Careful planning is one of the most vital parts of any successful business. A business plan outlines and defines every aspect of a business's operations-including who is involved, what its activities are, how it is organized, and how it is financed. Documenting these aspects in detail will help your group to discover potential problems before they happen, allowing you to plan and prepare to avoid them. Clearly outlining the features, goals and objectives of the proposed co-op on paper will also help to create a common purpose among members and will put them in a better position to explain the co-operative to others, including prospective members, lenders, customers and suppliers.
Business plans usually follow a conventional format. A sample outline for a business plan is provided on page 19. In general, all business plans contain the following five main components:
Each planning component should cover a period of at least three years and should contain clearly defined goals, strategies and time lines for implementation.
The development of a business plan for a co-op is much the same as for any other business. There are a number of resources available to guide producers through the development of a business plan (see step 5). Below are a few guidelines specific to developing a plan for a co-operative business.
Describe the governance structure of the proposed co-operative.
In the business description clearly describe the governance structure of the co-operative, including the basis for director representation, voting methods, board officers and their terms. You will also need to define each of these aspects in the co-operative's rules, discussed in the following section. Note that the directors of a co-operative may be selected to represent geographical districts, commodities handled, or some other basis that provides equitable representation of the membership.
Develop a marketing strategy.
Describe how the co-operative proposes to gain and defend market share on an ongoing basis. You will need to develop a plan to address how the co-op will react to the various strategies that competitors may use to retain their business, such as price changes or better contract terms. Two basic types of marketing strategies exist:
Offering a product or service at a lower price than any competitor is the most effective approach to gaining and defending market share. This strategy demands that costs be held to levels lower than those achieved by others in the industry. Investing in creating unique products or services will likely increase costs. However, this can be an effective strategy if competitors have difficulty offering similar products or services at a lower cost. Regardless of your chosen marketing strategy, organize the co-operative to operate in the lowest cost, most efficient manner possible.
Research Question: How will the co-operative
gain and defend market share?
Carefully evaluate capital requirements.
Decisions regarding capital requirements will influence the co-operative's operations for many years. Avoid using so much capital for fixed facilities and start-up that cash flow is jeopardized.
To avoid elaborate or costly facilities, a new co-operative should initially limit the services or products offered to those absolutely needed by the members. If successful, the co-op can expand at a later date.
Develop a plan which addresses the treatment of co-op
surplus and member equity.
When developing the financial plan, seek the advice of an accountant or other consultants familiar with co-operative finance to ensure that the unique financial requirements of co-op businesses are addressed. In particular, the plan must address:
A systematic program for returning equity to members ensures that the people who own and finance the co-op are also those who currently use and benefit from the services provided. When the co-operative's equity needs are met, a portion of each year's income should be used to pay out the oldest patronage-based equity to members. This equity is replaced by funds retained from the current year's patrons.
For a non-technical introduction to co-operative finance, please refer to the second booklet in this series, entitled "Financing Agricultural Co-operatives: An Overview."
Develop a communication and training
program.
Ongoing communication and education are key aspects of a co-operative's human resource plan and training policy. When members are involved and informed about their co-operative, they are more willing to invest in and patronize their co-operative. Effective communication and education programs require financial support and must be backed by specific board and management policies.
Establish a director training schedule to discuss topics such as legal liability, co-operative finance, management supervision, and member relations. Plan to hold information sessions for the entire membership which cover topics such as member responsibilities, co-operative operating policies, and the tax treatment of patronage refunds.
Hold a meeting to review the business
plan.
The purpose of this meeting will be to evaluate the business plan, make adjustments and either approve or reject it. Prepare a report which summarizes the findings of the business plan and distribute it to potential members before the meeting. Conclude the report with the committee's recommendation on whether or not to proceed with the development of the co-operative.
Include the following items on your agenda:
Decision Question: Is the business plan
acceptable to the membership? Should the organization of the co-op
continue?