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 − guide the way the bank account is managed, when bills are paid, taking action on credit control − inform longer term planning proposals − plan budgets − watch for warning signs which could trigger precautions to conserve or redeploy resources • Board level monitoring: The Board will use these reports to: − assess the financial position of the organisation, and ask questions in meetings − evaluate progress against projections in the business plan and budget − guide their final decisions on policy and investment recommendations made by the Manager − guide the timing of other large spending decisions such as staff recruitment − watch out for danger signs for the business Being serious about business Fear of accounts: Many serious and otherwise careful directors in voluntary organisations and charities which have embarked on trading activities behave in ways which in private business would be considered reckless and irresponsible. They bypass safeguards, ignore simple good practice in financial monitoring, and end up with only the vaguest idea of their ventures’ finances. Some actually have an antipathy towards, or fear of, management accounts. How can they expect to succeed? Spotting the warning signs: Obviously these directors do not intend to do damage. But their innocent abrogation of responsibility betrays a lack of seriousness about running businesses. This may be one reason why voluntary organisations have not already established more long-lasting enterprises. Directors who don’t get to grips with financial monitoring can sometimes become a liability. Staff and advisors can make mistakes. But if you have sound policies and systems in place it is not too difficult to spot the flaws. Here are some circumstances to watch out for. − prompt periodic independent checks on the way the company’s financial records are prepared, the security of cash and financial records etc. 136
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 Avoiding responsibility: Many directors (and some managers) believe that it is enough to delegate full authority to a competent and trusted paid employee to manage the business on the board’s behalf, and advise directors on all the important decisions. But the directors – or at least some of them – also need to watch and understand the finances in order to: • evaluate the advice which they receive from staff and other professionals and have different perspectives available for taking sound decisions • avoid placing too much responsibility in one place, and overburdening or isolating individual employees • provide supervision, identify skill gaps and training needs • provide continuity in the event of staff absence or resignation • offer support and guidance if things go wrong • detect dishonesty and reduce the possibility of suspicion about dishonesty. Undermining the business cause: Some directors, while well intentioned, can have a undermining effect on their colleagues if they personally have difficulty in making the transition from grantfunded community group to social enterprise. • These are the ones still arguing for a jumble sale or a Big Lottery bid to boost poor trading figures, rather than tackling the causes of the problem. Conventional fundraising probably has its place, but not at the expense of sound financial management of trading activities. • If your directors have this tendency to lose the financial monitoring plot, they need to be exposed to training in basic business management. If they still cannot adapt they will probably be more helpful monitoring the delivery of services than finances. Obscurity: Don’t give ground to accountants and other professionals who use language you don’t understand. If they are being paid to provide help they need to learn about social enterprise activity and to speak to directors and staff in an accessible language without jargon or obscure technical terms. Excuses for monitoring failures: Excuses for failing to carry out financial monitoring are usually transparent and easy to expose: • ‘We don’t know how’ – indicates an urgent training issue, • ‘We didn’t know it was necessary’ – a sign of faulty business planning or poor communications; make sure that financial monitoring is immediately written into the organisation’s policies and procedures 137
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