help? We located our business in South Wales because of tax holidays {tip tax holidays::periods during which a new business does not pay the full tax due on its profits.}see the meaning{/tip}, low business rates ... {tip business rates::a form of local taxation on business property in the UK.}see the meaning{/tip}
ANDREAS I'm really surprised at the attitude of your head office, because they must know that we would only qualify for a very small grant. We're not creating many new jobs, we're not doing anything for the inner city ...
RICHARD How about the European Regional Development Fund?
HANS We want two hundred thousand, not two million!
RICHARD Of course. Let me try regional head office again.
{tip Exercise 19.13::The bank refused the loan because it felt that Hans and Andreas had not tried hard enough to find other sources of finance, especially government grants.}Key{/tip}

19.14 Listen and read

Hans and Andreas have another meeting with Richard Price. Listen to what they say. How do Hans and Andreas 'persuade' Richard to try again?

RICHARD Do you have to be so dependent on external finance? Can't you finance part of your expansion internally? {tip finance... internally::get the money you need from inside your business, by selling assets or using profits.}see the meaning{/tip}
HANS My business is showing a good profit, but I haven't had time to build up any reserves...
RICHARD No, no, no, I was thinking of Mr Tsoulas. You said the family business was worth half a million. Can't you get any more out of it? Sell some property? Move some of your assets over here as collateral? {tip collateral::something of value which a borrower promises to a lender, in case the borrower is not able to repay a loan or debt; security.}see the meaning{/tip} Why not get some members of your family in as shareholders?
HANS I'm afraid that would not be acceptable. We agreed on equal representation of German and Greek shareholders.
ANDREAS Hans, I know how we can do it. We'll put in for an EC grant, and ask the bank for a short-term loan till it comes through.
RICHARD Well, I can try, but...
HANS He means a loan from a Greek bank.
RICHARD Oh! Well, I'm sure we can fix it for you. I'll put it up to region again, but we must repackage it somehow. {tip repackage::it make it look like a new proposal, even if it is really the same as before.}see the meaning{/tip} Suppose some of your trucks, which at the moment are registered in Greece, could be re-registered in the UK? That might persuade them.
{tip Exercise 19.14::They suggest that they will try to get a short-term loan from a Greek bank.}Key{/tip}

19.15 Find the word: financing a growing business

Read the text below about expanding a business. Write a word from the box to fill each of the gaps.

assets create development exploit grants loans
rates collateral finance holidays qualify reserves

When an established company needs to a further expansion, it can often b its own internal resources. One way to do this is to use profit from previous years as capital; but Hans has not had time to build up any c . Another way is to sell off some of the firm's d for cash. Companies sometimes sell their own factories or offices and then lease them back from the buyer. If the company uses its assets as e for a bank loan, the bank will normally take a charge over the property.
New businesses, on the other hand, can often get government f , particularly if they are located in g areas. They may h for grants, or they may be eligible for tax i , low-interest j or low business k for a fixed number of years, or assistance with finding and training staff. In return, the company will l new jobs.

{tip Exercise 19.15::a finance b exploit c reserves d assets e collateral f grants g development h qualify i holidays j loans k rates l create}Key{/tip}

19.16 Reading for key words

Find the words or phrases in 19.13 and 19.14 that tell you the following:

1 Find other ways of getting the money.
2 Richard partly agrees with head office that they should apply for a grant.
3 Hans is worried that the business he started may be taken over by Andreas's family.
4 Richard is not very optimistic about the idea of a short-term loan.
5 Richard suddenly becomes more co-operative.
6 We have to present the application in a different way.

19.17 Writing practice: making notes

Hans and Andreas must now make notes of what they have to do. Re-read the dialogues on this page and write the notes for them.


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