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Steps to Starting a Cooperative

Learn the step-by-step process of starting a cooperative, from exploring the idea to incorporating the business. This guide outlines the key questions, feasibility study, business plan, legal documents, funding options, and start-up tasks involved in forming a cooperative.

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Steps to Starting a Cooperative

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  1. Steps to Starting a Cooperative Margaret M. Bau Cooperative Development Specialist USDA Rural Development January 20, 2016

  2. Ways to Form a Co-op Member Initiated Start up idea dreamed up and explored by the eventual members - Following a recipe - Taking a cooking class Incubated Start-up idea incubated by a development group and transplanted among recruited members • Conversion • Transfer an existing business to shared ownership • Succession planning • “Making lemonade”

  3. Steps to take when working with a Member Initiated Co-op Analogy of cooking with the help of a recipe

  4. It All Starts With… Idea! Could a group effort address the issue?

  5. Explore the Idea What is the business concept? Is a co-op the best structure to meet our shared need? Discuss the idea in a “Margaret Mead” group

  6. “Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.” Margaret Mead

  7. Gather Information • Co-op structure • What is a co-op? • Co-op vs other legal structures? • Other co-ops in industry and region • Co-op principles and values • Ownership culture, participatory democracy • Discuss your mission and values • Indentify resources • Project coordinator (paid task master) • Co-op and business consultants • Define the business concept

  8. Key Questions • Sound business idea? • Advantage to work as a group rather than alone? • Co-op model the best structure? • Idea worth doing? • Time, resources, and energy • Major difference in life? • Business, not a hobby

  9. Exploratory MeetingAt your discretion, depending on the project • Present the concept • If interest exists, form a STEERING COMMITTEE • Ask for earnest money • Cover organizing expenses • Good indicator of commitment

  10. Decision Point • If… • Proposal is realistic • Co-op is a possible solution • People show interest • Then… • Proceed to feasibility study • If not… • STOP

  11. Conduct a Feasibility Study • Is concept viable? • Industry analysis • Market potential • Technical aspects • Capital requirements • Financial projections • Scenarios • Independent analysis • Conducted by 3rd party

  12. Decision Point • If… • Concept seems viable • After thorough review, the steering committee wishes to pursue the business • Then… • Proceed to conducting a business plan • If not… • STOP

  13. Conduct a Business Plan • Details of your venture • Description of product • Marketing plan • Operations • Management and organization • Financial plan • Equity and capitalization • Conducted internally • use information from feasibility study

  14. Decision Point • If… • Market potential is sufficient • Member participation is sufficient • Capitalization chances look reasonable • Then… • Proceed to incorporate • If not… • STOP

  15. Legal and Policy Documents • Draft bylaws and articles of incorporation • Review by co-op attorney • Select incorporators • usually the steering committee • will serve as the interim board • Incorporate with a state • Develop policies and controls • Accounting checks and balances • Personnel policy handbook • Membership agreements • Board policies (conflict of interest) Your State Statutes (or a co-op friendly state)

  16. Organizational Meeting • Present findings of the feasibility study and business plan • answer questions • Adopt bylaws • Elect Board of Directors • Collect member equity

  17. Funding a Co-op • Membership equity • Initial • Annual • Transaction fees • Per unit retains (i.e. 5% surcharge on each item sold) • Hourly withholding (worker co-ops) • Equity drive • Common stock to members • Preferred stock • to members and community investors • very limited voting rights • Subsidized loans, grants • Loans from members • Market rate loan

  18. Business Start-Up • Immediate tasks after incorporation • Tax ID number, • IRS Subchapter T: “farmer co-op” • board & business insurance • any licenses • workers compensation • Hire manager • Manager hires other employees • Acquire facilities, equipment

  19. Begin Operations This is just the beginning…

  20. Get Co-op on It’s Feet • Board training - foster long term thinking • Model good board behavior and policies • Strategic plan • Annual manager review • Board self-evaluation • Member education and involvement • Require co-op education for membership • Committees, conference calls • Annual membership meeting

  21. Member Initiated Co-op Follow the recipe

  22. How about a Cooking Course? Getting to scale in specific industries

  23. Sectors with Cooking Shows • Several industry sectors enjoy targeted co-op development assistance • Historical - Rural Electric Cooperatives • 1935 Rural Electric Administration • Extensive federal government loans • Network of co-op developers and local groups • Today - Food Co-op Initiative • Retail natural food consumer co-ops • Extensive industry knowledge • Network of technical assistance • Limited seed money

  24. Incubated Co-op(of new business ventures) Analogy of growing tomatoes in northern climates

  25. Examples of Incubated Co-ops(new business development) • Co-op development in a specific industry • Arizmendi bakeries in San Francisco, CA • Co-op development with targeted groups • Prospera with Latina immigrants in Oakland, CA • Initially house cleaning, now food production • Co-op development in a region • Evergreen Co-ops in inner city Cleveland • Underemployed, people with blemished records • Anchor institution approach • Select industries to supply local hospitals, universities

  26. Incubating a Co-op… • Sponsoring organization comes up with idea: • Picks industry, does feasibility study • Conducts market analysis and business plan for proposed co-op sites • Figures out financing • Go/No Go decision point • If go - Sponsor recruits members to proposed co-op

  27. Recruiting Members • Advertise positions • Require co-op training • Co-op principles • Understanding financials • Personal • Business • Democratic workplace • Provide task specific training • Mentor operations management • Open for business • Ongoing care of co-op board and membership • Ongoing support of business

  28. Pros and Cons of Incubated Co-ops Strengths • Proven industry • Streamlined financing • Member perspective: • Quicker start-up • Less burn-out of leadership • People with limited business experience can still enjoy ownership Weaknesses • Group trust building process missing • Member perspective: • Idea isn’t from the members • Members may not have deep industry knowledge • Danger of “convenient” membership and employee mentality

  29. Converting an Existing Businessto Cooperative Ownership

  30. Examples of Conversions • Consumer Co-ops • manufactured home parks • ROC USA • Worker Co-ops • Retiring owners (succession planning) • Select Machine, Kent, OH • Current owners expanding ownership to employees • Real Pickles, Greenfield, MA

  31. Ideal Environment for Conversion • Willing seller • Owner wants to phase out of the business • Concerned about business legacy • No logical successors • Willing buyers • Business has a major impact on their lives • Viable business • Profitable business, limited debt • Industry has a future

  32. Conversion Steps Willingness… Current Situation… New Structure… Do the Deal…

  33. Summary • Member Initiated • Start up business • Members go through the steps of the entire start-up process • Incubated • Start-up business • Organization does development process • Hire and orient eventual owners • Conversion • Existing business • Evaluate viability and seller willingness • Members go through process steps

  34. For More Information Margaret Bau Co-op Development Specialist USDA Rural Development (715) 345-7615 ext. 171 Margaret.Bau@wdc.usda.gov

  35. Crave co-op developer training? • Cooperation Works (all co-ops) • National network of co-op development centers and co-op development professionals • June 27-30, 2016, in Madison, WI • University of Wisconsin Center for Cooperatives • Contact Sarah Pike at info@cooperationworks.coop • Democracy At Work Institute (worker co-ops) • National think-and-do tank for worker co-ops • Worker cooperative start-up webinars • First Friday or the month through 2016 • http://institute.coop/startup • Nonprofits interested in incubating worker co-ops • 2016 Co-op Developer Fellowship Program

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