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
• What does it do? The balance sheet is a snapshot of how
much money you would have on any particular day (usually
the last day of the month) if you could pile up the cash from
all your bank accounts and cash boxes, if your customers paid
everything they owe you, if you sold all the trading stock you
are holding, and if you then paid off all your debts to your
suppliers, any outstanding VAT and Inland Revenue payments,
and any bank loans. It is a precise snapshot of what the trading
part of the business is worth.
• What does it say? The sum you end up with is your net current
assets. It is not a real amount of money, so don’t get too excited
by it. But it can be a valuable indicator of how your enterprise is
performing month to month. If the figure is minus rather than
plus there had better be a good reason – such as a loan for
investment in the business. Otherwise you could be in serious
trouble.
• What does it not say? Just ignore items which you can’t easily
or realistically turn into cash – such as equipment and buildings.
They will distort the picture, and could be difficult to assess. It
won’t correspond to the balance sheet in your annual accounts,
and this is why it’s called ‘simplified’.
The monthly income and expenditure account report:
• What it is: The income and expenditure account at its simplest
tells you what money has come in and what has gone out
(itemised under standard headings, including separate sales
figures if you have more than one trading activity) in the course
of the past month.
• What it says: This will help to show whether your bank balance
has gone up and down, but not much more.
• What it does: The two accounts provide an opportunity for
scrutiny of the way the business is spending its money and
discussions about how it is earning it. That’s entirely legitimate.
Unfortunately, there is a terrible tendency for the expenditure
account to provoke distracting debates which have little to do
with business performance. Managers do well to head off these
discussions as soon as possible if they are not relevant.
• What it does not do: The income and expenditure account is
an expected aspect of the finance report, and many reports
will insist on it. But, depending on the type of activity, other
information such as budget comparisons, can be more useful.
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