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
The cost centres’ approach:
• In the context of managing the accounts of a small social
enterprise business, the term ‘cost centre’ can be seen as a
division or department of a company to which costs (and
income) can be specifically allocated. (Don’t be confused by
other less relevant definitions.)
• The accounts are maintained centrally, probably using a single
bank account. But all the organisation’s core costs – running the
buildings, providing overall management and administration,
professional services, loan repayments etc – are allocated to the
different departments or cost centres according to the level of
use.
• When the income generated by the activity is added to the
departmental account it is immediately clear which trading is
profitable and which is not. The approach allows each distinct
trading activity to know with a fair degree of accuracy how
much it costs the organisation to run it.
The benefits: Computer account codes can apportion these
costs automatically across all departments at the point when the
record of any payment is entered, and produce instant reports to
show the progress they are making. This separation is invaluable
because it allows information to be easily extracted to help with
issues such as:
• quickly producing monthly financial reports to show how well
each activity is performing
• calculating and adjusting aspects such as staffing levels and
charges for different products and services
• knowing what level of promotion and investment each activity
needs and can afford.
Apportioning costs:
• If each trading activity occupies its own building it may be
relatively straightforward to identify some costs exactly with
separate bills for rent, heating and power and perhaps even
telephones. But it can be more complex if you are dealing only
with separate rooms or the shared use of rooms. Then you need
to use estimates.
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