Having a financial plan for a new venture is critical to its future success. In most start-ups, and especially for those forming cooperatives, reliance on volunteer or unpaid efforts is normal. Harnessing this energy and enthusiasm for the new venture is important but so is avoiding volunteer burnout.
“Ultimately, in a startup, everybody’s volunteering and no matter how devoted you are to your cause unless there is a way to give key people the way to put macaroni on the stove or toast in the toaster, it will burn out,” says serial entrepreneur and co-founder of Heart Linked Community Service Cooperative, Cathy Edwards. “So, I strongly recommend that, while there is a lot of gas in the tank and motivation for the new idea and the new concept, there is [also] a really keen focus on what steps need to be taken to achieve some semblance of self-sufficiency.”
Achieving self-sufficiency requires financial planning
Generally, achieving a semblance of self-sufficiency includes “making sure that people are being compensated in some way for their time,” says Edwards. Besides incentivizing engagement, encouraging loyalty, and respecting the time and efforts of founding members, getting to a place of self-sufficiency also means the venture can stand on its own and withstand the shock of losing key people.
“What everybody wants is for the entity to take on a life of its own and exist separate and apart from any one individual member who may have been around during the startup phase,” says Edwards. “The goal is to create an organization that can survive whether or not there is a transition of the initial organizational figures.”
Mapping out the financial stability of your co-op startup
To avoid this volunteer burnout and work towards sustainability, Edwards says it’s best to map out pathways to financial stability early on.
“The financial roadmap has to be delineated or carved out very early on in the process because it always starts with volunteers,” says Edwards. “It’s a very big ask for two to three years into the endeavour for everyone to still be volunteering.”
She suggests one milestone in a financial plan should be a paid position. Achieving at least one paid position helps ensure it’s someone’s job to focus full-time or nearly so on the success and wellbeing of the organization.
Getting to a paid position is a key milestone for financial stability
“I really feel that having paid positions – having a very clear path of how you’re going to achieve those transitional milestones to get to self-sufficiency – that’s a big part of the [financial plan], says Edwards. “Because unless you have a roadmap, you don’t really know how you’re going to get where you’re going.”
A financial plan is also a useful tool for understanding how to get to sustainability and recognizing where cash needs to come from to remain viable. Many cooperatives – both for-profit and non-profit – will rely on grants to get up and running, especially if they serve a social purpose or achieve an economic development interest of a government entity, like PrairieCan. But relying on grants long-term is often problematic. So, understanding how money is going to be regularly sourced, either through membership fees, revenues from sales, or some other robust mix of funding that can be relied on, Edward says.
Finding reliable sources of revenue leads to financial stability
“I feel like one common element that all [startups] need to think about is finding a path to self-sufficiency, or an independent revenue stream,” says Edwards. “And the reason I say that is because … I know that grants are very unpredictable, you may secure a grant from an organization one year and then reapply the next year and be turned down, and that can be devastating to a small startup who’s very 100% reliant on grants.”
Edwards points to an example from Heart Linked Cooperatives, which she co-founded. The co-op’s goal is not profit-driven, but like any entity, it requires revenues to continue functioning. To create revenue streams other than from government or grant sources, they sell branded merchandise and have repackaged some of their core services in a way that they can charge a fee for service – in this case, a leadership program for girls.
Chasing income-generating opportunities leads to financial stability
“I always try and encourage [startups] to look at what they’re trying to achieve and see if there are parts or elements of the [business] that can be income generated, or income-generating pursuits, or alternatively, look at using the membership base to help drive core operational costs,” says Edwards.
Whether for-profit or non-profit, startups should be exploring ways to create various revenue streams and be creative in how they approach raising or earning money for the organization. Edwards points out that if your startup is solving a problem, there is a good chance it can be generalized. So, if you solve this problem for one community, for example, it is probably of value to others. In that case, it may be worth exploring how to make it an income generator for the co-op.
Monetizing the solution you provide adds to financial stability
“Often with co-ops, they’re looking to fill a void or create something that is missing either in the social environment or in a community. So if it’s missing from that community, it’s probably solving a problem that exists elsewhere,” says Edwards. “It’s looking at that solution, and how can you monetize it.”
Edwards points to an example from a Co-operatives First project she consulted on, a school for immunocompromised kids. She says part of the process of setting up a school system for vulnerable kids involved creating safety protocol. Packaging the protocol for other school systems and organizations became a way to “monetize the work that they were already doing for their initiative.”
Get help making a financial plan
So, while startups will often start with grants and some form of membership loans or financing, in the long-term, co-op founders need to be thinking about other forms of revenue and how they can be achieved while remaining true to the organization’s mission and vision. It’s a tough job but a financial plan can help.
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