Successful Cooperatives

Successful cooperatives follow a simple process of transparency and engagement. 

Several basic rules for the successful formation of a cooperative apply to more than one step of the process and to continuing operations. Some rules are unique to the cooperative form of business. They include effective use of advisers and committees, keeping members informed and involved, maintaining good board/manager relations, following sound business practices, conducting businesslike meetings, and forging links with other cooperatives.

Top Reasons Cooperatives Succeed

1) Use Advisers and Committees Effectively

Organizing human resources and effectively using their expertise, along with maximum participation by potential members, is central to any successful business and crucial to the success of the cooperative.

• Start by selecting potential members with an eye for expertise when setting up the general steering committee.
  (Finding true specialists may not be possible among the leaders interested in organizing a cooperative; however, some may have an interest in areas that enable them to better understand the "language" of technical advisers.)
• Have an adviser on cooperative organization work with others to help them apply their expertise to the cooperative situation whenever it differs from other forms of business.
• Subcommittees used in the formation process should focus on membership, facilities, site selection, finance, legal documents, and communications.
  (In some cases, one or more of these can be combined.)
• Committees are also useful in the ongoing management of the cooperative and can specialize in the same areas used in the formation process within the board. (Additional, temporary or permanent committees, might include: advisory groups for youth and young member activities, education and training, long-term planning, commodities and services, member and public relations, and legislative affairs.)

2) Keep Members Informed and Involved

Member responsibilities start with the conception of the cooperative and remain throughout its
life to assure successful organization, sound management, and operation. Members' participation
in affairs of their cooperative increases their feeling of ownership and responsibility for its
success.

• Communications and education functions are an integral activity of the management team,
  requiring assistance, knowledge, and involvement of cooperative staff and member
  leadership groups. Effective communications and education programs require financial support and
  must be backed by specific board and management policies.
• Involved and informed members measure their needs in terms of dollars and are more
  willing to invest in and patronize the cooperative.
• Cooperative members should:

1. understand the purpose, objectives, benefits, limitations, operations, finances, and
   long-term plans,
2. read & understand the articles of incorporation and bylaws,
3. know that laws limit their rights or powers and those of their board of directors. Bylaws
   or policies of the elected directors may further limit director operations by establishing member
   obligations, regulations & quality controls exceeding those prescribed by legal statutes & provide equity
   (risk) for the cooperative business

• Cooperatives may find it necessary to borrow early, and as they become established,
  it is neither necessary nor wise to rely on only member capital to meet all financial needs.
  The member's equity capital is used as a base to apply for a loan.

3) Maintain Good Board-Manager Relations

The differing responsibilities of the board of directors and the manager must be clearly understood and carried out.

Factors to consider on overlap/division between the Board of Directors and the manager:

4) Conduct Businesslike Meetings

A cooperative is a business, so its meetings should be conducted in a businesslike manner.

• A policy should be established to determine a reasonable quorum for membership and board meetings. A quorum is the specific or minimum percentage of members required to be present to conduct official business.
• Quorum requirements are sometimes written into State statutes, but should be discussed in the bylaws. As membership expands, the percentage quorum increases the actual number needed. Setting the quorum too high increases the risk of not getting enough membership to deal with business matters needing attention.
• Parliamentary procedure is appropriate for orderly democratic group action. It enables the chair to lead a group smoothly and efficiently in determining the wishes of the majority while protecting the rights of the minority.
  A good meeting results in carrying out several successive steps:

1. Planning ahead
2. Involving members
3. Following a published agenda
4. Following through on meeting actions.

5) Follow Sound Business Practices

The major challenge to cooperative members, the board of directors, and operating management occurs after business operations begin because many of the startup responsibilities continue after the cooperative begins operating.

These responsibilities include:

1. Complete & accurate documentation of income & expenses
2. Exact member records
3. Periodic operating statements & balance sheets
4. Annual full reports
5. Annual independent audits
6. Future Planning

Cooperative must keep complete and accurate documentation of income and expenses. For example, it's critical to operate on a sound business basis to avoid year-end losses. Requirements include:

1. Developing & installing a double-entry accounting system
2. Preparing financial reports, including operating & capital improvement budgets
3. Reporting to the membership in a clear & timely manner
4. Conducting long-term planning

Cooperative must keep exact member records. They account for members' 

1. initial & subsequent investments and
2. member purchasing, marketing, and/or services used to determine patronage allocations from net earnings. 
   Members also need these records for their own personal accounts, particularly for income tax purposes.

Management staff prepares periodic operating statements and balance sheets to inform the board and members on how the cooperative is performing and its financial condition.

The full report is typically issued annually, with abbreviated monthly or quarterly reports for board use.

Reports should come often enough for the board to satisfactorily:

1. Monitor business activities
2. Take appropriate actions
3. Keep members informed on how their cooperative is progressing

Annual independent audit serves as an outside appraisal of the cooperative's financial condition, a check on the business and accounting procedures, and how the cooperative has conformed with tax and other legal requirements.

Once the cooperative is organized and operating, members need to consider how they want it to grow. That takes both short- and long-term strategic planning. Long-term planning, which looks 3-to-5 years ahead, usually gets inadequate attention. But this is becoming more important because of more rapid technological, economic, and social changes.

Planning involves:

1. Developing a vision & mission statement
2. Appraising the future
3. Assessing the external & internal business environment
4. Defining desired goals with stated objectives
5. Developing a course of action to reach them

6) Forge Links With Other Cooperatives

An early exercise to determine whether to start a new cooperative is to investigate the alternative of linking with an existing cooperative that could expand its service territory. Even if starting a new cooperative is the best course of action, the search for beneficial links with other cooperatives should continue.

• Alliances with regional cooperatives or other businesses may be valuable sources for supplies, marketing outlets, and related services.
• Membership in State and National cooperative associations can keep the new cooperative abreast of what others around the country are doing.

These associations can be sources of:

• Education & training programs
• Legislative & public relations support activities
• Help identifying sources of special expertise