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5 Steps to Turn Your Business into a Worker-owned Co-op

Learn how to turn any business into a worker-owned cooperative with this checklist.
By Cat Johnson / yesmagazine.org
Sep 10, 2015
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5 Steps to Turn Your Business into a Worker-owned Co-op

Worker cooperatives are a great way to bring democracy into the workplace. For retiring business owners and entrepreneurs, converting to a worker-owned co-op can also strengthen business and generate a return on investment. 

Worker co-ops can be built from scratch or created by converting existing businesses. Melissa Hoover, executive director of the Democracy at Work Institute(DAWI), says that co-op conversions are a promising source for new cooperatives. They already have customers, assets, and employees, which makes converting less risky than a startup. She also notes that converted co-ops are among the most passionate members of the U.S. Federation of Worker Cooperatives.

“They’re the most engaged and the most attentive to the cooperative forum, principles, and movement building,” she says. “To change something into a cooperative structure they had to educate themselves about what that meant, and connect themselves to movement organizations, models, and peers.”

When converting an existing business into a co-op there are lots of questions that need to be answered. How will the business be structured? How long will the transition be? Does the selling owner want to stay on? It takes time to work out the details, and answering questions is an essential part of the transition.

Every business has unique strengths and challenges, and there is no single way to create a cooperative. But there's no need to reinvent the wheel either. Hundreds of businesses have followed these five steps to become a worker-owned co-op.

How it’s done

Shareable spoke with Joe Rinehart, the cooperative business developer at the Democracy at Work Institute (DAWI), to learn how to go from thinking about a conversion to actually doing it. Rinehart used DAWI's conversion timeline to layout an overview of what a typical conversion might look like.

It’s not a hard-and-fast template. Some of the steps overlap, some may be unnecessary, and the timeline will vary depending on how large the company is, how long the selling owner plans to stay involved, how much training is required, and more. 

Stage 1: Deciding to move forward

What it entails: research and reading, worker ownership succession options workshop (for owner and their leadership team), initial owner conversation with employees, Worker Co-op 101 workshop for the employees, owner and workers decide to move forward, select steering committee, contact outside transition support team.

This stage is to get the ball rolling, and for the business owner to decide if they’re interested in converting. It’s also about educating everyone involved about the cooperative model and determining if there’s interest in becoming a co-op. According to Rinehart, this is best done as a facilitated conversation with a skilled co-op transition professional. If there is commitment on both sides, the next step is organizing the key players and moving the process forward.

Rinehart recommends building a participatory workplace as soon as possible. This can be done through practices like open book finances and letting employees have input in redesigning workflow.

“As you create a structure of participation you’re letting employees know they have a voice,” says Rinehart. “It’s a really powerful tool in creating a workplace that can transition.”

Stage 2: Employee training and business valuation

What it entails: financial training for employees, business and industry training, cooperative trainings for employees, business valuation process, determine financing options, review and revise current business plan.

This stage is where investment in the transition occurs. Employees receive training so they can understand the finances of the business, the business is evaluated, and financial options are presented. Rinehart recommends having a professional determine the value, then give employees the opportunity to contest the valuation if need be.

This is critical for the owner and employees. This step creates a structure for moving forward, and gives employees an opportunity to debate the valuation so they don’t feel like they’ve been taken advantage of down the line.

Stage 3: Defining structures

What it entails: document current management plan, draft cooperative by-laws, define post-transition management.

This is where the management plan for the transition and post-transition is laid out, and those in management positions are trained.

Rinehart says that in most conversions the existing management structure is left in place and documented. At this point, everyone should be very clear what the rules are, and if they don’t like the rules they have a voice in changing them.

“The [worker-owners] know how to make the business better,” Rinehart says. “They have knowledge about the industry and the business. They know the impact of their decisions.”

Stage 4: Finalize the transition

What it entails: transfer business ownership, negotiate final price, seek financing, complete the transaction, elect new board, and transfer management as necessary.

This stage is all about dotting your I’s and crossing your T’s. It’s where you find the financing and pull the deal together. You will elect a board and have a first board training.

“It’s about making sure everything is done legally, clearly, and carefully so you’re able to move on,” says Rinehart. “You close the door on the transition and effectively move forward as a business.”

Stage 5: Follow through and monitoring

What it entails: ongoing training with current employees.

Once the worker co-op has been launched, it’s important to have regular check-ins about the business to maintain clear and open communication. The structures put in place are not only for current employees but for future employees too. Make sure there are processes in place for training employees in what it means to be a cooperative and that you also lay out plans for growth. All of this requires ongoing training and monitoring.

“No structure is perfect,” says Rinehart. “You’re designing a human technology for participation and democratic ownership. No technology is perfect the first time out the door.” He adds that you’ll want to take time to evaluate it, refine it, and get help from people who are experienced with worker cooperatives. Among those are the DOWI and its associated organization the Democracy at Work Network, other cooperatives, cooperative developers, and members of Cooperation Works.

The Big Picture

Worker-owned cooperatives, whether created from scratch or converted from existing businesses, are a central part of the sharing movement. As Hoover says, they’re the “original sharing platform.”

For those considering converting to a co-op, Hoover recommends talking with other business owners who have converted. She also encourages business owners to think about what they really want to build, and what they want their business to be after they’re gone.

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