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 • 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. 148
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 Using accounts software: • It is possible to record transactions for different departments or cost centres in manual cash books or simple spread sheets. But the more activities there are the more complicated it is to produce reports. Dedicated computer accounts programmes come into their own when there are a minimum of three or four cost centres. • Some programmes are easier to use than others. More expensive and complicated software provides greater flexibility for long-term development. So you should get advice on what best meets your needs. • When you start to use a computerised accounts programme, be careful to run a manual system in parallel with it for a while in case there are problems with the set up. A worked example: It may not be easy to appreciate the enormous power of a cost centre approach in giving you control over your business. Appendix 4 provides some further guidance and a worked example for costing a new contract. 149
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