Thinking about trading

1. What are trading activities?

A successful voluntary, community and social enterprise (VCSE) organisation should have a diverse range of funding sources. One way to raise income is by selling goods or services.

Trading activity is when a customer pays, a charity or social enterprise, for a product or service. This could be an individual paying for a birthday card from a social enterprise retailer or the local Clinical Commissioning Group paying for an incorporated charity to deliver a therapy service for people who have had some form of trauma.

2. What kind of trading can charities do?

Some charities engage in trading as a way to raise funds or to further their objectives. Charity law allows charities to trade provided that the trading falls into one of the following categories:

  • Primary purpose trading: trading which contributes directly to one or more of the objects of a charity as set out in its governing document. For example, sale of tickets for a theatrical production staged by a theatre charity.
  • Ancillary trading: trading that contributes indirectly to the charitable purposes of the charity. This is treated as part of primary purpose trading for both charity law and tax purposes. For example, sale of food and drink in a restaurant or bar by a theatre charity to members of an audience.
  • Non-primary purpose trading: trading intended to raise funds for the charity, which is different in nature than the charity’s objects. Charities may engage in such trading only where no significant risk is involved.

Where trading (other than trading in pursuit of its charitable objects) involves significant risk to a charity’s assets, it must be undertaken by a trading subsidiary.

3. Trading as a social enterprise

A social enterprise generates profit, which is reinvested into its social purpose. A social enterprise aims to achieve both a social and financial return, therefore the restrictions on trading are less onerous than trading as a charity. Social enterprise is not a legal term.

For more details see our guides on social enterprises.

4. Develop a trading idea

Your first step is to use your knowledge of the community you wish to support. This will help you to understand the shortcomings of current provisions, or opportunities to sell products to the wider local community.

Some ways to generate a trading idea include:

A Skills Audit: Do an audit of the skills, interests, hobbies, and community knowledge that your staff, governing body, service users and wider stakeholders have. Ask yourself how those skills, interests and hobbies could allow you to sell a product or service.

Brainstorming: Carry out a brainstorming session. Invite a mix of staff, trustees, service users and stakeholders to the session and aim to generate a large number of ideas. Record every idea that’s mentioned and reserve any judgment or critical comments until later. By the end of the brainstorm you will have produced a large number of ideas for possible trading ideas.

5. Research and pilot a trading idea

You now need to establish whether the trading ideas generated are viable, i.e. will they individually generate enough income to turn into a profit. This will help you decide which product/service to launch initially.

Firstly, establish who your customers would be. The relationship with a customer who is paying for a product/service is a very different relationship to one with a donor, grant funder, or service user of a free service. You could involve potential customers as you develop your idea, inviting them to share feedback. This could build their interest in your product/service when launched.

Then think about who your competitors are. Is your trading idea different? Why would someone buy your service/product over someone else’s?

Talking to people and piloting your product or service is a good way to check if there is interest in the trading idea. Along with knowing what people will pay for the product/service.

6. Communicating the trading idea

Before you launch the product /service, you may need to communicate the trading idea to various people. For example, you may need to attract start-up funding or social investment. Or get approval from the board/trustees to understand the risks associated with trading (financial, legal and reputational).

One way of communicating your trading idea and the viability of it is to produce a business plan for the product/service.

For more information, see our Introduction to Planning guide