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 • What they say: The budget comparison may not tell you much if the dates of payments and receipts are not regular, and it usually needs to be interpreted carefully. If the monthly turnover figure suddenly goes down, how can you tell whether a guaranteed payment is a week or so late, or sales have slumped? Financial monitoring for complete beginners If you’re starting from scratch: Unavoidably many people will become involved in managing social enterprise activity and will act as directors for trading companies out of sheer necessity with little knowledge of or feeling for the way the business world works. Here are a few tips for beginners. Don’t be embarrassed: Whether you are someone who is turned off by accounts or you simply don’t know what to be looking for, you should not be embarrassed to tell fellow directors or work colleagues. If you pretend you understand financial reports when you don’t you could become a liability. Don’t mention the toilet rolls: People instinctively talk about the things they understand. This is why, when confronted with a detailed financial report for a complex trading organisations, some directors discuss the cost of toilet rolls – or anything else they feel comfortable with. Anything to avoid the less familiar features of business finance. Debating trivialities when you should be monitoring the budget report may be understandable. But it is often extremely unhelpful for your business. You should resist doing it, and you should drag the discussion back on course as soon as possible when you see others doing it. Numbers with plain language: Problems with engaging with financial reports can be reduced significantly if directors receive short written reports in plain language to help interpret the figures. Then everyone knows what the issues are. Don’t be afraid to be dumb: Directors have a right, perhaps even an obligation, to ask dumb questions about the accounts if this helps them to understand the business. People are often afraid to ask the obvious, but simple enquiries can be challenging, and the answers may be enlightening for everyone. Ask difficult questions: This is monitoring after all. So a question which might help you and your colleagues to get closer to understanding the performance of the enterprise is legitimate. If the information is not readily available or directors are not satisfied with the answer they get, there are other options - a report to the next meeting, a chat with the manager or treasurer later, or a private look at the accounts records themselves. It’s what directors are for. 162
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 Trust the manager: • Work together: The manager/chief executive (depending which title you use) and the directors need to work together on the job of monitoring and interpreting the accounts. It is in their mutual interest to co-operate and build trust. Most managers welcome directors showing a serious interest in the accounts because it means they can share their concerns and their successes. • Be careful what you say: It is of course right for directors to be wary if they discover there is a reluctance to divulge information. But it is vital for them to be extremely sure of their ground before questioning the competence or integrity of the chief executive – because the relationship will never recover. Don’t take precipitous action: Many decisions about improvements in the running of the business will stem from discussions of the financial reports. That is part of the value of the process. But the manager is probably much more familiar with the financial situation than the board. So directors should be extremely cautious and sure of their ground if they take any decisions which: • are sudden, unplanned or only partly thought through • the manager disagrees with, but will have to implement • undermine the manager’s authority or capacity to act independently in the interest of the business. Distinguish ‘sales’ and ‘income’: • As mentioned earlier, in some businesses which offer credit to their customers, there is an important difference between: − sales, ie the transactions which create a value for the business but not necessarily a financial payment at the point when goods and services are provided to the customer, and − income, ie money received when goods and services are eventually paid for. • People without business finance experience can easily confuse the two when examining trading information. Take a small social enterprise which produces novelty Christmas cards. October, November and December are the best months in the year for sales of the products, and January the worst. But the money from sales during the hectic pre-Christmas period does not start to roll in until January. Awareness of this basic picture is essential for almost all the business decisions you take, from knowing when to recruit and lay off staff to assessing whether it is appropriate to develop new markets and invest in new equipment. 163
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