Thoughts and success stories

- Dan Matthews

3 ways the co-op model can save a business

Main streets across the western provinces are going through significant change. Numerous businesses are or are about to change hands. If there are no buyers for these businesses, many of these businesses are at risk of selling off assets or simply closing. The co-op model can help save a business.

Co-ops and rural communities

Rural people are no strangers to DIY solutions. Many rural communities have often not had the luxury of relying solely on government or big industry players to get the services, goods, and amenities they need and want.

For example, power came to rural Alberta largely through the hard work of farmers who leveraged the co-op model. Co-ops brought many of the goods and services to rural communities throughout the early 1900’s. These small purchasing groups later became the well-known Co-op stores ubiquitous across the prairies.

Even the fuel powering farms in the early 1900s was the result of bulk purchasing co-ops. A few years later during the 1930’s, 8 prairie farmers formed co-op skimming plant in Regina to help ensure consistent fuel supply and prices. That skimming plant is now a multi-billion-dollar refinery that purchases largely western Canadian bitumen and fuels Western Canada.

Co-ops and rural economies have a history, and that history is not over.

co-op creator

The “Coming Wave” of Business Transitions

Today, Canada is facing a “wave” of business transitions as business owning baby boomers look to retire or sell. The threat to the Canadian economy is multiple. But chief among them is that a business often slows growth before the transition. This is the exact opposite strategy a business owner should take. A slowdown decreases value and increases the risk of an asset sale. What should happen instead is selling value, not assets.

Another other major threat is jobs. Across the prairies, over 90% of the workforce is employed by small to medium enterprises (SMEs). The importance of SMEs to jobs and communities can’t be overstated, especially in western Canada’s rural communities.

The reason for this is what BDC calls the “coming wave of business transitions.” According to the 2017 report, “60% of small to medium business (SMB) owners in Canada are over 50 years old. 4 in 10 will leave their business in the next 5 years. Half will sell or transition to a third party, a quarter hope family will take over and 1 in 5 will shut down.”

The impact of this on communities across the country will be significant. But they will be felt most acutely in rural areas. The main streets of many rural towns across the prairies are changing. The challenge for community and business leaders hoping to keep main street bustling is making sure these transitions are largely businesses changing hands and not a fire sale of assets.

While co-ops are often a last resort, they do have a role to play in business transitions.

The 3 Ways

  1. Employees take over the business
  2. Local consumers purchase the business
  3. Local stakeholders pool resources and form an investment co-op to invest in young entrepreneurs

Each of these scenarios requires a unique set of circumstances. So, let’s look at each a bit more closely.

Employee purchase

Employee purchases of a company are quite rare – especially in western Canada. But in some cases, employees have both an interest in the business continuing and the desire to run it themselves. Rather than have the company sold to an unknown entity, employees raise capital and plan the transition with the seller.

In these cases, employee purchases are an option and a co-op can be a good model for that type of transition.

Consumer purchase

The second way a co-op can help save main street businesses from asset sales is through consumer or even community ownership. Often these types of co-ops form to save a business with broad public value. For example, a theatre or fitness centre with enough shared value that community members organize to keep it.

In these cases, a group forms committed to saving a specific business. They raise money, incorporate as a co-op, and, as an incorporated entity, can sell shares, get mortgages or raise donations, and purchase the business.

co-op creator

Investor purchase

The third way co-ops can help save main street businesses is through forming an investment co-op. Like the consumer purchase, this type of co-op requires interest from the community and a small group of invested leaders. The difference is the potential for financial return on investment.

By bringing home some of the capital tied up on Bay Street or Wall Street through RRSPs and other investment products, an investment co-op is a mechanism for delivering investment funds to entrepreneurs and local businesses in your community. By taking a small portion of their larger portfolio, investors pool capital to invest in a variety of local initiatives, while still often enjoying a return on investment.

Without question, the direct financial returns may not be as high as Wall or Bay Street, but the impact on your main street, local economy, and broader community will be significant and provides a way for you to contribute to the revitalization of your entire region.

People in a co-op