Choose the type of co-operative
You need to chose the right type of co-operative model to reflect your business purpose. This requires careful consideration of whose interests the co-op will ultimately be operating in.
The first decision you will need to make is whether you want the business to be for-profit or not-for-profit. People often assume that a not for profit is tax exempt, but this is not always the case. Make sure that you have a good working knowledge about the costs and benefits of both business models, and seek professional advice where needed.
Determining your business model requires further decisions beyond the choice of a for-profit or not-for-profit. Matters such as finance needs, who the members will be and how the business enterprise will operate are part of the business planning phase that will help the design of your business model.
Business planning is an ongoing process. Initially, you need a business plan to help sell your idea to get people to join your co-operative. As the co-operative’s business grows, the plan will need to adapt to change and challenges. Good business planning practice from the start will serve your co-operative well through its life and will help you measure its performance.
How to choose the type of co-operative
The type of co-operative you will chose is largely determined by how you intend to provide value to your members and how you will fund the co-operative.
In Australia there are two broad co-operative types:
Distributing co-operatives: A distributing co-operative can distribute any and all of its annual profits to active members. This can incentivise members to strive for the co-op’s commercial success. A distributing co-operative must have share capital and members must own the minimum number of shares specified in the co-op rules.
Non-distributing co-operatives: A non-distributing co-operative can’t share profits with members. All profits must further the co-op’s purpose. It does not need to issue any shares to members, but this isn’t prohibited. Non-distributing co-operatives meet the ‘not for profit’ definition for Australian taxation purposes.
- What is the main purpose of your co-operative? Financial, social or both?
- Do you wish to provide a financial return to members?
- How will the co-operative get initial capital and working capital?
- What will be the co-operative’s tax status?
- Is tax exemption a benefit to your business idea or will it restrict how your business will operate?
- Choosing your type of co-operative requires further decisions beyond the choice of a for profit or not for profit. Matters such as finance needs and sources, who the members will be and how the business enterprise will operate are part of the business planning phase that will determine the design of your business model.
- Business planning is not a static ‘once and for all’ task. Initially, you need a business plan to help sell your idea to get people to join your co-operative. As the co-operative’s business grows the plan will need to adapt to change and challenges. Good business planning practice from the start will serve your co-operative well through its life and will help you measure its performance.
- Read more about different co-op types and how to choose – BCCM
- Co-operatives in Australia: A Manual – The Co-op Federation
- Tax exemption – ATO
- BCCM’s Co-operative Foundations online course provides you with a foundational understanding of co-operatives and how they can increase profits, efficiency, and value of agricultural businesses, developed as part of the Co-operative Farming Program.
- Government Co-operative Loan Schemes in Australia
A business plan is more detailed than a feasibility study. The business plan should describe in detail your vision, products or services, member needs, channels to market, customer segments, the resources needed including assets, equipment, intellectual property, people, and costs. By identifying each component, you will be able to see what funding is needed and how long it will take for the co-operative to reach a point where it is creating value and achieving its purpose.
The business plan is an essential resource to use to promote the co-operative, to garner interest and support from funders, stakeholders and potential members. There are many free resources available to help you write your business plan using different methods. Choose which method you find best articulates your idea and how you want to present it.
If you are proposing to form a distributing co-operative you will need to have prepared forecast financial statements for the co-operative’s first year of operation. The BCCM’s Business planning for co-operatives is designed to help you prepare those financial statements. You will find links to the various business planning resources and the BCCM’s guide in the Resource links for this section.
- How many members are expected to join?
- What are the benefits your members are expecting?
- What is the potential size of the market?
- Who will be your key competitors?
- What makes your co-operative business idea attractive to potential members?
- What are the risks, benefits, strengths, weaknesses and threats?
- What are the costs in establishing and operating the co-operative?
- How much money will need to be raised?
- How long before you expect to break even?
- Is it viable?
Engaging with key stakeholders, such as current and future members, customers, suppliers, funders, and local community groups is best conducted throughout the establishment and operation of your co-operative. It will not be a one-off task. This will ensure that you remain aligned with your members’ needs and maintain support from your stakeholders.
Equipped with your business plan you will be able to explain your idea and convince people to join or support your co-operative. Your business plan should be a living document that reflects changes and other challenges as your co-operative grows. By keeping your business plan ‘alive’, the co-operative will remain relevant and attractive to your stakeholders.
- Co-operatives in Australia: A Manual – The Co-op Federation
- Five ways to increase membership engagement
- BCCM’s Co-operative Foundations online course, developed as part of the Co-operative Farming Program.
Governance is the systems and processes that ensure the direction, supervision and accountability of an organisation.
- establishing and maintaining appropriate structures for strategic decision making,
- setting clear roles and responsibilities, and
- putting all the systems and processes into practice to ensure an organisation is well run, financially sound and legally compliant.
The role of the board of directors is usually to make strategic decisions and plans and supervise their implementation. This is not the same as the day-to-day running of the co-operative. Day-to-day running is managing the activities of the co-operative in accordance with the board’s decisions and plans.
In the beginning, the board of the co-operative will probably be involved in strategic decision making and day-to-day management. This usually happens because there will be no clear management roles or responsibilities and possibly limited funds to employ managers. The initial role of the board is likely to be more hands-on than strategic. The board may need to rely on others in either a paid or volunteer capacity to help establish systems, processes and legal and accounting compliance procedures.
The primary governance document for a co-operative is its rules or constitution. The constitution must provide a basic governance framework including:
- A board of directors, with a minimum of three directors,
- Director qualifications and elections,
- Financial reporting to members,
- Who can be a member, and
- Members’ meetings, obligations and voting rights.
Co-operatives legislation requires that the co-operative appoint a secretary who will be responsible for compliance with that legislation.
The board of the co-operative will also develop other governance tools, such as codes of conduct, committees or organisational charts to show reporting and accountability obligations.
You will be guided through the drafting of your constitution and other aspects of governance as you proceed through the next stages to start a co-op or run a co-op.
- How many directors are needed to establish and run the co-operative?
- Do they have the skills needed to get the co-operative’s business started?
- What staff or volunteers will be needed to help get the co-operative established?
- What skills can members contribute to help in the initial start-up phase?
Basil Lenzo, Chairman, Geraldton Fishermen’s Co operative on a collective advantage.
“I think everyone should be in a cooperative if they’re in a small business. I mean, there are reasons why it works so well, and the collective wisdom and the collective grouping of individual businesses makes so much sense if it’s economy for scale or if it’s for the benefit of the community or for social aspects as well. Most definitely. ”