Thursday, 12 December 2013 15:31

Start a co-op

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Getting started: a co-op checklist

There are a number of steps to follow if you are interested in exploring a co-operative idea. You may already have a core group of people with whom you are working. You may already be a business but would like to convert to a co­operative structure. Perhaps you are not sure what kind of business structure you want. These steps are organized so that you can start where you already are - or you can use them to fill in gaps you may have missed.

Starting a business can be difficult - try not to get discouraged! It takes time and dedication, but starting a co­operative can be very fulfilling. Working with a group of people is challenging, but you will also find support within your group.

The BIG Three

To help you get started, consider what we call The Big Three questions in the box below. These are the fundamental questions that will jump start your co-op development process, described in detail in the steps below.

The BIG Three — questions to jump start your co-op development project

  • 1. Do you have your Steering Committee group together? [Step 1]
  • 2. Who are your members? [Step 5]
  • 3. How will your co-op make money? [Step 6] 

Step 1: Group development

I have an idea, now what do I do?

Find other people in your community with similar needs or who share your idea. To start a co-operative you need at least three members, but it usually takes from three to seven interested people to form the Steering Committee or Working Group. Spread the word. Read the papers. Talk to other people with similar needs.

Sometimes it may be hard to find other people who have similar interests or ideas. It may also be difficult to find the support you need. It is important for you and for the co-operative to have a support network within your community and within the co-op sector.

Another aspect of group formation to keep in mind is the skills and resources that each group member can bring to the Steering Committee. It is a good idea to have someone with financial expertise, for example, or someone with

web editing skills, marketing or a knowledge of the sector you're getting into (e.g., lumber, local food, health, etc.). Ensure that you have a group with a diverse set of skills.

A final consideration is group process — can you all get along? How will you accommodate those that are very detail oriented and big picture thinkers? Will you work by consensus? How will you handle the fact that some have less time to give to the co-op development process? How will you deal with questions of leadership, power and authority on your Steering Committee?

Goals of this Step:

  • • Set up the Steering Committee/Working Group
  • • Recruit people (and organizations) with interest in your idea 

Step 2: Needs and Opportunities

We have a group interested - now what?

It is common for co-operatives to start when there is a need or an opportunity. For example, the owners of a company, business or factory may be selling or closing the business and the workers will lose their jobs. The workers may decide to buy the business and run it themselves.

A NEED: Often, communities lack certain services or products. A co-op can be formed to provide the needed service or product.

AN OPPORTUNITY: Sometimes changes in the community or workplace create new possibilities for services or products. Co-ops can be formed to use these opportunities.

Before you go any further you must be sure that your idea addresses a need or an opportunity. For instance, if you need work, you could create a worker co-op that provides jobs for its members. Remember that your worker co-op, in order to be successful, must provide a service or product for which there is also a need or market.

Think about your community. Where is it? Who is it? Perhaps your community is defined by a grouping of people more than by a geographical location. Local ethnic, trade, union, religious, cultural, or educational groups and organizations may be a source of support, inspiration and members. How will your co-op idea serve your community?

If particular products are not available to you in your immediate community, a consumer co-op could be formed to access them. The same applies to services. Your community may lack cultural or recreation services. A co-op may be organized to provide these. Wherever there is a need or an opportunity, you may be able to develop a co­operative in response.

Considerations:

  • 1. Does your co-op serve a need or respond to an opportunity? For you, your members, or your community?
  • 2. Talk it up. Communicate your ideas and feelings. Make sure everyone knows what the process is, what direction is being followed and that you have a common goal.
  • 3. Learn about co-ops, co-operation and working together. Learn about how to run effective meetings.
  • 4. Research — learn about co-operatives and credit unions and enterprise development. There are resources available. (Check the resources section in Appendix D).
  • 5. What tasks or jobs will each of your members have? Make sure each person has a clear role or task during the development stages.

Step 3. Co-op suitability

How do we know if a co-op is what we want?

There are different kinds of businesses and business structures that could address your need or opportunity. At this point you will have to determine whether a co-operative structure is right for you.

You have to remember that a co-operative is a business, but a unique type of business. The dedication of its members is critical to the on-going process to ensure that the co-op is democratic and serves the needs of its membership. Starting a co-op (or any enterprise) takes time and dedication in order to ensure member buy-in and engagement.

Not only should a co-op be right for you, you have to be sure you're right for a co-op. Working in a co-operative doesn't mean you do everything together. However, you must be able to work together when making a decision, you must be willing to communicate, to share, to discuss and to find solutions that you and other members can accept. Together, you must be willing to share the risk and responsibilities.

Determine:

  • 1. Do you want to direct and share in the control of your business?
  • 2. What degree of control do you want? How much control do you want to share? Who do you want to share
  • it with?
  • 3. What do you want to direct and control? (For example: the wages, what to produce or sell...)
  • 4. Is there enough interest among your members (and potential members) to continue developing this business idea? 

Step 4. Development of your idea or concept

We think a co-op would best suit our needs. How do we develop our co-op enterprise?

In the previous steps you were learning more about co-operatives in general. Now you will need to learn more about your enterprise as a particular type of business or service. For example, if you are starting a cafe co-op you need to learn about how restaurants are run. For example, do some research to find out which suppliers provide restaurant fixtures and how cafes are structured.

Goals for this step:

1. Research co-ops by talking to people who are members of the kind of co-op that interests you, housing co­ops, for example, or bakeries. Find out how they are run.

2. Learn about businesses in your economic sector. Attend workshops and seminars on how to run your type of business. You may also be able to visit businesses to see how they work. 

Step 5. Determining the Co-op Structure

A key question to resolve with your Steering Committee is — Who will be the members of our co-op? The answer to this question — producers, consumers or workers — will help you determine what type of co-op best suits your enterprise idea. Some co-ops combine two or more member classes to form a multi-stakeholder co-op. This flexibility in co-op type, and combination of different classes of members, gives the co-op model a great deal of elasticity that allow you to apply the co-op model to almost every conceivable enterprise idea.

You'll also need to determine whether your co-op will be a for-profit enterprise co-op or a not-for-profit Community Service Co-op. Non-profit co-ops in BC are now incorporated as Community Service Co-ops and have similar status in law as non-profit societies. They are also eligible for charitable status.

Community Service Co-ops require the inclusion of non-alterable clauses in their rules that ensure that the co-op operates on a non-profit basis and that its purpose is charitable or to provide health, social, educational or other community services.

To incorporate as a Community Service Co-op, the co-op's Memorandum of Association must include the following non-alterable provisions:

  • a) That the co-ops is a community service co-operative
  • b) That the co-op will not issue investment shares
  • c) That upon dissolution, the co-op's property must be transferred to another community service co-op or a charitable organization and
  • d) That no part of the property of the co-op is to be distributed to members while it is in operation.

With the inclusion of these provisions, the BC Co-op Act formally recognizes the unique value and role provided by co-operatives that wish to operate on a non-profit basis.

Step 6. Feasibility study and business plan

What do I need to include in a feasibility study and business plan?

Feasibility Study Once you have a clear idea of what your co-op will look like, you must determine whether the co-op will be viable financially by preparing a Feasibility Study. The main question you're trying to address in a feasibility study is — Does the co-op idea make good business sense? What revenue do you need to break even? is this product or service one that your customers or clients really need and will they pay the price you will be asking for it? To prepare yourself for the Feasibility Study, explore the Co-op Self-Assessment Tool with your Steering Committee — see Appendix A.

A Feasibility Study investigates, in detail, the factors that will determine if the business is feasible. These factors include: 

Market

Industry, market niches, customers (real and potential), competition, collaboration, market share expectation

Supply & Materials

Cost of goods

Production Process

Equipment, transportation, labour

Operating Costs

Labour, utilities, insurance

Overhead Costs

Labour, support services, utilities, financing, office/warehouse/production facility/store

Financials

Capitals costs including depreciation of assets, forecast assumptions, income statement, break even analysis, cash flow statement, risks

Financing Options

Lease, rent, purchase, joint use

Member Share Options

Working capital, reserve

For your feasibility study determine and outline:

  • 1. the business (members, type of co-op, size, location...)
  • 2. how much money you would need to spend to start-up your co-op
  • 3. how much money you would bring in, both at start-up and after launch
  • 4. how your co-op will work financially, based on these numbers

See Appendix B, Elements of the Feasibility Study, for more information.

Business Plan Once you have determined the basic feasibility of your co-op idea, you'll need to develop a Business Plan. The Business Plan differs from a Feasibility Study in the amount of detail it covers about your business as well as in its planning rather than exploratory aspect. It focuses on tactics and strategies for the implementation of your project and outlines your plan for business growth and sustainability.

Two key elements of a business plan are the financial and marketing plans. Together these plans will show how your business will run, and how it will finance and promote itself.

For your business plan you need to develop:

A.  FINANCIAL PLAN

All your costs:

  • 1. start-up costs
  • 2. operating costs (income + expenses)
  • 3. cash flow
  • 4. wages
  • 5. equipment (from desks to refrigeration)
  • 6. hidden costs (delivery charges...)
  • 7. heating, hydro, office space rental...
  • 8. loan payments (how and when you will pay them off)
  • 9. financial projections
  • 10. training expenses - what training you will need to start and to keep going

You also need to show how you will bring revenue into the co-op. This can be in the form of the sale of products or services, or special purpose grants or subsidies. When you deduct all of your costs of start-up and early operation from the revenue, you'll usually see that there's a shortfall of money during that time. To cover this, you'll need financing, or to put it another way, you'll need to raise capital.

There are five ways to finance (capitalize) your co-op:

  • • Selling shares (for-profit co-ops only)
  • • Accepting loans from members
  • • Collecting fees from members
  • • Borrowing from other sources (Venture Capital, financial institutions, credit unions, friends, family)
  • • Government, business and social program grants (usually only for not-for-profit Community Service Co­ops, except for the CDI program).

Consider:

  • 1. How much money will you need to start up?
  • 2. How much money do you need to run your business?
  • 3. Where will you find the financing?
  • 4. How will you pay for your loans?

B.   MARKETING PLAN

The marketing plan considers the "four Ps" of marketing — Product, Place, Price and Promotion.

  • 1. your market (who are the potential buyers or users)
  • 2. what quality services and products you will offer
  • 3. what you will charge for your product or service
  • 4. how you will promote the co-op
  • 5. where you will promote the co-op

It can be challenging to translate your ideas into a tangible plan. It's a good idea to get advice when developing these plans. Many resource groups and federations offer consulting services as well as written resources. An experienced co-op developer can also be a critical resource at this point. You can sometimes find help at economic and business development offices in your community. 

Step 7. Incorporating your co-op

We've made it this far - but what about making it legal?

Once you've got a clear idea of who and what you are and how your co-op will work, you will want to become legally recognized as a co-op so you can start your business.

You are not required to incorporate as a co-operative to run your business co-operatively. You can work collectively and co-operatively and not be incorporated, but you are not permitted to use the word co-op in your legal name.

The advantages of incorporation include protection from personal liability (losses and other liabilities would be held by the co-op, not by you as individuals), consumer protection, credibility, legal recognition, access to loan programs, on-going affiliation with co-operative organizations and federations.

Step 8. Internal structure and roles

How do the members and staff work together?

Now that you are incorporated you will want to formally establish the internal structure of the co-operative.

Co-op members are required to hold an annual general meeting to elect a board of directors and its officers (President, Treasurer, Secretary). The board hires the Manager. The Manager (or the board, if you don't need a manager), hires the staff. With a worker co-op, the workers are the members and the owners/managers.

Your membership, whether it is a large group in a consumer co-op or a smaller group with a worker co-op, needs to:

  • 1. Determine the responsibilities of members - how you will divide labour and volunteer work
  • 2. Decide how you will pay the workers
  • 3. Set out the roles of members, staff, directors, officers
  • 4. Elect directors; the directors need to elect officers
  • 5. Vote on proposals
  • 6. Act on decisions and hire staff if needed
  • 7. Find facilities if needed
  • 8. Join your provincial association and any applicable federation. When you get through all of these processes you will be on your way to a co-operative future!

Step 9. Maintenance, aftercare and growth

The task of starting your co-operative may be over, but surviving and growing are challenges you will always face. You will have to maintain quality services and products and grow financially. You will need to continue learning about co-operatives and co-operation if your co-operative is to flourish.

Co-op developers have specialized skills that can be brought to bear in dealing with co-op problems through all the stages of starting a cooperative. In addition, they are invaluable in helping address many of the challenging issues that co-ops will encounter during their growth and maturity phases.

Federations and local organizations often provide education and training services to their members through conferences, workshops, publication and sometimes with visits to your co-operative. Each federation has its own program of services that range from board training, member education and government relations, to workshops on financial management, legislation, and how to develop education plans... the programs are wide and varied.

Remember — co-ops are strengthened by working together. Other co-op and credit union sector organizations may be able to offer support, financing or services through possible joint ventures or as a market for your own co-op's services and products. You in turn may be able to provide the same for other co-ops. For information on other co-op organizations, contact us at BCCA.

Consider:

  • 1. Board of Director training and education
  • 2. Member training and education
  • 3. Co-operative education of staff; members and the community
  • 4. Increasing or strengthening your services or products
  • 5. Finding ways to grow financially
  • 6. Possible joint projects or activities with other co-ops locally and provincially, nationally and internationally
  • 7. Provincial Filing Requirements and Record Keeping.

Success Factors for BC Co-operatives

Studies have shown that co-operatives have a higher survival rate than conventional businesses.[1] What accounts for the success of co-ops? A 2008 study in Quebec revealed the following success factors:

Four factors indicate that the higher survival rate is specifically due to the inherent structure of the co-op model:

  • • The focus on member service as opposed to profit, which has an impact on business decisions
  • • The central role of the member, who is both investor and consumer in the co-op
  • • The democratic nature, the return of profits to members and the open governance structure of co-ops
  • • The presence of a group of promoters rooted within the communities

Three factors also indicate a historical advantage, as well as the business environment of co-ops:

  • • Strong representation in economic sectors that fulfill basic human needs, including agriculture, forestry, residential services, funeral services and education
  • • The majority of co-ops operating in both regional and sectoral networks
  • • Support of primary and secondary organizations, which favours improved project management of start­ups and in the development and presence of financial and fiscal tools and resources, which are adapted to the co-op model.

A study undertaken by the BC Co-op Association to assess the survival rate of co-ops incorporated between 2000 and 2010, shows that these co-ops attribute the following factors in their success:

  • • Financial factors, both in terms of adequate start-up capital, and in the realization of the importance of start­up capital to the success of the co-op
  • • The background and experience of the board directors
  • • Paid management with previous co-op experience (as opposed to volunteer managers with no co-op background)
  • • Training & enlisting outside consultant expertise
  • • Business planning and clarity of purpose.

The main advice that respondents had for new start-ups was:

  • • get outside help (i.e., consultants)
  • • anticipate problems and solutions and
  • • be flexible with the changing nature of the co-op structure.

The respondents also advised new groups to keep it simple and focused; get community buy-in; do a business plan and feasibility study; talk to others who are doing similar things; and set up structures and policies.

Appendix A — Coop Self Assessment Tool

  • 1. What need/opportunity will the co-op meet?
  • 2. Are there other organizations or businesses currently filling this need in your community? If so, list them.
  • 3. How was this need met in the past?
  • 4. Why does the opportunity exist now to develop a co-op to meet this need?
  • 5. Who will benefit from the development of this co-op and how will they benefit?
  • 6. Why are you considering the co-op model to meet this need? What is it about co-ops that appeal to you?
  • 7. Will the co-op be for profit or not-for-profit?
  • 8. How many people are working together to start the co-op?
  • 9. What skills and resources do they bring to the group?
  • 10. What other skills and resources will you need?
  • 11. How will you access/develop these skills and resources?
  • 12. Why do you want to start a business together rather than on your own?
  • 13. What experiences have you and/or your group had in working collectively to achieve a goal?
  • 14. What lessons did you learn from those experiences?
  • 15. What is your strategy to build support for the co-op?
  • 16. What steps will be needed to achieve your goal of setting up a co-op?
  • 17. Co-op development requires talent, time and tenacity. Describe the commitment you and the other members of the group are prepared to make in the next 6 months/12 months/2 years.
  • 18. What do you hope to gain from your participation in the co-op?
  • 19. How will you finance the co-op? Consider the costs of both co-op development and the costs of operating the co-op enterprise.
  • 20. Has there been any assessment of the feasibility or market for your product or service?
  • 21. What further research or information do you need to help you make your decision to start a co-op?

Appendix B — Elements of the Feasibility Study

The group’s capacity to develop a co-op

  • • level of group development (consensus on the vision, skills, “key person” strengths/weaknesses
  • • systems support
  • • access to funding
  • • capital available for investment/access to financing
  • • the motivation and expectations (key result areas, minimum acceptable outcomes)

The proposed product

  • • refined product definition
  • • packaging, promotion
  • • market profile (most available market, most lucrative market, market entry strategy, competitive
  • • products, popularity trends)
  • • production features and practices (how complex, how risky, special handling, etc.)

The production

  • • facilities (scale, capital costs, location)
  • • workers (skills requirements, employment challenges, number of workers, workplace safety)
  • • management production control
  • • availability of supply for key components, market scope and delivery

The revenue potential

  • • market analysis (market defined, scale, reach)
  • • pricing, price sensitivity
  • • potential revenue generation

Financial projections

  • • summary income statement/cash flow analysis to determine break-even point
  • • capital requirements

Summary conclusions

  • • summary of members’ expectations
  • • preparation for development process
  • • go/no-go factors during development
  • • summary of risks, challenges and potential benefits
  • • development outline (readiness assessment, key steps in development, timeline)

Source of Appendix B: Devco

Source: British Columbia Co-operative Association, BCCA (Canada)


[1] Survival Rate of Co-operatives in Québec, 2008 edition, Report by Ministry of Economic Development, Innovation and Export in Québec (summarized on the Ontario Co-op Association's blog: http://ontariocoops.wordpress.com/reports/survival-rate-of-co-operatives-in-quebec-2008/ 

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