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.
PHASE 4. SECURING MEMBER COMMITMENT
| 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