7 Business costs

~ personal and business 7.1 About business Cutting costs

budgets

~ cost-cutting and its Discussion

consequences
D Ashley is a student. Her parents give her $24,000 dollars per year to pay her school and
living costs. In small groups, discuss these questions.
1 At the end of her first year, Ashley still has $2,000 left in her bank account. What can she
do with the money? Think of as many options as possible.
2 Two months before the end of her second year, Ashley has no money left in her account.
What can she do? Think of as many options as possible.
3 Ashley's parents own a newspaper shop. If they make a profit or a loss, how is their
situation similar or different to Ashley's?

Skim reading
o Quickly read the article opposite. Find the answer to the question How can companies
lose millions but still stay in business?

Summarizing
D Read the article again. Number the paragraph summaries in the order they appear in
the article.
D a) A decrease in revenue is a problem because fixed costs do not decrease.
D b) Companies and families both need to plan their revenues and their costs.
D c) With careful management, losing money need not have serious consequences.
D d) Investing in better equipment can save money in the long term.
D e) Families and companies can use reserves or assets to survive temporary difficulties.
D f) Families and companies can usually reduce variable costs easily.

Reading for detail

D Read the article again and answer the questions.
1 What examples are given of revenue for a) companies and b) families?
2 What examples are given offixed costs for a) companies and b) families?
3 What examples are given of variable costs for a) companies and b) families?
4 What examples are given of reserves and assets? What is the difference?
5 What examples are given of investments for a) companies and b) families?

Listening
o~ 2:25-2:26 Listen to two people talking about cost-cutting and answer the questions
for each case.
1 What was the problem?
2 What measures did the company take?
Internet h
researc 3 What were the consequences for the speaker?

Search for the keywords

ways to cut costs.
Discussion
Make two lists, one II With a partner, discuss the questions.
for personal costs and
another for business 1 Think about your personal budget. What are your fixed costs and your variable costs?
costs. Make two lists.
2 If your income decreases, which costs can you reduce?
3 What investments could you make to save money in the long term?
4 Think about a company you know. What are its fixed and variable costs?
Glossary PAGE 158
5 If its revenues decrease, which costs can it reduce?
account 6 What investments could it make to save money in the long term?
asset
bankrupt
freeze
heating
homeless
overtime
reserves

88 77JeBusiness 2.0
 COMPANY FINANCES are not very different from 30 to have an effect. In the short term, both families
family budgets - the numbers are just bigger. and companies often need to use their reserves :n,,'
Companies and families both know approximately how is, take cash from their savings and investments
much money will come in and go out. Businesses can If the difficulties continue, they can borrow more-
5 forecast sales revenues and production costs, and using their assets, that is, by re-mortgaging the'
families can plan based on their salaries and 35 home, office or factory. By using these reserves
living costs. assets, individuals and businesses can survive lJr-
In both cases, the problems begin when revenue their situation improves. Losses are relative: los rg
decreases. For companies, this is often due to a fall several million pounds is unthinkable for a farm
10 in sales: perhaps products are too old, or competition may only be a small percentage of a medium-Size
is increasing. Family income can also go down if 40 company's revenues.
bonuses or overtime decrease, or when people Corporate and personal finance are also simi 0'
are unemployed or ill. If an adult stops work, some where investment is concerned. Sometimes the
variable costs will decrease: tax and transport for best way to reduce costs is to spend more mone
15 example. But most payments, like the house, the A family that is having difficulty paying its energ
children's education, energy bills and telephone bills 45 bills can invest in better insulation and a more
are fixed. In business, even if sales are down 50%, modern heating system. Companies that invest n

there are still fixed costs like rent, administration new equipment or better software can reduce 10 _-
and maintenance. When total costs are higher than term costs. This kind of one-time cost is often t e
20 revenues, both companies and families have to explanation when well-managed companies appea •
consider what they can cut. 50 be losing money.
Fortunately, families don't usually become In conclusion, a family or a company that has
homeless and companies don't usually go bankrupt temporary financial difficulties can recover quickl, •
because of a temporary decrease in revenue. the problem is managed carefully. Most banks wor •
25 Families can cut out evenings at the restaurant or take back a car, a home or a factory when a cus o~'"
cinema; they can do without a newTV or a foreign 55 misses just one payment, especially if the custor-e
holiday. Companies can cut advertising, travel and has warned them in advance. But of course, fam e:
training budgets and freeze temporary contracts. or businesses that regularl" miss payments will s -
But cutting these variable costs often takes time have even bigger problems.

TbeBusin
 7 Business costs
II> vocabulary relating to 7.2 Vocabulary Profit, 1055 and payment
financial performance

II> expressions relating to

payment terms

D Read the information and look at the graph. Label the graph with the words in
the box.
Doug has a business that makes souvenir mugs. He spends €100,OOO per year on overheads,
such as administration, rent, energy, etc. In addition, each mug he makes costs €1 for
materials, labour, etc. He sells the mugs for €3.50 each.

breakeven fixed & variable costs loss overheads profit revenues

d _

10K 20K 30K 40K SOK 60K 70K SOK 90K 100K SALES

II Look at the graph again and answer the questions.

1 How much money does Doug lose per year if he makes no mugs?
2 How much money does he make if he sells 100,000 mugs?
3 How many mugs does he need to make and sell in order not to lose money?

D Complete the text with the words and phrases in the box.

cost of goods sold (COGS) gross margin operating expenses profit margin turnover

Last year, Doug sold 80,000 mugs, which means he had a (1) of €280,000
(80,000 @ €3.50). His (2) was €80,000, that is, €1 per mug. So his
(3) (before fixed costs, tax, etc.) was 71 %, or €2.50 per mug. After deducting
fixed costs or (4) like rent and energy of €100,000, Doug declared an
operating profit of €100,000. He paid €25,000 in taxes (25%), which left net income of
Glossary PAGE 158
€75,000, a healthy (5) of 27%.
cheque
lend
II Doug sells 80,000 mugs per year. With a partner, explain what happens to the profit
margin if:
mug
souvenir 1 Doug hires a secretary who costs the business €2,000 per month.
standing order 2 In addition, taxes increase to 33%.
3 In addition, Doug's COGS increases to €1.50 per mug.

90 77JeBusiness 2.0
 IJ Read the extracts from a telephone conversation. Replace the phrases in bold with the
words and phrases in the box.

account interest invoice outstanding balance overdue settle

1 Hello, Mr Jones. I'm calling about your record of what you ordered and what you paid.
2 There is an amount of money which you haven't paid of $2,000.
3 We sent you our detailed list of money to pay on 2 February.
4 I'm afraid it's very late - you were supposed to pay us three months ago.
5 The contract you signed allows us to charge you the cost of credit at 5%.
6 Could you please send us payment in full for your bill as soon as possible?

Listening
III 2:27 A credit controller is talking about payment terms. Listen and match the
expressions with the explanations.
D payment in advance D cash on delivery
D terms and conditions D owe someone money
D an early payment discount D 30 days' credit
D settle the balance D a deposit

Roleplay
o With a partner, roleplay a telephone conversation betw~en an accounts department
employee and a slow payer. Use the flow chart below.

Student A Student B

Explain the problem. Sayyou didn't receive any documents.

Offer to send a copy.

Ask if the customer has any questions. Sayyou paid cash.

Explain that the cash was only a deposit.

/ Ask for more time to pay.

Negotiate a solution.
/
Discussion
III Witha partner, compare the way you pay for the goods and services below. Say which
methods of payment in the box you use, and describe the terms and conditions.

cash cheque credit card electronic transfer PayPal standing order

your accommodation your cafeteria expenses your books

your public transport your phone your music

Internet
research
Search for the keywords
Sjxed and variable costs.
ake two lists of typical
costs for companies.
Compare with a partner.

The Business 2.0 91

 7 Business costs
~ will and be going to

~ first conditional

~ time expressions

Refresh your
memory
Predictions:
will and won't
Prices will increase next
year.
Customers won't be
happy.
Instant decisions:
I'll have orange juice, will and won't
please.
I won't have anything to
o With a partner, take turns to make predictions about the future of the items below.

eat, thanks. A: We'll build more and more wind farms in the future. We won't build any more nuclear
Promises: power stations.
I'll send you the contract B: Yes, but I think we'll build them at sea. I don't think we'll build them inland.
tomorrow.
I won't be late.
1 energy 3 medicine 5 environment 7 social networking
2 transport 4 entertainment 6 robots 8 languages
~ Grammar and practice
page 136
o With a partner, take turns to make instant decisions and promises. Use the prompts
be going to in brackets.
We're going to move to
a new office soon.
A: I'm afraid your flight's cancelled.
plans made in advance B: Don't worry, I'll take the train.
A: OK, I'll meet you at the station.
~ Grammar and practice
pages 136-137 1 I'm afraid your flight's cancelled. (train) (meet you)
first conditional 2 Sorry, we didn't receive your email. (send again) (reply asap)
If you pay cash, (then) 3 I'm afraid the hotel is full. (bed and breakfast) (list of numbers)
I'll give you a discount. 4 I'm sorry, we don't accept cheques. (credit card) (get the machine)
if + present simple, 5 Our train leaves in five minutes! (not have breakfast) (buy on train)
(then) + will 6 This is top secret information. (not tell anyone) (destroy original message)
probable future events

~ Grammar and practice

page 137
be going to

time expressions
D You're going on a world tour. With a partner, take turns to ask and answer questions
about your plans for each place.
We'll start the meeting
when they arrive. A: What are you going to do in Paris?
when, until, as soon as, B: I'm going to visit the Eiiiel Tower, and then I'm going to walk along the Champs-Eiysees!
before, after + present
simple 1 Paris 3 Berlin 5 New York 7 Cairo
2 Rome 4 Moscow 6 Rio de Janeiro 8 London
~ Grammar and practice
page 137
D With a partner, take turns to talk about your plans for the future. Also make some
instant decisions about the same time periods.
A: What are you going to do after class?
B: I'm going to have a cup of tea. I'm thirsty! What about you?
A: I don't know. Perhaps I'll have some tea with you.
1 after class/work 3 tomorrow morning 5 Friday evening 7 next holidays
2 this evening 4 tomorrow afternoon 6 Saturday 8 next year

First conditional
Glossary PAGE 158 D Complete the contingency plans below with your own ideas.
bed and breakfast 1 If the new product is too expensive, ...
contingency plan If the new product is too expensive, we'll reduce the price.
enterta inment 2 We'll increase the price if ...
quote 3 We'll invest in new machines if ...
specification 4 If customers don't pay their bills, ...
wind farm 5 If we need more capital, ...
6 We won't borrow from the bank unless ...

92 The Business 2.0

 III With a partner, take turns to negotiate these points. Use the prompts in brackets.
A: I'd like a discount.
B: OK, I'll give you a 3% discount if you pay cash.
B: Can you give me free delivery?
A: I'm sorry. I can't give you free delivery unless your order is for over €2,OOO.
1 I'd like a discount. (OK/3%/if/cash)
2 Can you give me free delivery? (No/unless/order/over €2,000)
3 I'd like delivery this week. (All right/Friday/if/order today)
4 Can you deliver before Friday? (No/unless/pay for express delivery)
5 I'd like a credit period. (OK/30 days/if/regular orders)
6 Can you give me 60 days' credit? (No/unless/pay full price)
7 I'd like you to change the colour. (OK/red or blue/if/give two weeks' notice)
8 Can you add my company logo? (No/unless/order/more than 500 pieces)

Listening
o 2:28 Listen to a conversation between a buyer and a seller and answer the questions.
1 When will the seller send a quotation? 4 When will the buyer receive an invoice?
2 Why can't she quote a price now? 5 When will the buyer need to pay?
3 When will they start work? 6 When will the buyer receive the machine?

Time expressions
o Write five questions with When about plans and predictions for the future. With a partner,
take turns to ask your questions. Answer with when, until, as soon as, before or after.
A: When are you going to leave today?
B: I'm going to leave as soon as we finish the lesson.
B: When do you think you'll get a job?
A: I won't get a job until I pass my exams.

Negotiation
II With a partner, or in groups of four, negotiate an agreement to buy a' new packaging
machine. Try to score as many points as possible. Student(s) A: you are the buyer. Use the
information below. Student(s) B: you are the seller. Look at page 118.

Internet h Buyer
researc No other suppliers can make this machine, but you want:
a discount (score one point for each % point you get)
Search for the keywords
future predictions. Write
the seller to pay for delivery and installation (one point for each)
down five interesting delivery in one week (two points) or two weeks (one point)
predictions to discuss to change the machine to your corporate colour and add your logo (one point for each)
with a partner. no 10% deposit with the order (one point), but full payment after delivery (one point)
a two-year guarantee (one point)

77Je Business 2.0 93

 7 Business costs
••. expressions for 7.4 Speaking Negotiating
negotiating

••. roleplaying a negotiation

Discussion
D With a partner, match the negotiations 1-3 with the outcomes a-(. Which is the best,
and why?
1 A: If you can't reduce your price, we'll find another supplier. D a) lose-lose
B: OK, you win. D b) win-lose
2 A: If you can't reduce your price, we'll find another supplier. D c) win-win
B:OK.
A: OK to reduce the price?
B: No, OK to find another supplier.
3 A: If you can reduce your price, we'll place regular orders.
B: OK. I'll reduce the price, as long as you pay cash.

o Why are these 'rules' good advice for negotiators?

1 Never say 'no'. 2 Never say 'yes'. 3 Always say 'if'.

Listen.ing
Glossary PAGE 158
D 2:29 Brandon and Kayla are organizing a start-up weekend for new students. Listen
concession to their negotiation with the travel agent. What do they get and what do they give in
downtown return?
limo
pay rise II 2:29 With a partner, find suitable words to complete the useful expressions for
negotiating in the checklist. Then listen again and check.

Useful expressions: Negotiating

Asking for a concession Making a counter-offer
Could you the price a little? I'm afraid we can't give you 10% you can find ...
Can you give us a ? That's , as long as everything is paid .
We agree, you organize a free drink .
We will ... on condition that you ...

Making an offer Accepting an offer

If you can thirty participants, we can give OK, it's a .
you ... We can with that.
Can we on 10%?
What 8% for forty participants?

Refusing
I'm sorry but it's not .
I'm afraid we can't that.

94 TheBusiness 2.0
Internet h 11 With a partner, take turns to make offers and counter-offers. Use the prompts below.
researc 1 buy two/25% discount? (providing/cash)
Search for the keywords A: If I buy two, can you give me a 25% discount?
rules of negotiation. B: OK, I agree, providing you can pay cash.
Compare your favourite 2 you pay for drinks today/I pay tomorrow. (as long as/bring my friend)
rules with a partner. 3 $150 per month rent/pay in advance. (on condition/clean kitchen/once a week)
4 confirm tomorrow/deliver this week? (afraid/unless/order today)
5 come to your house/drive me/work? (agree/but only if/pay for petrol)
6 I/salad/you/bring sandwiches? (you look after drinks)
7 I order now/30 days' credit? (afraid/regular orders)
8 I give choice of films/pay €l1/person? (popcorn, ice creams/included)

[II With a partner, take turns to roleplay short negotiations between an employee and a
manager. Use the flow chart below.
1 Student A would like to leave work early today.
2 Student A wants a longer lunch break.
3 Student A wants to take holidays in September, the company's busiest time of the year.
4 Student A wants a pay rise.
Student A Student B

Ask for a concession. Refuse.

Make an offer.
/ Make a counter-offer.

Accept or make a counter-offer.

/ Accept or make a counter-offer.

Roleplay
o Work with a partner or in groups of four. Your class wants to go on a study trip to New
York. Roleplay a negotiation with the travel agency. Then compare with another group. Who
got the best deal? Student(s} A: use the information below. Student(s} B: use the information
on page 119.
Student(s) A
You are organizing the study trip for your class. The budget is $1,300 per person. The class would
like to stay as long as possible in New York. You will need plane tickets, transport between the
airport and downtown, rooms and breakfast, tours and visits, etc. Negotiate with the travel agent
to get the best value for money.

TbeBusiness 2..0
 7 Business costs
••• analysing format and 7.5 Writing Asking for payment
content

••• identifying threats and

promises

••• identifying level of

politeness

••• writing emails to ask for

payment

Roleplay
D Business experts recommend telephoning customers to ask for payment before
sending an email or letter. With a partner, read message A and roleplay the telephone
conversation between Adriana Goldman and Mr Cable before Adriana sent the email.

Models
o Read the messages and number them in order from first to last.

00
aD
Dear Ms Goldman,
Dear Mr Cable, Please find enclosed a cheque for $7,089. I would like to
As discussed by telephone, our invoice number 56/4872 for apologize for the delay in payment. We have reorganized our
accounts department, and I can assure you that all invoices will
$7,089 is overdue. Pleasefind attached a copy of the invoice.
be paid on receipt in future.
Could you please send your payment as soon as possible?
I would be grateful if you could begin regular deliveries again as
Best wishes, soon as possible.
Adriana Goldman Best regards,
Bryan Cable

• INBOX I REPLY" I FORWARD ••

Go
Dear Mr Cable, 00
Despite several requests for payment, the sum of $7,089 (our Dear Mr Cable,
invoice number 56/4872) remains outstanding. I am writing to remind you that the sum of $7,089 is still
outstanding. Can you please settle this account immediately?
Please note that unless your account is paid within seven days,
If we do not receive payment within seven days, we will be
we will take legal action. obliged to suspend all deliveries.
Yours sincerely, Yours sincerely,
Adriana Goldman Adriana Goldman

Go
Dear Ms Goldman, Dear Ms Goldman,
Unfortunately, my accountant is in hospital due to a skiing Thank you for your reminder. My accountant will send you a
accident. cheque as soon as she returns from holiday.
I will do my best to settle our account as soon as possible. Best regards,
I would appreciate your help in maintaining our regular Bryan Cable
deliveries.
Thank you for your cooperation.
Best regards, Bryan Cable

96 77Jl'Business 2.0
 Analysis
Internet h
researc D With a partner, answer the questions.

Search for the keywords 1 Why are messages Band D letters, not emails?
how to get clients to 2 What happened after message F was sent?
pay. Listsome tips. 3 What happened after message E was sent?
Compare with a partner. 4 Why did Mr Cable enclose a cheque with message D?
5 Match Adriana's style in messages A, Band E with these adjectives.
o
firm 0 friendly 0 threatening
6 Match Mr Cable's style in messages C, D and F with these adjectives.
o
apologetic 0 concerned 0 unconcerned

Language focus
D Read the messages in Exercise 2 again and find two threats and three promises.

11 Complete the threats and promises. Use the correct form of the verbs in brackets.
1 Unless you our invoice within five days, we legal action. (pay, take)
2 Our CFO you a cheque as soon as he from Canada. (send, return)
3 I our account after the bank our loan. (settle, confirm)
Glossary PAGE 158 4 We your order if we your deposit within two weeks. (cancel, not receive)
5 I you that we all bills on time in future. (assure, pay)
outstanding 6 We new orders before you all outstanding bills. (not accept, settle)
overdue 7 As long as you the goods on time, we happy to pay on receipt. (deliver, be)
promise 8 We obliged to suspend your account unless we payment by the 31st.
reminder (be, receive)
suspend
threat II Put the requests in order from the most direct (1) to the most polite (5).
I would appreciate your help in ... 0 I would be most grateful if you could ... 0
Please ... 0 Could you please ... ? 0
Can you please ... ? 0

Output
o Work with a partner or in groups of four. Write and reply to emails about a delivery
problem. Student(s) A: use the information below. Student(s) B: turn to page 122.
Student(s) A
1 You are the owner(s) of an e-business that sells photographic equipment to customers all over
the world. Student B supplies the special packaging materials you need to protect your fragile
equipment. •
There are often mistakes in your orders from Student B: the wrong size, the wrong number,
etc. Also, deliveries are often delayed. You know there are other suppliers who are better and
cheaper. Write an email to Student B to complain about the service and ask for lower prices.
2 When you receive emails from Student B, write appropriate answers.

The Business 2.0 97

 7 Business costs
••• analysing an income 7.6 Case study Doug's Mugs
statement

••• negotiating to sell or buy Discussion

a company
D Imagine you are going to buy a company. Would you prefer to buy a profitable
company for a high price, or a less profitable company for a low price? Why?

Reading
o Read the blog and the income statement below. Underline the correct answers.
1 Next year will be the company's third / fourth / fifth year in business.
2 The company's products are designed by Megan / Doug / temporary workers.
3 The company's customers choose Doug's Mugs for their low price / simple product /
unique designs.
4 The company's main problem is its sales / cash flow / debt.
S This year, the company sold 40,000 mugs for €3.00 / €3.50 / €4.00 each.
6 The production cost for each mug was €O.SO / €1.00 / €1.20.
7 Fixed costs are increasing / stable / decreasing.
8 This year, the company made a net profit / broke even / made a net loss.

1>0"4 '~ mugs

Megan and I started Doug's Mugs four years ago. Megan is in charge of sales, and I do
the rest. The business grew quickly in the first three years, so we have some temporary
workers who help with production when we're very busy. Our product is very simple:
souvenir mugs. Last year, we sold 80,000 mugs to shops, clubs and businesses. Our
USP is our original designs. I create unique, attractive or humorous designs for each
customer. I set up the business and bought the equipment with my own money, so
we have no debt. We manufacture to order, so we have very little stock. Most of our
customers pay in advance, which means that our cash flow situation is very good. To see
some of our products, click here.

INCOME STATEMENT Next year (forecast)

Sales revenue 280,000 140,000 a)

Cost of goods sold (variable costs) 80,000 40,000 b)

Gross profit/loss 200,000 100,000 c)

Selling, general & administrative expenses (overheads) 100,000 100,000 d)

Operating profit/loss 100,000 0 e)

Tax, depreciation, etc. 25,000 3,000 20,000

Net profitJIoss after tax 75,000 (3,000) f)

••
Listening
D 2:30 Doug is presenting the company's sales forecast for next year to his bank
manager. Listen and answer the questions. Then complete a-f in the income statement.
1 Why were sales down this year?
2 Will overheads increase next year?
3 How much will customers pay per mug next year?
4 How many mugs does Doug think they can sell next year?

98 TheBusiness2.o
 BLOG

~ More.. Next 810g Ii> Create Blog Sign In

Latest news - guess what?

I've decided to emigrate to
New Zealand! This spring, I
met a wonderful Kiwinamed
Liz. Now she's back home in
New Zealand, so I'm going
out there and we're going
to get married! I'm going to
sell Doug's Mugs and find
a new job in NZ. Megan will
continue to work for the
company, but she doesn't
want to buy it. Some business
students are going to help me
to sell the company at a good
price. I'll post more photos
when I arrive in NZ.

Reading
Internet h
researc II Read the latest news on Doug's blog and mark the statements T (true) or F (false).

Search for the keywords 1 Liz was born in New Zealand. 0

how to buy a business 2 Doug probably wasn't focusing on business this year. 0
with no cash. Compare 3 Doug and Megan are going to get married in New Zealand. 0
different ways with a 4 Doug is going to continue to work for Doug's Mugs. 0
partner. 5 Megan doesn't want to work for the company any more. 0

Negotiation
o Work in small groups. You are going to negotiate to sell or buy Doug's Mugs. Sellers: look
at page 119. Buyers: look at page 123. Follow the procedure below.
1 Read your message and prepare your strategy for the negotiation.
2 Meet to negotiate the sale of Doug's Mugs. Use the agenda below. Write down the terms and
conditions you agree, and all sign the document.
3 Compare your document with other groups. Which group got the best deal?

J>OUf1 '~ mugs

Glossary PAGE 159

points for negotiation

1 Price
1
depreciation 2 Finance
emigrate 3 Stock of 10,000 mugs
Kiwi 4 Megan Smith's commission on sales
solicitor

The Business 2.0 99