Organizing a Cooperative

Organizing a Cooperative This presentation: Why Start a Cooperative? Rule of Thumb Timeline Events (from How to Start a Cooperative report) General Rules for Success Potential Pitfalls Summary More Information

Why Start a Cooperative? A compelling need and a few community leaders can spark the idea of forming a cooperative. Usually, these leaders have an economic need or desire a service they believe a cooperative can provide. They also know others who have similar interests.

Organizing a Cooperative Time Line of a Start Up Steps for Organizing a Cooperative Starting and developing a cooperative is not a small task. Cooperatives begin with a small number of people discussing a common problem and developing ideas how to solve it. Many factors like leadership skills, the complexity of proposed operations, and money, determine how long it takes to start a cooperative. Time can range from three months to two years, or more, but care should be taken to plan and organize thoroughly. This increases the probability of success. The development of a cooperative should be carried out mainly by its potential members. It is they who will use the cooperative and know what they need from it. They must choose leaders from among themselves who are willing to devote much time and energy to making the cooperative a reality. And while outside advisors are useful, the leaders, along with other potential members, always make the final decision as to whether to form the cooperative. 3 Months 2 Years General rule of thumb

Organizing a Cooperative Event 1* Invite leading potential member-users to meet and discuss issues. Identify the economic need a cooperative might fulfill. *The events described in this presentation are from How to Start a Cooperative, Cooperative Information Report 7. In practice the sequence of events often vary depending on the type of cooperative development project.

Organizing a Cooperative Event 2 Conduct an exploratory meeting with potential member-users. If the group votes to continue, select a steering committee.

Organizing a Cooperative Event 3 Survey prospective members to determine the potential use of a cooperative. Example information to be gleaned: - Volume of need or use. - Member-user experience and capabilities. - Variety of products or services offered or needed. - Period of need or services. - Current unit value—sales price or cost per unit. - Member-user—location of use or need. - Familiarity with and use of other cooperatives and willingness to join, finance, and use one. (Use of an outside advisor is useful in this step)

Outside Advisors Use of outside advisors can greatly aid a group throughout the process: - Business or cooperative specialists or practitioners, consultants (help facilitate the process, conduct feasibility studies, etc.) Technical advisors/industry analysts (help with technical aspects—facilities, equipment, etc., help with market analysis, etc.) Financial counsel (help with capital needs assessment and accumulation) Legal counsel (assist with completing legal documents, filing with State) The following steps should be completed in starting a cooperative. Keep in mind that they often occur in the order in which they are presented, but may occur in a different order, because each situation is unique. Leadership an d Advisors Development often begins by a leadership group holding one or more small group meetings of interested persons to discuss ideas. If they find support for their ideas, they should next seek the advice of someone familiar with cooperatives. Specialized help is needed throughout the various stages of development. Leaders need someone familiar with starting a cooperative to help them with the legal, economic, and financial aspects. Specialists who should be contacted at various times during the process include: - Cooperative development specialists - Legal counsel - Financial counsel - Technical or product advisors - Project managers

Organizing a Cooperative Event 4 Discuss survey results at a second general meeting of all potential members and vote on whether to proceed.

Organizing a Cooperative Event 5 Conduct an initial needs or use cost analysis. Identify suitable markets, sources of supply, and service providers and their requirements. Some ways to gain information: - Use previous research and industry common knowledge. - Survey market, supply or service provider sources. - Ask State and/or Federal offices, universities, Cooperative centers, commodity organizations, or private consulting firms to conduct the research and use their findings. Analysis of Markets for Products, Supplies, and Services Depending on the type of cooperative, perform analyses of markets for: - Products (quantity purchased in the proposed cooperative’s marketing area) - Supplies (prices and availability of items to be cooperatively purchased by a group) - Services (availability of services in the area, and the going rate) (The information from this analysis will be useful in a later feasibility study should the cooperative idea proceed.)

Organizing a Cooperative Event 6 Discuss results of the cost analysis at a third general meeting. Vote whether to proceed. Steering committee has seen what advisor has done And calls the general meeting. Group hears results and votes whether to proceed. Premembership agreements may be used if group is proceeding. Initial investments may be collected at this point. Market Analysis

Organizing a Cooperative Event 7 Conduct a feasibility analysis and develop a business plan. A feasibility study is an important analytical tool to show how a business will operate under a set of assumptions and within the proposed cooperative’s industry. Information from the member survey and the initial cost analysis are used and expanded upon. Components of a study might include project description and justification, industry background, marketing situation, outlook, and plans, operational and technical characteristics, financial statements, projections, and sensitivity analysis, and summary and recommendations. These will be contingent on the type of project. Key actions: Decide who will conduct the study Develop sound and realistic project assumptions Determine components for a comprehensive study Assess the study Accept or reject the study Feasibility Study

Organizing a Cooperative Event 8 Present results of the feasibility analysis at the fourth general meeting. If the members elect to continue the process, the steering committee is instructed to arrange for incorporation and development of bylaws and other necessary legal papers. The feasibility analysis will then provide the foundation for the development of the business plan.

Organizing a Cooperative Event 9 Prepare legal papers and incorporate. Drafting articles of incorporation and bylaws is a very important process. - Other legal documents include the membership application, membership or stock certificate, Marketing/purchasing agreements, revolving fund certificate, and meeting notices and waivers of notice. - Filing the articles of incorporation activates the cooperative corporation. Once chartered by the State, the cooperative should promptly adopt bylaws. Articles of Incorporation Bylaws

Organizing a Cooperative Event 10 Call a meeting of charter members and all potential members to review and adopt the proposed bylaws. Elect a board of directors. Ballot If members of the first board of directors have not been named in the articles, they should be elected at this meeting. VOTE

Organizing a Cooperative Event 11 Convene the first meeting of the board and elect officers. Assign responsibilities to implement the business plan. Board action items: Membership drive Membership application or stock subscription. Acquiring capital Bank selection Initiate hiring of management Authorize officers/employees to handle funds Design and install accounting system Provide for bookkeeping and accounting services Print articles, bylaws and member documents for distribution Bond officers and employees in accordance with bylaws Choose a business location (if not already selected) and seek bids for equipment and facilities Business Plan

Organizing a Cooperative Events 12 & 13 Conduct a membership drive and acquire capital. While many members may already be committed, the cooperative may seek other potential members to ensure there is enough for a successful business. The feasibility study likely outlined sources of capital for the new cooperative. Membership stock shares, member equity contributions, loans, and outside equity accumulations, etc., need to be accumulated. Loan Application Member Contribution

Organizing a Cooperative Events 14, 15, & 16 Hire the manager (a critical task of the board of directors) Acquire facilities (follow business plan for land, facilities, equipment needed. Involve manager) Begin operations

Organizing a Cooperative General Rules for Success Use advisors and committees effectively Maintain good board-manager relations Conduct businesslike meetings Follow sound business practices Forge links with other cooperatives and cooperative associations

Organizing a Cooperative Potential Pitfalls Lack of clearly identified mission Inadequate planning Failure to use experienced advisors and consultants Lack of member leadership Lack of member commitment Lack of competent management Failure to identify and minimize risks Poor assumptions Lack of adequate financing Inadequate communications

Organizing a Cooperative Summary Developing a cooperative organization is a complex process that will involve a number of events. The precise sequence of events will be dependent on the type and scope of the cooperative project. Outside advisors often play an important role in various aspects of the process, but strong leadership from the group of potential members is imperative throughout the entire process. Realistic assumptions leading to accurate information and projections are critical in the decision making stages. There must be a critical mass of loyal members willing to make a personal, business, and financial commitment to the cooperative. All potential members, advisors, and partnering organizations involved in the development of the cooperative must have a thorough understanding of the unique principles and practices of a cooperative organization and support them.

For More Information… See: How to Start a Cooperative (Information Report 7) Creating Co-op Fever: A Rural Developer’s Guide to Forming Cooperatives (Service Report 54) Cooperative Feasibility Study Guide (Service Report 58) Sample Legal Documents for Cooperatives (Information Report 40) Co-ops 101 (Information Report 55) Cooperatives: What They Are and the Role of Members, Directors, Managers, and Employees (Information Report 11) And other cooperative publications and materials found at: http://www.rurdev.usda.gov/rbs/pub/NEWPUB.htm Cooperative Programs: http://www.rurdev.usda.gov/rbs/coops/csdir.htm See other resources also, for example: Cooperative Development Centers located across the Nation, Cooperative Research Centers at Universities, etc.