A practical guide to setting up a co-operative
Have you ever wondered ‘how do I set up a co-operative?’ It can often be hard to know where to start.
We hope that the questions below will help you to make sure you are thinking about the right things, but please get in touch if you would like some support from one of our advisers on how to set up your co-operative.
What is a co-operative?
Co-operatives are defined by 7 principles.
- A co-op is owned and controlled by its members.
- A co-op is democratic
- Every member contributes financially in some way
- A co-op is an independent business, owned and controlled by its members.
- It offers education and training to everyone involved, so they can develop the co-op and promote the benefits of co-operation.
- It co-operates, works with and supports other co-ops.
- A co-op supports the communities it works with.
For more information on co-operative principles and values, see this page on the Co-ops UK website.
What are some of the first things to think about if you are interested in setting up a co-op?
- In order to set up a co-operative, you need at least 3 people (but more is okay too).
- There is a lot of work to do when setting up any new project or business, so it is a good idea to define a core working group of people who have enough time to dedicate to the project.
Having a core group which isn’t too big means that you can coordinate meetings and get feedback from everyone relatively quickly – it’s much harder and slower to do this when you have too many people! - What about people who are interested but don’t have much free time?
- It is great to keep these people involved in some way. They might be some of the first members of your co-op, or could be used for doing market research to sense check your ideas.
- Splitting up roles and responsibility
- Within the core group, it can be a good idea to try and split up roles and responsibilities as soon as you can.
- Things like the overall aims and vision of the group need to be decided by everyone, but if you keep trying to make all of the decisions with everyone, things will take a long time and move slowly which may lead to frustration.
- Try to use the skills and expertise of group members, as well as giving people a chance to learn new things. There are lots of governance structures which you can look up online to see what might work for your group, or you can ask a co-op adviser.
Once you have a group together and you have a bit of an idea, what are the next steps to take in developing that idea?
- It is really important to make sure you have a sustainable business idea. It can be easy to want to set up a co-op because you are interested in something or because you see a need for it but unless there is a sustainable business model, it is likely to lead to burn out of the members as they try to keep it going.
- If you are planning on using grant funding to make your business work, you need to make sure that funding exists that you have a chance of getting.
- What questions can you ask yourself to test if you have a sustainable business model?
- What other companies are doing similar things to your idea?
- What will the costs of your business be? (Estimating staff costs, cost of supplies, rent costs etc.)
- How many people will be willing to buy what you are trying to sell?
- How much will people be willing to pay for your products/ services?
- Who will be your customers – is it a certain part of the population? Will it be based on geography or some other demographics you can measure/ research?
- How will you advertise to the people who will buy your product?
- Some of these things are easier to estimate than others. If the co-op you are planning on setting up is similar to any other co-ops, you could get in touch to see if they are willing to talk to you about their business model.
How do you register your co-operative?
- In order to register your business, you will need to choose a legal model. Your choice of legal model should be based on how you want your business to operate. Some useful questions to think about are:
- What will your products and services be? What do you want to do with profits – do you want to be able to distribute them back to people who have spent money with you or do you want them to be kept within the organisation?
- Will you be applying for money from grant funders? If you do, do you know that money exists for what you want to use it for?
- Do you want to be able to use community shares to raise money?
- Do you want to have an asset lock (something that protects what happens to the money and things a company has when it closes down)?
- How important is it to you to be a co-operative? Would you be open to people in the future deciding that they want to keep the business going but not as a co-operative? Or do you want it to only be able to exist as a co-op?
- Who is the organisation set up to benefit? The members or a wider group?
- Who will the members be? E.g. Will they be members because they are interested in your group or because they buy things from you or work for you?
- This can be quite a complicated thing to work out so please reach out for support if you need to!
- The Simply Legal resource from Co-operatives UK explains the main legal models and their advantages/ disadvantages.
How do you get the money to get started?
It can often be easy to avoid conversations about money, especially if the main purpose in setting up your co-operative is social good.
It is really important to make sure you have enough money so that you don’t burn yourselves out by overworking.
Some of the main ways of getting the money to start are:
Grant funding is great in the sense that you don’t have to pay it back. Most funders will want some proof that you did what you said you would with the money so there is still some admin and reporting to do but the risk is lower for you.
Something to look out for with grants is whether they are paid upfront, paid in instalments, or if they will pay you back at the end of a project. Especially if you want this money to help you start, you may not be able to wait until the end of a project to get the money.
Given changes to grant funders in recent years, (the increased difficulty in getting multiple year grants and increased competition for getting grants) it is worth thinking carefully about how reliant you want to be on grants.
A key feature of loans is that you have a specific repayment date or dates (that you will agree with the bank before you get the loan). This means you can clearly plan out what money you will need to have available for these repayments, and once you have paid off all of the loan, you will have a ‘blank slate’.
Most banks will want ‘collateral’ – something that they can take off you and sell if you are unable to pay back your loan. This means they tend to prefer giving loans for things like buying buildings and equipment, rather than for things like staff costs where there is nothing they can take ownership of.
Community Shares can only be used by Co-operative Societies and Community Benefit Societies. They allow people to invest money and earn interest on their investment as a type of equity finance. They are more flexible than loans in that the interest and repayment of shares is only paid if the organisation is in a financially stable position.
Generally Community Shares work best where you have a strong social purpose or are meeting a clear need – i.e. when other people really want you to exist!
For example, if you want to set up a community shop in an area where there isn’t a shop for miles, you might get a lot of members of the local community investing because they really want to have a shop there.
No matter where you are getting the money from, you will need to have a legal structure and a bank account set up.
You will also need to be able to tell people what your plan is and why you think it will work. Some things to include are:
- Who is involved in the group?
- What are you aiming to do and why do you think it is important?
- Why did you choose the legal structure you have? How will it allow you to do what you want to do?
- How have you researched the costs and potential incomes of your business?
Once you have your co-op up and running, what are some of the key things you need to keep in mind?
- It is important to remember that by running a co-operative, you are legally running a business and staff/ board members/ trustees have various responsibilities.
- A lot of co-operatives are set up to fight against established ways of doing business, but you still have legal responsibilities as a business owner and employer and the co-op could be fined if you don’t do things right.
- Depending on the legal structure you choose, you will have a different ‘regulatory body’. It is important that you know which regulatory body you are registered with, and what they require. (They will normally have some support for you to help make sure you get things right).
Co-operation!
Remember, things will often be difficult and hard and you might not always agree, but part of co-operation is learning to work with other people.
Try to approach differences of opinion with mutual responsibility and care for each other, understanding that you are all probably doing what you think is best for the co-operative.
Making time and space to resolve tensions or disagreements early can save a lot of time in the future, and help to make sure that the co-operative thrives.