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
• Keep refining the figures you enter on the spreadsheet:
− If the forecast shows a profit early on you should look for
mistakes and make your assumptions more pessimistic. Then
check whether it still works.
− If the first attempts show the business making a loss, start
thinking about where you can economise and whether there
are ways you can realistically generate more income.
• Don’t expect the first version of the forecast – or even the third
or fourth – to be your best or last. As your planning progresses
you will think of items you have missed, correct mistakes and
make refinements.
• Be patient. This is one of the most valuable parts of the whole
planning process, and you will find the rest of the exercise
a lot easier when you can get your business idea to stack up
financially.
Getting the sceptics on board: Ideally your whole group will
instantly see the benefits of good financial planning. But don’t
count on it. Some people may feel threatened by it, and you may
need to persuade the doubters to take the issue more seriously.
Here’s what they may tell you:
• ‘We don’t understand these things, so please don’t involve us’:
Anyone who is going to be legally responsible for the venture
should try to understand how it works financially. How else will
we know what to do if things go wrong?
• ‘Financial forecasts are always wrong’. Yes. But so, frequently,
are the arrival times of trains and buses. This is not a reason for
abandoning timetables.
• ‘We can’t reliably predict three months ahead, so what’s
the point of a three-year cash flow forecast?’ This is an
understandable protest, but there are two important points:
− The forecast forces you to examine and understand the
operation of the business over time, and three years is a fair
length of time.
− You usually need a three-year projection to properly assess
whether there is even a reasonable prospect of success. This is
because year 1 always includes a start-up period (and possibly
grant funding) which will distort the picture for the year. If
you don’t start breaking even until some time during year 2
(which is more likely than during year 1) you won’t see the
business running as you need it until the third full year of
operation. Likewise, if you go for grant funding for three years,
you really need a five-year forecast.
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