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
• How much will you spend on the stock or raw materials which
you will need to provide the levels of sales or services you are
predicting? There may be a rule of thumb formula to make this
easier – eg assuming that raw materials make up 50% of the cost
of food sold in a café, or that the mark up on goods in your shop
will average 30%.
• What overheads will there be for running the business? Your
expenses will include the costs of the rent on the particular
size of building you will need, heat lighting and water, phones,
stationery, maintenance, security, insurances, accountancy,
regular loan repayments etc (table 6.1 may be useful).
• Ignore any start up and capital costs for now (for instance on
equipment and building purchases); you are not calculating
profitability, just whether you might have a business.
• You will probably need to build up a reserve fund for the future
replacement of any expensive equipment such as vehicles, so
you should count this as expenditure here.
So could it be viable? The next step is obvious. But be careful not
to read too much into it.
• Add up all the expenditure and subtract that from the total
income to see whether you could be heading for a profit
or a loss.
• If the answer is positive don’t get too excited. Remember
that this is only a calculation for working at full capacity in a full
trading year once you are established.
• If the answer is negative you may need to come up with
another idea. But if the estimated loss is small, you can go back
to the figures and sharpen them up:
− make the calculations a bit more accurate this time
− dispense with costly inessentials
− work out whether you can earn more by doing things
differently etc.
• If it looks as if the business might be viable, start thinking how
you would convince a sceptical grant maker or bank manager:
− go over every calculation again, refining the estimates as
carefully as you can with the information you have available
(this time taking notes which you can refer to later)
− be less optimistic about the income, be more ruthless about
the costs and see how that affects the picture
− build in some of the obstacles and the difficulties which are
certain to arise
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