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 Be serious about loan finance: • The main point about loans is that they have to be repaid, even ‘soft’ unsecured loans. So can you meet the repayments? • Face the fact that if you don’t repay secured loans you may actually lose your treasured buildings and projects altogether. • But don’t be timid. If you invest in property sensibly and it does not work out, you should still have an asset you can sell to pay off your debts. A set back, but not total disaster. • Focus on capital developments at first − buildings and refurbishment where you can see a clear way to generate income to make repayments − equipment and technology to reach bigger and more lucrative markets, and undertake higher paid work • Avoid unnecessary risks: − don’t think about borrowing money for revenue costs if you are inexperienced − never borrow money to get out of difficulties or prop up a failing venture unless there is a cast iron plan to show how the investment will work. Be serious about planning: • Write realistic business plans – not the ones you write to please funders where you’ll say anything to get the grant, but plans you write for yourselves to tell you exactly what you need to do. • Face up to the weaknesses in your project, even when this hurts, and deal with them: − get independent advisors to tell you the flaws − work out ways to minimise but not disguise the dangers and risks. • Identify the issues where finance staff, partners and banks will have reservations – and show how they have been or will be addressed. Get sound advice and support: • Do initial homework to find out as much as you can about the possibilities, the funding sources and the conditions: there is a plenty of information to be gather by − trawling the internet − visiting other projects − attending conferences and seminars 176
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 − making direct contact with support agencies − making preliminary checks on financial institutions. • Now do the analysis. Weigh it all up by considering: − what is still confusing and incomprehensible, and what questions do you still need to answer? − what are the main practical options available to you? do you fully understand them? − what seem to be the most reliable sources of information? • Work with your advisors: You need the patience, attention, time and honesty of the people who are advising you. They are more likely to give you that if you have an open relationship, with mutual trust and respect. That means taking their advice seriously. If you ignore your advisors, they will probably ignore you in future. So if you don’t want to take their advice, explain why it won’t work. So where will investment funding come from? Considering the wider possibilities: Don’t let your horizons be restricted by a narrow choice between grants and loans. The following list is not exhaustive, but it gives a flavour of the wider possibilities: Grants: Grants don’t have to be bad for you if you are not going to be wholly dependent on them and if they help to release the potential of a dynamic and innovative enterprise. If you talk to the right funders you will find that they will understand what you are trying to do and want to help without getting in your way. Earned income: This is the way many businesses grow. Letting property, for instance, can generate significant income to reinvest in new trading activities if there are no loan repayments to make and there is a market for the accommodation. Enterprises with a range of different sources of earned income (commercial contracts, fees and charges for services etc) may find themselves with surpluses provided they are not also struggling to fund an expensive core of managers and administrators. But there can be major problems: • using profits to fund an expansion can involve a lot of painful ‘sweat equity’ in the form of long unpaid staff hours or voluntary activity • using the profits on an existing trading activity to fund the start of another business could undermine the long-term health of the venture which is producing the wealth: it’s obviously better if a successful enterprise invests in its own expansion 177
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A guide to third sector trading - WCVA

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