A guide to third sector trading - WCVA

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It’s an idea, but is it business? A guide to third sector trading 1: Getting started 2: First steps 3: Business planning 4: Legal and governance 5: Funding and resourcing 6: Financial controls 7: Managing growth 8: Management and governance 9: Social enterprise 10: Sources of support 5.2 Resourcing sustainable enterprises The first step to improving the resources of third sector trading organisations sometimes has little to do with generating new grants or earned income, and more about making better use of what they already have. This section covers the range of tactics which organisations can use when faced with demands from funders that they demonstrate their ‘sustainability’, when current grants are reduced or withdrawn, and when trading conditions in the wider economy are not encouraging. Section 8.2 deals with the corresponding changes to management and governance needed to achieve a more sustainable organisation. What does sustainability mean? The imperative for emerging enterprises: Sustainability has to be one of the main goals of new and developing businesses. The imperative applies equally to • non-trading charities and community groups which want to take advantage of trading to help their survival at a time of funding shortages • existing trading ventures trying to survive in a harsh economic climate. Definitions of ‘sustainability’ and ‘viability’: The term ‘sustainability’ needs some explanation. • ‘Sustainability’ is a much over-used word, with a host of different meanings depending on whether it is applied to the environment, disadvantaged communities, developing countries, institutions, and development activities of whatever kind. • For most third sector trading organisations its meaning is simple and practical – that the combined sum of all sources of income is sufficient to allow activities to continue from year to year. • Sustainability involves using any trick in the book to ensure you are still here next year and the year after. And in a business context, the term is not usually interchangeable with ‘viability’. Among other things, viability implies that income from sales alone covers the costs of running the operation, thus ensuring the survival and growth of the business. 114
It’s an idea, but is it business? A guide to third sector trading 1: Getting started 2: First steps 3: Business planning 4: Legal and governance 5: Funding and resourcing 6: Financial controls 7: Managing growth 8: Management and governance 9: Social enterprise 10: Sources of support • In conventional businesses, stand-alone ‘viability’ is widely regarded as an essential characteristic (though some people argue that everyone is equally keen for grant support if they can get it, no matter what sort of business they are operating). Building a business with multiple income sources: In contrast with conventional businesses, third sector trading very frequently starts from a completely different premise. Plans for sound new trading activities can be built on a glorious multiplicity of income types and sources, including long- and short-term grants for capital and revenue, sponsorship, service level agreements, service contracts, consultancies, rents, user fees, ticket sales, membership fees, and direct sales. Some even aspire to receive bequests in wills. This variety is one reason why the conventional business world has so much difficulty understanding how third sector trading can actually work. When survival is the starting point: Ventures which are built on a base of charitable or community activities rarely find it easy to get established. Success, in the early years at least, may not amount to much more than simply surviving. To be blunt, this means: • recognising that sustainability is not an option or a bonus: it is a critical goal, and you will need to be tough and resilient to get there • planning ahead to make sure that you are aware of what might go wrong and you are not knocked off course if business activities don’t all pan out the way you hoped • taking the initiative and actively cultivating the conditions in which you are most likely to achieve it. A ‘sustainable business’ model: Much of what you have to do in practice to become sustainable sounds like a rather desperate effort to rearrange seats on the deck of the Titanic to improve the view as the ship goes down. But there is a sound business purpose to this which is often overlooked when people talk vaguely about ‘increasing earned income’ and ‘reducing grant dependency’. You may need to aim for an entirely new business model for your organisation. Here are some of the typical before-and-after features which illustrate the type of transformation which might be expected: • Vulnerable, non-sustainable projects and enterprises tend to be dependent on: − a small number of large grants, or a small number of large contracts, or both − a cherished key activity, the ‘heart’ of the organisation, which is probably grant funded and may be a social project with limited income-generating potential 115
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