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
Some of the reasons for doing so are:
• comparing different types of income and expenditure against
budget forecasts to monitor progress and maintain financial
controls
• providing information to funders on the way their grants are
used
• separating the activities of different companies, including parent
charities and their trading subsidiaries, for legal purposes
• tracking the performance of different trading activities
• identifying items which are treated separately by accountants
for tax purposes
• calculating the profitability of trading ventures, returns on
investments etc.
Analysing different income sources:
• Meeting the demands of funders: One important type
of analysis is already familiar to non-trading voluntary
organisations. This is the frustrating need to make separate
reports to a variety of different funders on the way their money
is being spent. So you may have already discovered that keeping
track of each grant can be a nightmare unless you have a robust
financial record keeping system.
• Analyse as you go: The only way to do this efficiently is to
analyse your expenditure as you go along according to who is
funding it. Otherwise you need to go back to your records and
carry out a new analysis every time a report is due. The same
approach is also vital to monitoring income and expenditure
when there is more than one source of trading income or a mix
of trading and non-trading activity.
Charities and trading subsidiaries: It is a fundamental
requirement of charity law that the resources of a charity are only
used to pursue the objects of the charity. So it is unacceptable
for the subsidiary company which is engaged in non primary
purpose trading (see section 4.3 for definitions of types of trading)
to benefit from the staff, premises or facilities or financial assets
of its parent charity. The charity can rent or loan its assets to its
subsidiary at a fair market rate. But this means it is necessary to
keep careful records of:
• any time which the charity’s staff spend working for a
subsidiary, and the equivalent value of their wages and salaries
• the proportion of the charity’s buildings occupied by the
subsidiary and its rental value
• a subsidiary’s share of use of office and other equipment owned
by the charity and its rental value
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