A guide to third sector trading - WCVA
A guide to third sector trading - WCVA
A guide to third sector trading - WCVA
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It’s an idea, but is it business? A <strong>guide</strong> <strong>to</strong> <strong>third</strong> sec<strong>to</strong>r <strong>trading</strong><br />
1: Getting<br />
started<br />
2: First steps 3: Business<br />
planning<br />
4: Legal and<br />
governance<br />
5: Funding<br />
and<br />
resourcing<br />
6: Financial<br />
controls<br />
7: Managing<br />
growth<br />
8: Management<br />
and<br />
governance<br />
9: Social<br />
enterprise<br />
10: Sources<br />
of support<br />
• donating all its profit <strong>to</strong> charity: Any organisation which<br />
gives all its surpluses away will have nothing <strong>to</strong> reinvest in its<br />
own business activities. It will not be able <strong>to</strong> grow, and it may<br />
stagnate and fail.<br />
• providing quick solutions <strong>to</strong> immediate funding problems:<br />
Although there certainly are ways in which business can help<br />
<strong>to</strong> sustain existing social and community projects, you should<br />
be extremely cautious about predicting when you will see the<br />
benefit. It can take many months <strong>to</strong> get a venture started and<br />
it is likely <strong>to</strong> be several years before there are significant <strong>trading</strong><br />
surpluses. (In fact, if you need help in a hurry, it’s probably<br />
already <strong>to</strong>o late for a new business <strong>to</strong> save you.)<br />
How hard is it <strong>to</strong> support social jobs? A rough calculation should<br />
demonstrate how difficult it can be <strong>to</strong> use the profits from <strong>trading</strong><br />
activities <strong>to</strong> support jobs in social and community projects.<br />
Let’s say a successful community organisation wants <strong>to</strong> use its<br />
profits <strong>to</strong> replace grants for one job with a salary of £20,000. The<br />
actual cost of the post, with overheads, is likely <strong>to</strong> be in the region<br />
of £25,000. The business can’t give away all of its profits – it<br />
may need <strong>to</strong> retain £10,000 or more of its annual profits <strong>to</strong> cover<br />
future investment in the business, staff redundancies and possible<br />
emergencies. So it needs a profit of at least £35,000. If the healthy<br />
and somewhat unlikely profit margin (which is calculated by the<br />
cost of operating the business minus the value of sales, divided by<br />
the value of sales multiplied by 100) is as high as 30%, it would<br />
be necessary <strong>to</strong> have sales of £117,000 or more. With a profit<br />
margin of 20%, sales of £175,000 are needed.<br />
That can be a significant amount of <strong>trading</strong> for a small enterprise.<br />
But the real world tends <strong>to</strong> make things even more difficult:<br />
If any corporation tax is payable on this the required level of<br />
sales naturally goes up.<br />
• Then add in the human fac<strong>to</strong>r: what are the staff in the<br />
business saying about their own wage levels if the profits they<br />
are producing are used <strong>to</strong> employ a non-income generating<br />
worker? Hopefully they can appreciate the social benefits. But<br />
what if the new job pays more than they are getting?<br />
• Bear in mind <strong>to</strong>o that, although it is absolutely vital <strong>to</strong> aim <strong>to</strong><br />
make a profit, most <strong>third</strong> sec<strong>to</strong>r <strong>trading</strong> organisations in the<br />
real world are happy <strong>to</strong> break even initially, and would not<br />
expect <strong>to</strong> make much profit at all in their early years.<br />
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