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
• Tax, NI and VAT: Payments due to HM Revenue and Customs
can amount to significant sums. Accurate figures on the balance
sheet should indicate that payroll and VAT records are up to date
and that you will not have difficulty paying them.
• VAT: Businesses which are registered for VAT may be net payers
or net reclaimers of tax. Either way you should have a financial
record keeping system which keeps a separate ongoing record
of the VATable transactions and cumulative tax totals.
• Advance payments: You may sometimes receive payments
for work before you carry it out and even receive some grants
early. If you do, your bank balance will be artificially inflated. So,
slightly confusingly, you need to record these advance payments
as liabilities (ie, although it is money in the bank, you technically
owe it to someone else at the moment). You may not think this
matters, but if you forget to adjust for early payments it will not
be possible to make meaningful comparisons between your
balance sheets over successive months.
Understanding your ‘net current assets’: Finally, although
meaningless on its own, the net current assets total is the figure
you need to show whether your enterprise is making progress.
• By preparing and regularly updating a table showing the net
current assets figures for each month for the past year (or
perhaps a graph to show the results more vividly for those
who don’t like columns of figures), you will see whether your
financial situation overall is getting better or worse.
• Variations over one or two months may be blips, but anything
beyond that probably suggests a trend. A business can
only really survive if it is growing, so you are looking for a
steady increase in the net current assets figure. If the trend is
consistently in the opposite direction it’s time to take remedial
action.
The budget and budget reports
Why you need a budget:
• Monitoring progress: Without a budget you won’t have
reference points to know your position, and you won’t have
targets. It is difficult to tell whether you are being successful, and
you could miss out on the pleasure of knowing that you are.
• Planning: Without a budget you can hardly plan for the future
(fix staff pay rises, buy new equipment, develop new enterprises
etc), or you will do so in the dark.
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