business modelLast month’s “31 in 31” campaign was not only a great success in bringing us to over 665 member-owners, it has also ignited the board and many volunteers in moving forward with a number of tasks.

As I mentioned at our recent annual meeting, the board is focusing on three targets; securing a site for the store, member growth and engagement, and raising capital. At last Monday’s board meeting, we began working on specific goals to accomplish in the next few months around those targets. We hope to have the goals finalized at our upcoming December 8th board meeting.

One major goal for the board is to increase our number of member-owners and continue to reach out to existing members. After the success of last month, we want to ride the momentum and reach 700 member-owners by the end of the year. Help us meet that goal by reaching out to your friends and neighbors. Tell them about the co-op, why it’s important to you and encourage them to join. Maybe even consider making a membership a holiday gift for someone.

This weekend we are also starting a series of “Meet Your Co-op” events to help new and existing members connect with each other and learn more about the cooperative movement. Our next event is this Saturday, November 22nd, 2:00pm at Monica’s Cafe & Bakery in Silverdale. Hope to see you there! Look for more events like this in the near future.

Another area that we are focusing a lot of our learning, planning and energy around is how we will raise the capital necessary to open the store. Many of you who have business experience know that opening a business like this is a costly enterprise. Last week, a number of board members joined in a conference call with Bill Gessner from CDS Consulting. Bill’s expertise is in budgeting and capitalizing food co-ops. We discussed with him our plans and shared the information we gained from the market research study we commissioned earlier this year. In a few weeks, Bill will deliver to the board a series of financial documents that provide us preliminary costs and budgets for opening the store, as well as projections for revenue and expenses for the next 10 years.

As we develop our plan for capitalizing the store, we are learning from the path set by co-op startups from around the country. Gone are the days when a food co-op starts out of a member’s garage and incrementally grows. With the size of our membership and the market area we plan to open the store in, we will need to build at a sustainable scale from the start. This means a store at around 10,000sf.

Startup costs for a store of this size can reach up to $3 million. This includes costs associated with improving the site to meet our needs; purchasing equipment like point of sale systems and displays; hiring start up staff, including a general manager and project manager months before the store opens; initial inventory; attorneys, taxes, fees and all the things required to open a business of this size. While that sounds like a lot of money (and it is) we know it can be done. Because its been done many times before.

So you’re probably thinking, “Where are we going to come up with that kind of money?” In addition to what we’ve learned from other co-ops about how they’ve raise their startup capital, we recently met with an attorney that specializes in securities and business financing. He is helping us to learn more about our options and ensure any kind of capital campaign we launch is in accordance with Washington Sate law.

So, there are a number of sources of capital co-ops utilize to startup their business. Here are a few of the ways we are investigating.

  • Membership
    When you join the co-op, you make a $200 investment into the business. This initial investment gives you access to the benefits of being a member-owner of the co-op; but it also provides the organization with the equity capital to pay for the consultants, attorneys, and staff to get started. However, it is not possible to raise the funds necessary to open the store from your membership fee (unless we had about 15,000 member-owners).
  • Member Loans and Preferred Shares
    Members-owners have an economic and democratic stake in the co-op and share in the responsibly of raising start-up capital. Two ways that co-ops offer their member-owners the opportunity to broaden their investment is through member loans and preferred shares.

    • Member Loans:
      This method offers member-owners the opportunity to loan the co-op capital that would be paid back over a specific term at a modest rate. It has the advantage of raising capital quickly, but can also be considered as a debt liability for the business.
    • Preferred Shares:
      Another method is where member-owners can invest in the co-op by purchasing “shares” in the co-op that will pay our dividends when the store is profitable. Preferred shares do not give the member-owner additional voting rights in the co-op. Additionally, board defines when and how much of a dividend is paid out, usually when the business is making a sustainable profit. The distinct advantage of this method is that funds raised are considered equity rather than debt. This is helpful when seeking additional financing.
  • Grants
    There are a number of grant opportunities available that co-ops can pursue to provide resources for starting up the store.
  • Credits
    Some of the initial startup costs can be covered by credits from vendors and lessors. For example, a product vendor may offer initial product inventory at no cost and then the co-op would pay for restocking. Lessors may cover some of the tenant improvements or negotiate a reduced rent for the first few years of operation.
  • Financing
    Finally, co-ops will typically finance a portion of their startup costs through a traditional bank or community development financial institution. It’s recommended that co-ops try to limit financing to around 33% of their start-up costs.

The mission of the Kitsap Community Food Co-op carries a vision that connects “…our local community with quality food, products and access to information that promotes a healthy future for our families and our planet.”  While raising the capital it will take to open the store may seem like a daunting task, the board of directors are confident that our community of member-owners share the common vision of the co-op.

I encourage you to join us for a board meeting and learn more about the work that a dedicated group of board members and volunteers are engaged in to make our vision a reality.

Who knows… maybe you’ll be inspired to help out too! 🙂

Cooperatively,

Jeff Allen
President
Kitsap Community Food Co-op

Jeff Allen

 

Moving Forward: How Do Co-ops Raise Capital?