So how can you tell if a co-op is the right fit for your business idea? Consider the following situations:
- You’re solving a problem for yourself and others like you
Most entrepreneurs start businesses that solve someone else’s problem – responding to a gap they see in the market. Co-ops are different.
When people create a co-op, it’s because they want to solve a problem that they have, themselves. Using a co-op, they can join forces with other people who share that problem and want to work together to solve it.
Maybe they need a co-working space, or they want to lower their input costs by buying in bulk. Or perhaps they are a group of parents who all need affordable childcare spaces, or producers who would benefit from marketing their products collectively. The purpose of a co-op is to provide a good or service that its owners need, so if your business solves a problem that you share with others, a co-op could be a great fit.
- You want to share ownership and responsibility
As we mentioned, co-operatives are formed to solve a group’s collective problem. This is great if you don’t want all the work and responsibility to rest on your shoulders and would rather take a strength-in-numbers approach.
The one-member, one-vote system ensures the power in the co-op is always evenly distributed, and no single owner can call the shots. So if your goal is to be the CEO of your business and make all the big decisions yourself, a co-op isn’t the right choice. For others, though, who want to share the responsibility and workload, this can be a great option.
- Your primary goal isn’t profit
Because the main purpose of a co-operative is to provide its members with a good or service they need, making a profit is secondary. The co-op needs to be financially viable, of course, to continue to deliver on its mandate, but growing profits is not its first goal.
That doesn’t mean co-ops can’t be profitable. If the co-op does make a profit, that surplus can be distributed among the members based on how much they use the co-op. These payments are known as patronage dividends. Surplus can also be used to build the co-op’s reserve fund, re-invest in the business, or give to community initiatives.
- You want the benefits of incorporation
Like a corporation or society, co-ops are incorporated businesses. Incorporating a business limits an owner’s liability, offers more options for raising money, and comes with some tax advantages. Once incorporated, a co-operative can sell shares to its members or investors, take on debt, issue bonds or member loans, and apply for grants. In fact, according to Statistics Canada, co-ops are much more likely to meet their fundraising goals than other types of small and medium-sized businesses. Plus, co-ops can pay their patronage dividends before paying small-business or corporate taxes, which lowers their taxable income. That’s a win-win for the co-op and its members.
While a co-operative is not the right choice for every business venture, in certain situations it is the perfect fit. So if the above criteria fit the goals you have for a new business venture, consider whether a co-op might just be the right way to go.