Phase 4 Commitment ALT TXT decorative

Phase 4 calls for securing member commitment. Preliminary member commitment was measured in Phase 2 as potential members were asked to make financial contributions to offset costs for feasibility analysis and other start up costs. Phase 3 calls for a membership survey to further quantify the size of membership and the scale of member business. This information is included in the feasibility analysis. Phase 4 further refines member commitment in terms of equity investment, member risk, members’ rights and responsibilities.

Steps Individuals Involved
• Develop detailed business plan
• Create interim board of directors
• Set up system of accounts
• Initiate member sign-up and equity drive
• Hire manager/CEO
• Launch the cooperative
• Interim board of directors
• Advisors & consultants
• Members•Manager/CEO
• Lenders
• Attorney
• Accountant

Action Steps

  • Utilize feasibility analysis to develop business plan
  • Develop pro forma financial statements to inform member equity construct
  • Conduct sensitivity analysis
  • Analyze risk and develop strategies to mitigate risk for organization
  • Determine required level of member’s investment
  • Define member’s rights and responsibilities, construct agreement
  • Develop member education and membership materials
  • Develop accounting system to provide oversight

Critical Questions

  • How much member equity is needed to launch the organization?
  • How is member equity structured (common and/or preferred stock)?
  • Is the business plan realistic?
  • Does the business plan instill confidence in potential members?
  • What are the internal and external risks to the co-op?
  • How can we mitigate these risks?

Potential Pitfalls

  • Unrealistic member expectations
  • Inability to discipline members not meeting responsibilities
  • Lack of member business volume
  • Inadequate business planning
  • Insufficient member equity
  • Ineffective pricing policies
  • Poorly designed governance structure