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
• When it comes to apportioning core costs such as general
management and administration – ie deciding how much each
perhaps marginally viable trading activity will contribute to
running the organisation – there are unlikely to be any ‘correct’
figures, only best estimates.
• You may well be tempted to be generous in allocating costs
to new or struggling enterprises while others can afford to
contribute more. But this is an internal exercise, so there is no
harm if some trading shows a loss, particularly when this helps
to prevent you wasting resources on a business which is not
going to succeed.
• The precise way the core costs are shared out is usually not
critical as long your estimated percentages are fair. They can
be adjusted at any time if you think you’ve got it wrong or if
circumstances change.
• Make sure there is a written record to show how and why you
have apportioned your costs so that the approach can be shared
and understood by people who examine or take over your
accounts system.
Making cross charges:
• This approach also allows you to simply record charges which
are made from one cost centre to another – for instance if your
café contracts to provide meals for the crèche.
• If you limit yourself to one bank account, which is
recommended, there is no movement of cash, though it can
be useful to issue invoices to provide a paper trail for internal
transactions.
• Watch out that you exclude the value of internal transactions
from the total turnover of the business, or you will exaggerate
your income and expenditure figures.
The core as a cost centre: Many organisations find that they
need to treat their management core as a separate department
for accounting purposes (although it does generate income)
and then show cross charges to the trading departments. This
is unavoidable if there is a mix of trading and non-trading
community of social activity in the same organisation. But it is not
advisable to make the picture too complicated.
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