Diversification

An attractive possibility for many companies is not just expansion of their existing business but diversification - the creation of a new 'parallel' business to run alongside the existing business. Generally, people diversify into areas akin to their existing businesses, where existing knowledge and contacts can stand them in good stead.

This can mean a second stream of profits. The two businesses may be able to share certain facilities, and even personnel, which reduces overheads. Broadening your operation means you can still be profitable even if one of the businesses takes a downturn.

Whatever your new venture, consider it as a completely new business rather than just a sideline. Remember how difficult and time consuming it was setting up your original business. Draw up plans with the same amount of care and detail that you devoted to your first business plan.

Make sure you have the right resources in place, both human and financial. The most common reason for failure through diversification is that companies spread their resources too thinly.

Protect your original business. Ensure that it doesn't suffer because you devote all your time to the new project which may well be more exciting and challenging. If you don't there is a danger that your original business could suffer.

As your business grows, if you are not already trading as a limited company, you can think about changing the status of your business. The main advantage is that a limited company is a completely separate legal entity from its owners. As such, the directors are not personally responsible for its debts. This can be a very important protection as the sums involved in a business, and the potential losses, get larger. You may, however, have to give personal guarantees to the bank, or other lenders if finance is required. The downside is that a limited company involves more paperwork. And directors have greater legal responsibilities.

But, for many people, as their business gets larger the attractions start to outweigh the disadvantages.

Notes: to stand sbd in good stead -придатися, стати у пригоді

downside - disadvantage

 

Exercise 1. Read the text and answer the questions.

1. What does diversification mean?

2. Why do people usually diversify into areas akin to their existing businesses?

3. What are the advantages of diversification?

4. Why should you treat your new business as a completely new one?

5. What is the common reason for failure?

6. Why is it important to change the status of the company?

 

Exercise 2. Decide if the statements are true (T) or false (F).

1. Diversification is different from expansion
2. Generally, people diversify into areas similar to their existing businesses.
3. Broadening your operation means you can still be profitable even if the activity of one of your businesses is lessened.
4. The company shouldn't spread its resources too thinly.
5. Your original business always suffers when you set up another business.
6. A limited company has certain advantages.
7. In the limited company the directors are personally responsible for its debts.
8. A limited company involves a lot of paperwork.
9. Diversification usually means another stream of profits.

 

Exercise 3. Match the words on the left with their definitions on the right.

1) diversification	a) similar
2) akin	b) creation of a new parallel business
3) to share	c) money spent regularly to keep the business running
4) personnel	d) lessening of business activity
5) downturn	e) to have or to use with others
6) overheads	f) staff
7) thinly	g) difficult, but very interesting
8) challenging	h) scarcely

Exercise 4. Try to explain these words in English. What do they mean?

Use the example: Expansion - making things larger e.g. business

diversification profit

facilities personnel

take a downturn time consuming

debt care

 

Exercise 5. Complete the sentences using the words from the text.

1. Diversification is the creation of a new 'parallel' …to run alongside the existing business.

2. The two businesses may be able to share certain …, and even ….

3. You should draw up plans with the same amount of … and ….

4. The most common reason for … is that companies spread their resources too ….

5. The new business always looks very …and….

6. The main …of a limited company is that it is a completely separate legal … from its owners.

7. The …is that a limited company involves more paperwork.

Exercise 6. Make the list of warnings provided in Text B.

Exercise 7. Translate into English.

1. Коли я хочу розширювати свій бізнес, це означає, що я хочу заробити більше грошей.

2. Інколи ви змушені розширюватися.

3. Чи розширення те ж саме, що диверсифікація?

4. Я повинен збільшити свої позики або залучити капітал іззовні.

5. Інколи вашому бізнесу може не вистачити отриманих кредитів.

6. Диверсифікація часто означає новий потік прибутків.

7. Обидва види бізнесу можуть користуватися тими самими засобами і навіть тим самим персоналом.

8. Вони не мусять використовувати той самий персонал.

9. Компанії не повинні витрачати свої ресурси надто ощадливо.

10. Позитивні сторони нового бізнесу часто переважують недоліки.

 

Unit 15