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 • If that’s what the funder wants... Bad planning starts with the idea that all that is required is a document which simply says what you think the funder wants to hear. The very best you can hope for is the award of a grant to do something which is quite likely to be impossible (not that you will know one way or another). • At least we can produce a good bid: Most people who attempt to develop third sector trading activities don’t bother to plan them at all. They make out a case for investment (grant funding). This is normally an impressive description of a business idea with neatly blurred answers to all the tough questions about markets, cost, skills and management. This emphasis on presentation to persuade funders (who sometimes know as little about business development as the applicants) may account for the curious fact that third sector business plans are often much better produced than those for larger scale private ventures, and may be more image-conscious than the real-life businesses they describe. • We’ll decide what to do when we know how much we’ve got: It may appear to save time to deliver an impressive, plausible but invented plan to funders and make it fit reality later if the bids are successful. But that means doing the planning job twice, and going into contortions to disguise your subterfuge when the grant comes through. This barmy behaviour is extremely common. • We’ll get more if we exaggerate: A common deception is to inflate dramatically the sum applied for in the expectation that the funder will grant something less which may be more or less what the project actually needs. There’s a lot to be said for attracting public and charitable money into poor communities – but not when it produces weak enterprises and eventual failures. The approach is deeply flawed: − if your plan distorts your funding needs it’s highly unlikely that anyone knows what your real needs are − your plan is worthless as a tool for monitoring the progress of the business and its finances − the practice of producing deliberately misleading business plans is self-defeating because it may well produce unwanted responses from the funding body later – scepticism, suspicion, invasive or obstructive monitoring, unhelpful controls and conditions, and resistance to repeat or follow-up grant requests − have you thought what you’ll do if a funder foolishly gives you more money than you need? without a good business plan you’ll probably waste it. 58
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 • They won’t read our plan anyway: Unreliable, fictitious or inflated business plans are much less likely to be taken seriously. But that means there is no reliable way to assess grant applications. So funding for trading enterprise becomes a lottery and business plans really do become worthless to funders. • It’s what they wanted to see: Funders sometimes participate more or less actively in dubious deceptions, when, for instance, they want money pumped into an area. One government body is known to have refused to approve a six-figure grant for a major community enterprise project until the business plan was rewritten, at great expense, to remove the honest statements about its deficiencies. This was not about business viability of course, but a way to transfer responsibility for risk from civil servants and politicians to an innocent community group. Damaging your own prospects: Charitable and community organisations are much more at ease with the idea of planning than they were a decade or so ago. But they can still be so fixed on doing handstands and cartwheels that their business plans may be much more useful for impressing than informing potential funders. The real harm of this is that it: • wastes time: what is the point of a busy, knowledgeable worker spending a working week or more to produce a fictional plan? • creates unmanageable businesses: fictional plans which are lucky enough to lead to trading activity can lead to crazy planless businesses which never get started properly and quickly run out of control • limits growth: even the best business ideas will be more difficult to develop, manage and monitor with a poor plan; they may survive with permanent crisis management, but they are less likely to grow to their full potential • fosters grant dependency: poor planning encourages aspiring businesses, which should be aiming for sustainability, to be run like conventional grant-dependent community projects • looks like failure: inevitably funders will be less likely to help in future. Damaging the third sector: Poor planning damages third sector trading generally because it: • produces poor performance and failure – and confirms the prejudices of those who expect social enterprise to fail • provides excuses for funders not to take risks • perpetuates grant dependency in the third sector 59
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