A guide to third sector trading - WCVA

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
• to pick up warnings of trends in the business so that appropriate
action can be planned and appropriate management decisions
can be taken in good time.
What if the board and manager fail to monitor?
• As with everything in business, it can be easy to blame staff if
things go wrong. But directors need to be constantly aware that
their job is to employ and support senior staff and check that
systems are in place to alert them to problems. If an enterprise
fails as a result of poor financial management the cause is just as
likely to be a weak financial monitoring system as poor business
decision-making or individual staff errors.
• People who are new to the business world often don’t realise
how extraordinarily difficult it can be to control what happens.
Rather than feeling that they run the business the business
commonly ends up running them. Control is not a guaranteed
result of effective monitoring. But it certainly won’t be achieved
without it.
• If a venture fails because the directors did not keep proper
control of its financial affairs they can in some circumstances be
held personally liable for the losses, even in a limited company
(eg if they trade while insolvent, or if they misuse the funds of a
charity). Being involved in regular monitoring is a good sign that
directors without professional skills have behaved responsibly.
• A business can slump from viability to insolvency in as little as
three months. That means it can take as few as two monthly
board meetings – while the manager or the treasurer present
excuses rather than financial reports – to kill off an enterprise.
• Why would anyone do all the work to set up and run a social
enterprise, only to turn their back on it when it might need
them most?
Differences from other voluntary organisations: Financial
monitoring is a systematic process of examining information
prepared regularly for the purpose. There is little fundamental
difference in arrangements for financial monitoring in a business
compared with any other well-run voluntary organisation or
charity with a busy bank account. So if you have a background of
work in the third sector much of it will be extremely familiar. But
you should also expect to see some important differences:
• you need to be focused on earning money, so the information
which is monitored will probably be presented and interpreted
differently
• unless the business consists entirely of long term contracts
with unchanging income and expenditure arrangements, the
monitoring must be carried out at least monthly (many charities
leave administrators in charge of finance and involve trustees
quarterly)
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