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
• retaining profits for future investment will also incur corporation
tax which normally can’t be eliminated through Gift Aid
• most social enterprises (despite the optimism of some directors,
and the illusions of others) do not make profits to re-invest in
the first few years.
Funding expansion out of current trade: A common practice for
many businesses is to buy the new and replacement equipment
they need on the strength of their latest big order. Meeting the
customer’s need might only be possible if you buy an otherwise
unaffordable piece of software for a design business or new
projection equipment to accommodate a lucrative conference in
your community centre. Making the investment now probably
means that you will make a loss on the current order. But in future
you will be able to charge more, provide a better service or work
more efficiently. You will soon be bidding for work which was
previously beyond your reach.
Contracts with capital funding: In a similar vein, enterprises can
occasionally secure contracts to provide services to public bodies
where the cost of necessary investment is covered by the fee they
charge. This would be in addition to what is needed to pay salaries
and operating costs, and might be used to pay for essential
equipment and the improvement in buildings.
These improvements – a new vehicle, kitchen facilities, or building
improvements perhaps – should then be made available for other
users either now or when the contract ends. (If the opportunity
arises you should think hard about getting the best possible longterm
benefit from the improvements you invest in. It is astonishing
how little this happens and how much flashy equipment and high
quality accommodation becomes redundant when contracts are
over.)
Grants linked to loans: Funding bodies too rarely provide
joint grant and loan arrangements, although this can be
hugely valuable for starting to wean enterprises off the grant
dependency. The Wales Council for Voluntary Action and the
former Welsh Development Agency have both run such schemes
in Wales.
Unsecured loans: Unsecured or ‘soft’ loans are often offered by
organisations which have affinity for social enterprise activity and
which may support the third sector. A number of organisations help
with the purchase of building assets, and so provide an alternative to
conventional mortgages. Sound business plans are vital.
Secured loans: Secured loans and conventional mortgages may
also be useful for organisations acquiring and developing property
assets. Sound business plans are vital.
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