By the end of this you will have a better understanding of:
- How to work out the amount of investment your co-operative will need
- What sort(s) of investment you will need
- Ways of securing this investment
Financing your co-operative business or organisation is vital. Until you have raised investment, you will not be able to launch. Similarly, you will require continued investment until your business makes a profit.
But securing investment is difficult until you convince people that investing in your co-operative is a good idea for them. You need to give potential investors confidence in your idea, which is why doing a feasibility study and testing is so important. Follow these steps:
Step 1: Calculate your capital requirement
First you need to do some sums. They will likely be estimates at this stage but it’s vital to do this thinking so you know what sort of investment is required to get your co-operative up and running.
When it comes to raising money, although you may not be able to be very accurate at this stage, you should say how much you think you will need, for what and for how long. This can be broken down into:
- Capital investment: money for large purchases; and
- Working capital: the cash needed to ensure that all bills can be paid on time.
See Step 1 of the Investment requirement analysis template:
Work out how much money will need to be invested in your co-operative business or organisation to get launched and then to the point where it becomes profitable and self-sustaining (the break-even point) – well beyond the launch date.
Step 2: Identify sources of income
Once you have an idea of all your investment requirements you should say where you think it will all come from. If you have started talking with potential investors or if you have been promised support from individuals, including members of the steering group, you should detail this.
First visit the Financing your co-operative section to read an overview of the different types of investment and sources of finance. It’s a guide to help you work out your options, as well as directing you to where you can access advice and support at this important stage.
See Step 2 of the Investment requirement analysis template (see above). Outline the potential sources of income to match the required investment you need. At this stage, this is just potential sources, but it needs to be sensible to give investors confidence you know what you’re talking about.
Step 3: Other investment
Investment comes in many forms. It's not just about cash loans and grants, it's also the work that people such as yourself put in for free and the goodwill, gifts, opportunities and expertise that your supporters provide for free. The time and energy that people put into starting up an enterprise on a voluntary basis is known as “sweat equity”.
See Step 3 of the Investment requirement analysis template (see above). Outline any additional support (including your own) that will be given for free as well as any other types of donations, such as computer equipment.
We need to talk about profit
Profit is essential to the sustainability of your organisation; be under no illusions - if you don’t make a profit you will cease to exist. Once you are making profit, you should consider what to do with it:
- Reinvest the profit in the organisation to do more, in line with your business' mission.
- And/or distribute profits to members.
Before moving onto the next section, please make sure you have read the Financing your co-operative section. This is The Hive’s overview of the different types of investment and sources of finance. It’s a guide to help you work out your options, as well as directing you to where you can access advice and support at this important stage.
The information and tools in this section have been developed by our colleagues at Co-operative Assistance Network.Updated: 26/03/2019