How to Start a Co-Op Business

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A cooperative, or co-op, allows its members the ability to improve their bargaining power by utilizing the theory of strength in numbers. Co-ops are owned and controlled by the members, a community of people with common interests, who in turn benefit from the convenient format. Frequently, co-op businesses are formed to obtain better prices on local food or common products. However, other types include consumer, worker, producer and purchasing co-ops. Before you can start your co-op, determine that there is a need.

Contact the U.S. Department of Agriculture Rural Development Office in your state or the National Cooperative Business Association to connect with someone familiar with establishing cooperatives in your area. Contact your Secretary of State to procure literature on the laws affecting co-ops in your state.

Determine which members would benefit from the type of co-op you hope to establish. Contact neighbors, advertise on Craigslist, post flyers on bulletin boards around town and contact local news outlets and radio stations to gauge or drum up interest.

Invite potential members to an arena in which you can discuss what a co-op is, the need, solutions, potential benefits, initial financial investment, tax implications and potential financial risks. Depending on the size of your co-op, it may be necessary to establish a steering committee. At a minimum, ensure that you can handle the responsibility of managing the co-op. It may be necessary to designate an alternate in the event you become indisposed.

Contact the prospective product distributors to learn the type of volume you need to achieve to establish a co-op and the costs.

Conduct a feasibility analysis to determine the financial impact from a decrease or increase in sales or changes in volume or operating costs. Include facilities and equipment needed, expected operating costs, labor needs, cash flow requirements, up-front capital, debt capital and whether you will operate via stock or non-stock cooperative. Determine the logistics, such as where the product would be delivered, a cost analysis and how to secure financing, whether via stocks or membership fees. Present this to your members and verify that the cost will work.

Develop a business plan and determine how to secure financing. Although much of the financing will come from members via stocks or membership fees, you may be able to procure funding from financial institutions that work specifically with co-ops. Your Rural Development Office or the National Cooperative Business Association should be able to point you in the right direction.

Incorporate the co-op. Then establish bylaws, which should detail membership requirements, member duties and reasons for member expulsion, meeting protocol, elections of officers, term lengths and dissolution of the cooperative.

Have members sign a contract that everyone agrees on. It should detail when and how much money is due, when products need to be picked up and the notice required for opting out of the co-op.

Establish a website or use social media to help track new members or new product needs and to schedule meetings. If your co-op grows and you find that you are ordering more than you initially expected, ask for a better deal.