Approach to CraftsThe Cooperative - Rural Developmentcooperative approach to solving craft marketing problems, and offers development guidelines for craft cooperatives. This publication

United StatesDepartment of Agriculture

Rural Business–CooperativeService

Cooperative Information Report 33

The CooperativeApproach to Crafts

The Cooperative Approach to Crafts

United States Department of Agriculture

Rural Business-Cooperative Service

R. Wade Binion and Gerald Ely

February 2000

A significant number of professionals produce crafts in the United States. But they often havedifficulty realizing maximum return for their production. Craft cooperatives, guilds, or informalorganizations have been of major importance in solving marketing problems faced by craftspeo-ple.This publication gives a brief review of craft development in the United States, discusses thecooperative approach to solving craft marketing problems, and offers development guidelinesfor craft cooperatives. This publication is an update of several earlier versions on the subject.

Revised February 2000

( R. Wade Binion is an agricultural marketing specialist with the Cooperative DevelopmentDivision of the USDA’s Rural Business-Cooperative Service; Gerald E. Ely is a cooperativedevelopment specialist in Pennsylvania. Parts of this document were prepared earlier by USDAstaffers who are now retired.)

Preface

The Ozark Foothills Craft Guild, Mountain View, AR,was organized in 1962 as a member-owned craft coop-erative to revive traditional crafts and provide access to

retail outlets. When the Guild expanded in 1965 to astatewide organization, the name was changed to theArkansas Craft Guild. It has more than 300 membersand operates four retail outlets in Hot Springs, LittleRock, Eureka Springs, and Mountain View (also the

Guild’s headquarters).

Contents Craft Production and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Cooperative Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Local Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4Regional Cooperatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Craft Cooperative Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Production Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Technical Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Getting Started . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7W ork of the Steering Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7

Steering Committee Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9Organizing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Legal Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Quality Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Record keeping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

General Rures for Success . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Study Applicable Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Get Expert Help . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Conduct Sound Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Record Agreements, Contracts, and Commitments in Writing . . . . . . . . . . . . . . . . . . . .13Realistic in Evaluation and Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Establish and Maintain High Quality Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Sources of Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Federal Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13State and Local Agencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

APPENDIX A-Sample Craft Producer Survey Questionnaire . . . . . . . . . . . . . . . . . . . . . . . . .20APPENDIX B-Table 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23APPENDIX C-Sample Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24APPENDIX D-Sample Marketing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30APPENDIX E-Cooperative General Manager’s Job Description

and Board Duties and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32

W atermark Association of Artisans, Inc., Camden, NC, is a retail and wholesale marketing cooper-ative composed of 450 members. NEED, the educational arm of the cooperative, is an nonprofittraining foundation that conducts classes in crafts, business, and personal development skills toempower individuals to better control their economic and social conditions.

Craft production has become increasinglypopular in both rural and urban areas of theUnited States. Several factors have contributedto the growth, including an interest in theAmerican heritage; interest in diverse ethniccraft skills; availability of leisure time; an appre-ciation of the personal qualities of hand-pro-duced items; and the need for additional income.

Although often done for therapeutic or self-fulfillment purposes, many craftspeople markettheir crafts for a source of income. The demandfor quality craft products has enabled many pro-ducers to earn supplemental income from theircraft activities. Helping rural people improvetheir income through craft production and mar-keting is one objective of USDA’s RuralBusiness-Cooperative Service (RBS).

Craft Production and Marketing

Typically, a single producer makes crafts intheir home. In some cases it may involve morethan one family member. The craft design maystem from traditional sources passed from onegeneration to another, be one supplied by someother person for production in the home, or bean original design of the craftsperson.

Other crafts may be produced in a centrallocation, with each person responsible for com-pletion of an individual piece from beginning to

end. The least common type of craft productionis an industrialized process where a prototype ofthe craft is designed and then mass-produced ina factory-like setting.

Craftspeople market their work throughboth retail and wholesale outlets. Retail sales aremade directly to the ultimate customer, either inperson or by mail, through the craftsperson’sown shop or studio or at a fair. Those who retailtheir finished product must cover the costs ofproduction and marketing from the retail pricereceived. Marketing expenses are discussed onpage 9.

In the wholesale market, crafters will selltheir product to a buyer who typically purchasescrafts from multiple sources. The wholesaler willthen resell the crafts at a marked up price.Wholesaling crafts involves more than just nego-tiating a price. It includes solving problems inshipping, storage, financing, risk bearing, andmarket information. These concerns must beaddressed by either the craft producer or thewholesaler.

Some options available for the craftspersonin selling their craft in the wholesale market are:

� Deal directly with the retailer. Craft pro-ducers who deal directly with retailerssell their crafts outright or consign them.

When crafts are sold outright, the retailertakes title of the product on delivery.W ith consignment, the producer retainstitle to the crafts until they are sold. Ineither case, producers must be able tohandle wholesaling functions and set aprice that will cover their expenses andgenerate a reasonable profit. If the craftsare sold on consignment, producersshould expect payment within 30-45 daysafter the sale. Because producers sellingon consignment assume retailingexpenses such as insurance, losses due toshop wear, and financing inventorythroughout the selling period, they nor-mally receive 60-70 percent of the retailprice. Consignment puts more risk on theproducer than any other wholesalemethod.

� Hire a commissioned sales representa-tive. A commissioned sales representa-tive acts as the producer’s agent in nego-tiating sales to wholesale buyers. Salesrepresentatives typically receive a 10-20percent commission for all services. Withthis method, the producer retains owner-ship of the crafts until they are sold andshipped to the buyer. Craft producers

The Cooperative Approach to CraftsR. Wade Binion and Gerald E. Ely

must handle other responsibilities suchas setting wholesale selling prices, check-ing the buyers’ credit, and preparing,packing and shipping orders.

� Sell directly to wholesale merchants orjobbers. Wholesale merchants or jobbersbuy crafts from producers and then resellthem to other buyers. They assume theresponsibility for performing most of thewholesaling functions and receive com-pensation by marking up the price beforereselling the crafts. Producers who selldirectly to a wholesaler spend less timeon wholesaling activities than with anyother wholesaling method. Many cooper-atives wholesale crafts for their members.

Craft marketing has not developed withoutserious problems. The return to the craft pro-ducer has often been meager. Efforts at self-sup-port through craft production involve manyfrustrations, such as:

� Lack of market contact. Craft producerswho live in isolated rural areas oftenhave limited access to markets. They areoften forced to accept whatever price isoffered for their craft products. Isolationmay also create a lack of awareness ofwhat is marketable in metropolitan areas.

� Lack of access to supply sources.Production of quality crafts requires theuse of quality supplies. The same isola-tion that separates many craft producersfrom potential markets also restricts theavailability of supplies needed to pro

Toe River Crafts, a cooperative shop with 25 members, is set at the foot ofthe highest mountains east of the Mississippi River near Burnesville, NC.Photo by Bob Oldham.

duce their crafts. When available, thesupplies are usually purchased in rela-tively small quantities at the higher retailprices.

� Lack of business training. Training incraft production may be handed downfrom one generation to another orlearned through a technical school or uni-versity, but the training a producer needsto become a successful businessperson isnot always available. If a craft producerlacks knowledge in design skills andbusiness management, they may havedifficulty determining the best alterna-tives for producing and marketing theircrafts.

The need for assistance with these prob-lems has prompted craftspeople to form cooper-atives.

Cooperative

A cooperative is a business that is formedby a group of people to obtain services moreeffectively or more economically as a group thanthey can obtain on their own. Members of craft acooperative own, finance, control, and operatethe business for their mutual benefit.

Cooperatives have long been the organiza-tional device for helping people meet problemsbeyond their individual capabilities. While thecooperative approach does not necessarilyassure success, it does provide an opportunity tobring together needed resources to overcomemany problems.

Like the sole proprietorship, partnership,or investor-owned corporation, a cooperativemust operate as a business if it is to succeed.

Competent planning and management are theforemost requirements in effective craft market-ing cooperatives.

Cooperatives are similar to other corpora-tions in that both:

� Incorporate under State laws� Prepare bylaws and other legal docu-ments

� Have a separate legal existence� Elect boards of directors who set policyand hire a manager to conduct day-to-day activities.

In other ways, cooperatives are distinctlydifferent from investor-owned corporations.These differences, called cooperative principlesor characteristics, are:

� Ownership benefits and obligations inproportion to use

� Democratic control� Service at cost� Limited return on equity capital.

Ownership benefits and obligations in pro-portion to use means that cooperatives areowned and financed by the members who usethem. Benefits are derived in proportion to eachmember’s use of the cooperative’s servicesrather than in proportion to the amount ofinvestment. (This differs from investor-ownedcorporations where owners account for littlebusiness volume, but are primarily interested inreturns on invested capital.) Having differentpurposes, cooperatives and investor-owned cor-porations will likely make different planningdecisions for their businesses.

The second principle, democratic control,dictates that the cooperative operate by consen-sus, or majority rule. All members of the cooper-ative have an obligation to participate in thedecision making process. They must adopt andamend bylaws, decide major policy issues, deter-mine cooperative direction, and elect the boardof directors. Democratic control usually meansthat each member has one vote, regardless of theamount of stock owned or the volume of busi-ness conducted with the cooperative. Therefore,a member with 10 percent of the stock has thesame vote as a member with 1 percent. Likewise,the member who sells or buys the most throughthe cooperative has the same voting status as theone who uses its services the least.

The third principle specifies that the under-lying purpose of the cooperative is to provideservice to member-owners at cost. This doesn’tmean the cooperative can’t charge competitiveprices for supplies or services. As with any busi-ness, the cooperative must generate gross mar-gins sufficient to cover operating costs and meetcontinuing capital needs. However, after a coop-erative has determined its actual costs at the endof each fiscal year, any net margin (profit) is allo-cated to the member-owners in proportion totheir patronage (use) of the cooperative. The dis-tribution of the net margins can be by a combi-nation of cash payments or book credits, knownas allocated reserves.

The fourth principle, limited returns onequity capital, discourages investor-orienteddecision making and helps retain the coopera-tive’s service orientation. Equity investments,however, do help defray the members’ cost ofproviding capital to the cooperative. Statestatutes may limit the amount of dividends or

interest paid on stock to the cooperative. Thisreturn limitation should be written into thecooperative’s bylaws.

These four cooperative principles are thefoundation of a unique business designed toserve its owners, who are also its users. They setcooperatives apart from other types of busi-nesses. By investing in their own cooperative,members are making a commitment to it. By lim-iting the influence of any one member, the coop-erative becomes more responsive to the needs ofits total membership. And by providing servicesat cost and limiting dividends paid on equitycapital, its value to members is determined byuse rather than by investment.

Cooperative Structure

Local Cooperatives—A craft cooperativeusually starts on a local basis, serving the needsof a limited geographic area. Craft producers aremembers of the local organization. The localcooperative’s strength rests largely on thesepoints:

� Members know each other.� Most members have the same marketingand production problems, thus creatingunity of interest.

� All are familiar with the local manager.� The local cooperative is an effectivemedium for marketing and productioninformation.

The small size of a local cooperative makesit difficult to generate sufficient sales volumelocally, conduct extensive marketing programsoutside the local area, and secure training assis-tance and other services. These problems are alsofound in non-cooperative small businesses.

Regional Cooperatives—The financial,management and marketing problems of a localcooperative can sometimes be solved by theeconomies of scale found in a regionalcooperative with many producer-members. Aregional cooperative has a centralized, federated,or mixed structure, depending on the type ofmembership.

A centralized regional cooperative is reallya large local with individual members from amuch broader area. A federated regional is acooperative of cooperatives. Members are localcooperatives rather than individuals. Controlrests with locals who in turn are controlled byindividual members, the chief beneficiaries ofboth local and regional operations. A regionalcooperative with mixed structure consists ofboth individual members and local cooperatives.

The federated structure seems well suitedfor the craft industry because it can serve diverseneeds of local cooperatives while preservingtheir autonomy. Organizing a federation takesonly a few local craft cooperatives. Often theselocals have worked together informally becauseof mutual problems. If they think a federationcan help solve their common problems, they canmeet other local cooperatives with similar inter-ests. The organizational processes are similar tothose used in establishing a local cooperative.

Advantages of the federated cooperativeinclude the ability to combine the efforts andresources of a larger number of producers into astronger economic effort without producer-mem-bers losing their identity with their local cooper-ative. Weaknesses include less flexibility inmaking major operating changes and a need forconstant communication between the federation,local cooperatives, and members.

At work is Carolyn McKecuen, the manager ofW atermark Crafts, Inc., a predominately whole-sale cooperative with 300 members inCamden, NC.

Craft-Producer MemberCraft-Producer MemberCraft-Producer MemberCraft-Producer Member

Craft-Producer Member

LocalCraft Cooperatives

Craft-Producer Members

Locals

Craft-ProducerMember

Figure 1 — Structures for a Regional Craft Cooperative

Centralized

Federated

Craft Cooperative Activities

The needs of craftspeople depend on loca-tion, the type of craft produced, skill levels, andother factors. A cooperative’s membership mustdetermine what is needed and how to meetthose needs. In general, cooperatives have foundit advantageous to assist in such areas as market-ing, production assistance, and obtaining techni-cal assistance for producers. A comprehensiveprogram to assist members offers the greatestpotential for success.

Marketing—Numerous potential craft marketsgo untapped because producers are eitherunaware they exist or are unable, individually, tosupply that market. A craft cooperative can linkthe production capabilities of its members with awide array of markets. Successful linkage notonly increases the producer’s income, butbenefits the buyer. Marketing activities mightinclude:

� Identifying potential customers andtarget markets

� Evaluating customer’s needs� Giving producers feedback on the latesttrends in color, design, and competition

� Setting uniform quality standards, devel-oping coordinated lines, and guarantee-ing delivery to attract wholesale buyers,and

� Providing retail and wholesale servicessuch as operating a retail shop, selling atwholesale craft or gift shows, sponsoringcraft fairs, publishing retail mail ordercatalogs, using sales representatives, oracting as a wholesale merchant.

Products of Alaska Native Arts and Crafts Incorporated, a state-wide cooperative ofAlaskan Indian, Eskimo and Aleut craft producers, in Anchorage, AK; an Aleut grassbasket; an Athabascan Indian beaded coin purse; and an Eskimo ivory and antler carv-ing of a caribou. Photo by U.S. Department of Interior, Indian Arts and Crafts Board.

Many craft producers have successfullymarketed their products through cooperatives.For example, one cooperative in North Carolinahas grown to more than 800 members since itsbeginning. It now operates a retail shop plus avery successful wholesale business that sells toabout 1,200 retail shops, catalog companies, anddepartment store chains throughout the UnitedStates and several foreign countries. Anothercooperative guild that opened its first store in1962 in Arkansas has expanded to five retail out-lets to sell members’ crafts.

Production Assistance—The cooperativeactivities that can help to improve productionefficiency and/or product quality and decreaseproduction costs include:

� Bulk purchase of materials or supplies tohelp ensure a reliable supply of materi-als, often at a lower cost.

� Joint purchase and use of machinery orequipment that may be too expensive forone individual to buy.

� Continuous review of equipment, sup-plies, and new technological develop-ments that could be adapted to members’craft production processes.

� Training in production techniques,including industrial processes, and spaceand time management.

� Product design and color selection.

Technical Assistance—Successful craftproduction and marketing requires a variety ofinformation, skills, and resources. Various formsof training and assistance may be obtainedthrough a cooperative:

� Training in design, production, and busi-ness skills to improve craft products andthe managerial capabilities of its mem-bers

� Information about governmental regula-tions regarding labeling, licensing, taxa-tion, etc.

� Assistance in securing loans to purchasesupplies, equipment, or needed services.However, cooperatives should not lendmoney to producers or guarantee loansfor them.

� Information about new books, periodi-cals, seminars, exhibitions, and otheractivities that can contribute to members’professional growth.

Assistance should be directed toward betterequipping members to conduct their craft busi-ness. Because assistance will change as the coop-erative grows, it must be imaginative, dynamic,and responsive to the members’ expresseddesires.

Getting Started

Formation of a cooperative generallyresults from the interest of a few craft producers,usually friends who share common economicproblems. If group action offers the potential forsolving these problems, the members shouldenlist others with similar interests to join them.

If the group, after informal discussion,decides to form a cooperative, they should con-tact an individual familiar with the process tobecome acquainted with the necessary steps informing the cooperative. This person may befrom the local office of the State CooperativeExtension Service (CSREES), an establishedcooperative, a local credit union, the state coop-erative council, or a cooperative development

specialist with USDA’s State Rural DevelopmentOffice. (See other sources of assistance on pages13-16).

If further interest is shown, a meeting ofpotential members should be held, at which theproposed cooperative is outlined. This shouldinclude a full discussion of problems to besolved, the cooperative’s potential, and, if possi-ble, examples of other craft cooperatives’ experi-ences. Participants should discuss if solutions toidentified economic problems be found throughexisting businesses and organizations?

W ork of the Steering Committee

A steering committee should be formed atthis meeting if sufficient interest exists. The com-mittee can provide producers with the informa-tion needed to decide if they want to organize acooperative. The committee may do the researchitself or obtain outside help and serve as a go-between. The information that producers needabout a potential cooperative and membersincludes:

Need—Does an economic need exist for theservice a cooperative might provide? Is theservice already available in the area? Acooperative is not needed unless members canreceive benefits they cannot get otherwise.

Economic need depends on producers’ cir-cumstances. For example, a group of pottersfound that by ordering a truckload of claytogether they could save on shipping costs totheir remote location. Stuffed-animal makers inAppalachia attracted more buyers and obtainedbetter prices because their cooperative offered acomplete line of animals and guaranteed volumeand delivery.

When economic benefits such as increasedselling prices, increased access to the market, ora lower cost of supplies are not apparent, craftproducers should ask if a cooperative is theirbest alternative. Having established a need forthe cooperative and reached a consensus about acooperative’s objectives, the committee shouldevaluate its economic feasibility.

Potential Cooperative Business—It is veryimportant, although it may be difficult, to obtainaccurate information about the amount ofbusiness members expect to conduct through acooperative. One way is to distribute aquestionnaire to interested craft producers. (SeeAppendix A for a sample craft producerquestionnaire.)

In marketing, care must be taken in project-ing the potential members’ output. Hobbyistsoften overestimate their potential productionand then have difficulty keeping up with aheavy schedule. If possible, steering committeemembers should inspect samples of potentialmembers’ work to determine quality and mar-ketability. If the committee is not qualified tojudge, outside craft specialists should be calledin to do this. The committee must ensure thatsamples are representative of potential members’work.

If the survey shows that the producers,even though inexperienced, are still interested ina cooperative, they should start in a way thatgives them experience, but requires little invest-ment. One way is to jointly participate in a fairthat members would not normally attend alone.

Member Responsibilities—The steeringcommittee should determine if the producers arewilling to take on responsibilities as owner-

members of the proposed cooperative. Suchresponsibilities include:

� Participating in the affairs of the coopera-tive. Members elect directors to theboard, adopt or change bylaws, anddecide such policy issues as a majorinvestment or the cooperative’s methodof financing. To make sound decisions,members must keep informed about thecooperative. Members must be willing toserve on committees such as standards,marketing, or member relations.

� Using the cooperative. Members mustuse their cooperative if it is to succeed. Toenable the cooperative to make the bestpurchasing and sales decisions, membersmust sign a marketing contract. (SeeAppendix D, Sample MarketingContract.) The contract stipulates produc-tion commitments of members, responsi-bilities of the cooperative, and penaltiesfor noncompliance. If producers areunwilling to sign a marketing contract,their need for a cooperative should beexamined closely.

� Financing equity capital needs. Membersmust provide the cooperative with theequity capital necessary to provide a basefor financing its operations. Generally,members invest in a cooperative in pro-portion to their use. That is, a memberwith $10,000 worth of anticipated salesshould invest 10 times the equity as amember with a projected $1,000 in sales.If producers are not willing to take afinancial risk, they should not organize acooperative.

� Paying for operating expenses. Like anybusiness, a cooperative’s operations must befinancially sound. If producers want a suc-cessful cooperative, they must be willing topay for operating expenses through ade-quate margins on products marketed andsupplies purchased. Adequate gross marginswill be at least 45-50 percent of sales. If anucleus of producing and committed crafts-people does not exist, a cooperative shouldnot be formed.

Craft Markets—Just as craft producersmarketing individually must examine theiroptions, potential members must look at whatoptions the cooperative can offer. What marketsexist locally and what volume of sales can beexpected? Will sales be through a cooperative-operated retail shop or gallery? Is there potentialfor wholesale sales in local shops or in craftshops outside the area? Are there marketingtechniques that could be used to expand thevolume of sales, such as mail order catalogs orparticipation in craft fairs?

Before deciding on a market area, a groupmust carefully research potential customers andtheir buying patterns. For example, if 80 percentof the potential customer base is middle- toupper-income women, the cooperative maywant to be located next to a fashionable dressshop. Other gift stores may find that their bestlocations are in cities with such characteristics ashaving a population under 100,000, a university,a substantial number of professional workers, orfamilies with higher-than-average incomes.Census data can pinpoint areas with populationcharacteristics best suited to the situation.

The volume of potential sales will dependon the production capability that can be identi-fied or developed. It will be difficult to projectprecise sales figures.

Operating Expenses—Estimating operatingexpenses is easier than estimating sales. Thesteering committee must answer such questionsas the following: What are the costs associatedwith operating the cooperative, both total andper-unit of sales? How will these expenses bedistributed throughout the year? Included willbe expenses such as rent or mortgage payments,salaries, utilities, and insurance. (Expense andsales ratio examples are shown in Appendix B.)To get a good feel for expenses, talk to peoplewho have been in the gift or craft marketingbusiness.

Operating expenses will vary depending onthe type of marketing or supply procurementprogram that is established. Projected financialstatements should be developed for each modeof operation to give the committee a clear pictureof expected sales, expenses, and earnings.

Make realistic assumptions about thegrowth of membership and the productionvolume of the cooperative and then develop pro-jected financial statements for 3 years of busi-ness. Such statements should include monthlycash flows and annual operating statements andbalance sheets. This process will help determinehow long it will take the cooperative to becomeself-sufficient and how much operating capital isrequired.

Inventory Selection—Selecting inventorycarefully is a key to success. Without anyexperience, most cooperatives have to rely ontrial and error. To protect themselves fro m

investing in large quantities of slow-movingitems, some cooperatives buy in limitedquantities. Others start with consignment andswitch to outright purchase by buying the fastestturning items first.

Capital Needs and Financing—The Bank ofAmerica advises, “Most banks will not considerextending more than half the capital (fixed andoperating) necessary to launch a store.” Thisputs responsibility on members to provide theremaining equity capital needed. As owners ofthe cooperative, members should be willing andable to make the needed investment. How muchcapital, for fixed assets and operating capital,will be required to start the cooperative? Howmuch can members provide and on what basis?What are the other potential sources of capital?

The amount of capital will depend on theoperational characteristics being considered bythe cooperative. A marketing program thatincludes a retail sales facility probably willrequire larger amounts of capital than a programbased on wholesale sales from a small ware-house facility. Also, a cooperative that plans tobuy crafts outright will need more operatingcapital than one that will operate on consign-ment.

Grants from public sources, foundations,and churches have been used by many coopera-tives to get started. But caution should be usedwhen considering starting a cooperative withgrant funding. Many times groups organize acooperative just so they can get a grant, or theyplan its operations around a continuous subsidy.When the grant money dries up, the cooperativefails. Grants are helpful for training or design

assistance. But, a cooperative must be able tooperate successfully without grant fundingwithin a few years or it shouldn’t be started.

Steering Committee Report

The steering committee should considerany other factors relevant to the creation of thepotential cooperative, such as the costs of orga-nizing, distribution of membership, methods ofpayment to producers, and the capital structure.The steering committee should prepare a reportof its findings for potential members. The reportneed not detail all facts and figures gathered inthe study, but it should outline the process usedby the committee for its findings and make rec-ommendations for further action.

The steering committee report should bepresented to a second meeting of potential mem-bers. Each point should be discussed thoroughly,even if it means another meeting is needed. Thediscussions should be realistic in helping poten-tial members fully understand the possibilitiesfor success and potential problems. The meetingshould involve potential members, ExtensionService personnel, community leaders, bankers,and others who might be involved with the orga-nization if it is established. If a craft cooperativeis considered feasible and sufficient prospectivemembers want to join, the further organizingsteps should be taken.

If steering committee report is if acceptedby potential members, it serves as the blueprintfor organizing. Recommendations not acceptedshould be revised until there is a consensus onthe major elements of the new cooperative.

Organizing

Legal Documents—State statutes govern theway that cooperatives are formed. The legalframework of the cooperative consists of thearticles of incorporation and bylaws. Thesedocuments must be drawn up with care toensure that they conform to State laws andprovide for the desired type of organization.

The articles of incorporation are a state-ment of the kind of business the cooperative isdesigned to be. This must be filed with theappropriate State official. The bylaws state theway that the cooperative will do business andmust be consistent with the articles of incorpora-tion. They will specify requirements for member-ship and member responsibilities; methods forcalling meetings; voting rights and quorums;number, terms, and responsibilities of directors;dates of the fiscal year; and other provisions forthe management of the cooperative.

Bylaws for any cooperative must be draftedto reflect specific needs of potential cooperativemembers and applicable State statutes. A compe-tent lawyer familiar with cooperative lawsshould be hired to advise the group on legal pro-cedures for setting up the cooperative. (seeAppendix C, Sample Bylaws). After the articlesof incorporation have been filed, charter mem-bers hold a meeting to adopt the bylaws andelect directors. Again, State statutes dictate theprocedures that must be followed, such as timelimitations, waivers of notice of the meeting, andother matters.

Board of Directors—The board of directorsshould meet immediately after adoption of the

bylaws. Among the business matters to bedecided at this meeting:

� Elect officers of the cooperative.� Arrange to print copies of the articles ofincorporation and bylaws to distribute toall members.

� Select a bank and authorizing officersand employees to handle funds and issuechecks.

� Arrange for bonding officers andemployees in accordance with bylaws.

� Arrange for bookkeeping and auditing.� Arrange for business facilities.� Adopt procedures for selecting a man-ager, his/her qualifications, responsibili-ties, and developing a job description.(see Appendix E.)

� Develop duties and responsibilities ofdirectors, rules for board members, andcriteria for separating board and manage-ment decisions. (see Appendixes C and E)

Also see the list of Rural Business-Cooperative Service publications dealing withthe organizational process, responsibilities ofdirectors, and the operation of cooperatives atthe back of this publication.

Other Considerations

In addition to the survey and organizationprocedures, those forming a cooperative mustdeal with several other considerations.

Quality Control—Many difficulties and failuresof craft cooperatives are associated with the lackof quality control. Consistently high qualityproducts are essential for successful craftmarketing.

Numerous procedures have been used tomaintain the quality of craft work. The mostsuitable procedure for any cooperative dependson the size and distribution of the membership,type of marketing activity engaged in, and thevariety of crafts produced.

Usually a set of standards is establishedthat specifies the type of items not accepted bythe cooperative and the minimum qualityacceptable for various craft items. The standardsshould be clearly defined (in writing or throughexamples) and understood by the members.

In addition to the standards, a procedure toevaluate the craft work must be developed. Thisshould also be clearly described and accepted bymembers.

The review procedure should provide forcontinuous evaluation of the member’s work. Incases of rejected work, an explanation for therejection should be given and provision made forreconsidering the crafts. A committee is usuallyelected to conduct the quality-control procedure.The committee should consist of members, themanager, and perhaps someone outside thecooperative participating in an advisory capac-ity. (See previous section on the Work of theSteering Committee.)

The need for quality goes beyond craftproducts. The entire operation of the cooperativeshould reflect a concern for high quality.Constant attention must be given to the imagecreated in the cooperative’s business forms,brochures, packaging, billing, displays, andother contacts with the public or members.

Management—Successful cooperativemanagement depends on effective teamwork ofall three parts of the management team—members, board of directors, and hired

management. Members are the foundation of thecooperative structure and the reason it exists.

Members have definite responsibilities todo business with it, invest in it, and support it inevery way. They should be informed on a regu-lar basis about the cooperative and should com-municate their needs to directors.

Directors serve as trustees, establish poli-cies and long-range objectives, decide on pro-grams and courses of action, and, in a generalway, direct and guide the activities of the coop-erative. They approve budgets, review reports,and arrange for outside audits. Their mosturgent role in management, and perhaps themost important, is to hire and evaluate the man-ager.

The manager is then responsible for select-ing staff and organizing activities to obtain thegoals and objectives set by the members anddirectors. The manager is responsible to thedirectors for carrying out the day-to-day activi-ties of the cooperative and its policy decisions.

The manager should have some technicalknowledge about craft quality, as well as generalmanagement and marketing skills. The managermust be able to select, train, supervise, anddirect employees and be equally adept at work-ing with boards of directors in developing plansand programs to carry out policies and objec-tives of the cooperative.

One of the specialties of Qualla Arts and Crafts Mutual Inc. isdouble-weave baskets such as this being made by Eva Wolfe.

Qualla is a Cherokee Indian crafts cooperative in Cherokee NC.It retails more than $500,000 worth of crafts annually. Photo by

U.S. Department of Interior, Indian Arts and Crafts Board.

The selection of a manager should be madewith great care because he or she is the keyemployee. The success of the cooperative willdepend to a large extent on the manager’s abil-ity. Several other RBS publications deal with theresponsibilities of management. Appendix Econtains a cooperative general manager’s jobdescription and board duties and responsibili-ties. They can be used to define the manager’sjob and the duties and responsibilities of theboard.

Record Keeping—It is essential for allbusinesses to keep good records, this isespecially true of cooperatives because membersmust be fully informed of how their business isoperated. Hired management keeps most of therecords, but the board of directors must ensurethat these records are accurate and meet theneeds of the board and members. If the board isnegligent in this responsibility, it may be liablefor improper accounting of member funds. Someof the records needed are an annual budget aswell as monthly and annual financial records.

Budget—Income and expense projections areprepared by the manager for board approval.The budget’s primary purpose is to helpmanagement plan sales and inventories andcontrol expenses and margins for the comingyear.

Financial Records—The manager and boardneed monthly records that give accurate, timely,and readily available information on variousaspects of the firm’s financial condition. At aminimum, records should provide answers to

these questions:

� How much cash was received and fro mwhom? How much was spent and forwhat? How much cash is on hand and inthe bank?

� To whom has credit been granted? Howmuch? What payments have beenreceived and for which account? Whichaccounts are delinquent? Do theseaccounts violate credit policies? Whatactions have been taken to collect theseaccounts?

� What is the inventory? (Inventory shouldbe kept by units and dollars for eachitem.) What has been added? What hasbeen removed? How much is in stock?What are the turnover rates and grossmargins for inventory categories?

� What are the fixed assets? What is theirdepreciated value?

� What are the accounts payable? Is thecooperative delinquent on any pay-ments?

� What is the monthly operating statementfor each division?

� What is the monthly balance sheet for theentire operation?

Answering these questions is essential togood cooperative management. Keeping goodfinancial records is vital. It is wise to hire a localaccounting firm to assist in setting up the book-keeping system. If this is not possible, commer-cial record keeping systems may be used.Several reliable computer accounting programsare available that can be adapted to meet theneeds of a craft cooperative.

At least once a year, an independent audi-tor should audit the cooperative’s records. Afinancial statement that meets the needs of theboard and tax purposes will then be prepared.Additional information on keeping cooperativerecords can be obtained from RBS.

Taxes—Craft cooperatives are subject to thesame taxes as any that other. Income tax is paidon that part of net margins paid out as dividendson stock. Income tax is not paid on that part ofnet margins allocated to patrons, provided thatpatrons have given prior consent to treat theallocation as income on their tax returns.

The Internal Revenue Service has informa-tion regarding the applicable codes and filingregulations. Property taxes, Social Security,unemployment taxes, and necessary license feesmust be paid by cooperatives. State sales taxesmust be collected and paid quarterly, or morefrequently depending on the State law.

General Rules for Success

Just as there is no guarantee for success inany small business, there is no guarantee for thesuccess of a craft cooperative. Observing severalbasic rules, however, can help assure success.

Study Applicable Laws—Most States have oneor more laws that apply to the formation ofnonagricultural cooperatives. Copies of theselaws can be obtained from an attorney or theproper State official. Internal Revenue Serviceregulations as well as State and local tax,licensing, and zoning laws must be reviewed. Inaddition, some craft products come underregulations that might affect the operation of thecooperative. For example, some States have

licensing and labeling requirements for bedding,furniture, and toys.

Get Expert Help—Some aspects of establishinga cooperative require skills that those forming itmay not possess, such as legal and accountingexpertise. Securing assistance early in theformation process can reduce the risk ofdifficulties later. Don’t postpone securing expertadvice until it is too late to use it effectively.

Conduct Sound Operations—A cooperative isa business. Frequent difficulties arise if theoperation is handled on a casual basis. Standardbusiness management procedures should befollowed. Numerous social benefits may bederived from the successful operation of acooperative, but it must succeed as a business.

Record Agreements, Contracts, andCommitments in Writing—Cooperativesfrequently get started with financial andtechnical assistance from several sources. Verbalcommitments and understandings becomeconfused with personnel and program changes.Avoid confusion by having everything inwriting, including the minutes of organizationalmeetings.

A marketing contract between the membersand the cooperative should be initiated to helpin planning and implementing an orderly mar-keting program. A contract eliminates those pro-ducers who merely want to use the cooperativeas to get higher prices from buyers but care littlefor improving the cooperative’s marketingsystem. The contract also specifies in legal formwhat producers can expect from their associa-tion. A contract should be initiated by the board,

with assistance from legal counsel, before thecooperative initiates a marketing program. Asample marketing contract is contained inAppendix D.

Realistic Evaluations, Projections—Craftproduction can offer people either a primary orsecondary source of income and have asignificant role in enhancing the position ofcraftspeople. But, it cannot be all things to allpeople or completely provide for all the needs ofcraftspeople. Recognize the limitations andavoid promises of services or benefits thatcannot be met realistically. To avoid problems,producers should be careful to organize acooperative with others who have similareconomic needs and goals.

High Quality Standards—The image of thecooperative as a source of quality craft productsand as a sound, reliable business is critical to itssuccess. Most craft cooperatives requireproducers to pass the cooperative’s qualitystandards before they can become a member.Whatever membership requirements acooperative enacts, it should avoid conflict withstatutory requirements or public policy. Forexample, a cooperative should not discriminateon the grounds of race, color, sex, or nationalorigin.

Sources of Assistance

Craft cooperatives have been started withassistance from a wide variety of sources. Nosingle source can provide everything needed.

Much work must be done by those who will usethe cooperative. Here is a list of some of the pro-grams or agencies that might provide assistance.

Federal Agencies—Some Federal Governmentprograms offer assistance to developing craftcooperatives and other small businesses. Alisting of Federal and State organizations iscontained in the International Directory ofResources for Artisans which is available from:

The Crafts Center1001 Connecticut Avenue NW, Suite 525W ashington, DC 20036email:craftsdc@erols.com

The Crafts Center, a nonprofit membershiporganization serving the interests and needs oflow-income artisans, provides technical assis-tance and information to help artisans. A com-prehensive listing and description of Federalprograms in the arts and humanities is containedin the Catalog of Domestic Federal Assistance,available at most local Federal offices andlibraries. Here are some principle ones you maybe working with.

Rural Business-Cooperative Service(RBS)—The U.S. Department of Agriculture’sRBS devotes its total effort to preserving andimproving the mainstays of Americanagriculture-the family farm and ruralcommunity. Its direct role is in providingknowledge to improve the effectiveness andperformance of the cooperative business throughresearch, technical assistance, and education.Research is conducted to acquire and maintainthe base of information necessary for RBS to give

farmers relevant and expert assistancepertaining to their cooperatives. Studies offunctioning cooperatives concentrate on suchaspects as their financial, structural, managerial,policy, member, legal, social, and economicactivities.

Technical assistance is provided in responseto specific problems. Requests may come from afew craft producers directly wanting to organizea cooperative, or from the board of an estab-lished craft cooperative. Help and education isgiven on business organization, operating effi-ciency, and member duties and responsibilities.W ork can involve determining the economic fea-sibility of new facilities or adding new productsor services. Advice may be given on the meritsof merging organizations or forming new ones.Studies cover the full range of decision- makingfound in a cooperative business enterprise. Forassistance, contact:

U.S. Department of AgricultureRural Business-Cooperative ServiceDeputy Administrator1400 Independence Ave., SW, Stop 3250W ashington, DC 20250-3250email: www.coopinfo@usda.gov

The rural Business-Cooperative Service hasa distinct mission in education and information.It is assigned the responsibility by theCooperative Marketing Act of 1926 to promotethe knowledge of cooperative principles andpractices and to cooperate, in promoting suchknowledge, with educational and marketingagencies, cooperative associations, and others.

Continuous education ensures that thecooperative will stay alive and continue serving

its producers. This practice recognizes that evenmember-owners can’t support their cooperativeif they don’t understand it. A continuous educa-tion program is needed because of: (1) aturnover in membership, and (2) the need toupdate technical skills in order to operate an effi-cient business with competent employees, direc-tors, and management.

Cooperative State, Research, Education andExtension Service (CSREES)—In cooperationwith land-grant universities and the StateCooperative Extension Service, the USDA’sCSREES conducts a variety of educational andtechnical assistance activities in crafts. Theprograms vary from one State to another.Contact the local Extension Office listed in thetelephone directory, the CSREES director at aState land-grant college or university, or:

Cooperative State Research, Education and Extension ServiceU.S. Department of Agriculture1400 Independence Avenue, SWW ashington, DC 20250-0900email: www.reeusda.gov

National Endowment for the Arts (NEA)—The NEA, primarily through Folk andTraditional Arts Programs, makes grants tocraftspeople and organizations. Detailedinformation about programs, applicationprocedures, and deadlines is available from:

DirectorFolk and Traditional ArtsNational Endowment for the Arts1100 Pennsylvania Avenue, NW, Suite 720

W ashington, DC 20004email: www.arts.endow.gov

Bureau of the Census—Information that canbe helpful in selecting a store site is availablefrom the bureau. The Census of Retail Tradecontains such data as the number of gift shopsby State, their sales, and the number of paidemployees. The Census on Population andHousing describes a population or potentialcustomers by their age, sex, income, education,occupation, etc. The 12 regional data-user servicecenters sponsor frequent workshops on how tointerpret this data. For more information, contactyour local library or write:

U.S. Department of CommerceBureau of the CensusCustomer ServiceW ashington, DC 20233email: www.census.gov

Indian Arts and Crafts Board—This board isresponsible for several programs that providetechnical assistance and educational material onNative American crafts. For information, contact:

U. S. Department of the InteriorIndian Arts and Crafts BoardGeneral Manager1849 C Street, NW, Stop 4004W ashington, DC 20240

Small Business Administration (SBA)—SBAprovides financial, technical and managementassistance to help Americans start, run, andgrow their business. Management counseling isprovided by business executives and

W atermark Association of Artisans, Inc., Camden, NC., sells its craftsthroughout the world. The ribbons point to countries that have pur-chased crafts from Watermark. The items on the tables are samples oforders ready to be shipped.

professionals through SCORE (Service Corps ofRetired Executives). Additional counseling thatencompasses a variety of government anduniversity resources is available through theSmall Business Development Center. Pre-business training workshops, sometimes held fora nominal fee, are taught at the SBA districtoffice or at local universities. SBA publishes theSmall Business Directory, a list of publicationsand videotapes on how to start and manage asuccessful small business. Topics includefinancial management, management planning,marketing, and product promotion. For moreinformation, contact your district SBA office orwrite to:

Small Business Administration409 Third Street, SWW ashington, DC 20416Phone: 1-800-U-ASK-SBAemail:www.sba.gov

State and Local Agencies—Many of theFederal agencies mentioned earlier havecounterpart State or regional offices. In addition,the following might be considered:

� State departments of commerce, industrialdevelopment, or economic development.

� State arts councils or commissions.� State agencies on aging.� Land-grant universities.� Local senior centers.� Local community action, developmentagencies, and planning agencies.

� State cooperative councils, and � Other agencies and organizations, including:

American Craft Council21 S. Eltings Corner RoadHighland, NY 10019(800) 836-3470

Aid to Artisans, Inc.14 Brick Walk LaneFarmington, CT 06032

Volunteer Lawyers for the Arts1 E. 53rd St., Sixth FloorNew York, NY 10019

American Indian Arts and Crafts Association122 La Veta N.E., Suite BAlbuquerque, NM 87108

Artists Equity Association501 7th Street, NWW ashington, DC 20004

National Cooperative Business Association1401 New York Avenue, NW, Suite 1100W ashington, DC 20005

� Other books and magazines of interestinclude:

The Crafts Report MagazinePhotographing your CraftsThe Law in Plain English

for CraftspeopleBusiness Forms and Contracts

for Craftspeople

To order write:The Crafts ReportP. O. Box 1992W ilmington, DE 19899-1992(800) 777-7098email:www.craftsreport.com

Other Books:The Business of Crafts: The Complete

Directory of Resources for Artisans, by TheCrafts Center Crafts Market Place: Where andHow to Sell Your Crafts, by Argie Manolis(Editor) Handmade for Profit: Hundreds ofSecrets to Success in Selling, by Barbara Brabec

Available from USDA/RBS:How to Start a Cooperative, CIR 7;Tax Treatment of Cooperatives, CIR 23;Sample Policies for Cooperatives, CIR 39;Sample Legal Documents for

Cooperatives, CIR 40;Cooperatives 101: An Introduction to

Cooperatives, CIR 55;Understanding Cooperative Bookkeeping

and Financial Statements, CIR 57; andDirectory of U.S. Arts and Crafts

Cooperatives, SR 40.

To order writeUSDA/Rural Business-Cooperative ServiceCooperative Development Division1400 Independence Avenue, SW, Stop 3254W ashington, DC 20250-3254email: www.coopinfo@usda.gov

Cabin Creek Quilts of Cabin Creek, WV, specializes in coordinatedquilts, pillows, and wallhangings.

Eastern Bay Cooperative Gallery in Stonington, ME, is owned and oper-ated by 40 Penobscot Bay artists.

Opposite page — An overview of the gallery owned by members of acooperative called MADE in Mendocino, Inc. The cooperative is at awinery in Hopland, CA. Photo by Tom Liden.

This silver braclet with turquoise nugget inraised setting is offered by Hopi Arts andCrafts Silvercraft Cooperative Guild of SecondMesa, AZ. Photo by U.S. Department ofInterior, Indian Arts and Crafts Board.

Since coming to the United States, someHmong women have sold their textiles

through cooperatives.

Date _____________________

Dear Craft Producer:

Several craft producers in _____________________ County(ies) are considering the

organization of a craft cooperative to market craft products and/or purchase supplies in

bulk. It is our hope that by working together we can receive a better price for our product

or save money on our supplies. There may also be other activities we can do together.

Before we start, it is important to decide if enough interest exists for the

cooperative to be successful. We are asking craft producers like you to tell us if they are

interested in the idea of a craft cooperative and, if so, how much business they might do

with the cooperative.

Please fill out the form and return it to the address on the bottom. Filling out a

questionnaire does not mean that you must join the cooperative or that the cooperative

will be organized. It is only to help us decide if enough people are interested.

W e appreciate your taking time to fill out the questionnaire and returning it to us.

Sincerely,

J. Doe

Chairman of Steering Committee

Survey Form

Address: J. DoeCraft Cooperative Survey Committee

That TownThis State 00000

Appendix A

Sample Craft Producer SurveyQuestionnaire

The following questionnaire is an exam-ple of one that might be used to gather basicinformation to help assess the need for a craftcooperative. It can be modified to fit the partic-ular needs of your group.

The letter of explanation preceding thequestionnaire is important. In it, you shouldexplain to potential members the purpose ofthe questionnaire and how the information willbe used. It should be filled out by the potentialmember and the completed questionnairereturned to the steering committee. If the infor-mation is gathered through an interview, thequestions may be more detailed.

1. Name ____________________________________________________ Date __________

2. Address _______________________________________________________________________

(Street and number/route and box number) ____________________________________________________________

City, State, Zip, County _______________________________________________________________________

3. Telephone: Day ____________________________ Night _____________________________

4. About how much time do you spend per week making your craft items? _______ hours/week

5. If a cooperative is formed, would you be willing to expand your production?

❏ Yes ❏ No ❏ Uncertain

6. If yes, would you need additional help to produce your crafts?

❏ Yes ❏ No ❏ Uncertain

7. What craft items do you produce?

_____________________________________________________________________________________

8. What materials do you work with?

❏ W ood ❏ Natural Items

❏ Fibers ❏ Clay

❏ Glass ❏ Gold or Silver

❏ Leather ❏ Fabric

❏ Other Metals ❏ Other (specify)

9. About how much did you spend on material last year? $

10. W ould you be interested in purchasing part of your supplies through a cooperative?

❏ Yes ❏ No

If yes: What supplies would you be interested in purchasing?

______________________________________________________

11. Did you sell any craft work during the past year? ❏ Yes ❏ No

If yes: About how many dollars’ worth did you sell?

Retail $_______________ Wholesale $_______________

About what part? ❏ All ❏ Half ___Percent

12. Where do you sell your crafts? (Check all that apply)

❏ Fair/Show ❏ Show/shop ❏ Wholesale ❏ Other

13. What was the price range of the three most important items you produced?

Item Price range

______________________ $ _________ to $ ________

14. How did you learn to produce your craft?

❏ Taught myself ❏ High school or Vocational & Technical school

❏ Taught by member of family ❏ College or university

❏ W orkshop or training session

15. W ould you like additional training? ❏ Yes ❏ No

If yes: What type of training?

❏ New techniques/design ❏ Marketing/business

❏ Production ❏ Other (specify)

16. Are you willing to sign a marketing agreement committing yourself to sell crafts through the

cooperative? ❏ Yes ❏ No

17. Banks generally require respective members to make initial investments of 20-50 percent

initial capital needed to purchase/build facilities and finance operations. Are you willing to

make an initial investment in the cooperative in proportion to your projected use?

❏ Yes ❏ No

18. Per-unit retains are a method of supplying continuing equity capital to the cooperative.

They are deducted from patrons’ sales proceeds in proportion to the volume of products

they market through the cooperative. Are you willing to finance the cooperative with per-

unit retains? ❏ Yes ❏ No

Appendix B

Table 1—Operating expenses ratios for a hypothetical gift story with $150,000 annual

sales, $40.000 net worth, and 2,000 square feet

Percent Dollars

Sales: 100.00 150,00

Cost of sales

Merchandise 49.0 73,500

Freight 4.0 6,000_________

Total 53.0 79,500

Gross margin = A 47.0 70,500

Expenses:

Owner or manager wages 12.0 18,000

Payroll 8.0 12,000

Rent 4.0 6,000

Advertising 3.0 4,500

Supplies 2.1 3,158

Depreciation 1.5 2,250

Utilities 1.5 2,250

Taxes-payroll 1.3 1,950

Taxes-other 1.1 1,650

Repairs and maintenance 1.1 1,650

Interest 1.0 1,500

Auto expense 1.0 1,500

Travel and entertainment 1.0 1,500

Insurance 0.9 1,350

Professional fees 0.8 1,200

Collection expense 0.7 1,015

Telephone 0.5 750

Miscellaneous 1.3 1,950_________ _________

Total = B 42.8 64,200

Net margin or (loss) before taxes: A – B = 4.2 6,300

Compiled by Paul Ungrodt, Jr., President of Ideation, Inc., Ann Arbor, Michigan.

APPENDIX C

Sample Bylaws

This sample set of bylaws is presented toshow the type of information that should beincluded. The bylaws should be changed toreflect the desired working arrangements of yourcooperative. However, they must be consistentwith the articles of incorporation and require-ments of applicable State statutes.

Other information about bylaws can befound in Cooperative Information Report 40,Sample Legal Documents for Cooperatives,Rural Business-Cooperative Service, USDA.

Bylaws

(Name) ____________________________________(County and State) __________________________

Article I. Purpose

The purpose for which this corporation isformed and the powers it may exercise are setforth in the article of incorporation of the corpo-ration.

Article II. Membership

Section 1. QualificationsAny craft producer who agrees to be a

patron of the association, signs a marketingagreement with the association, purchases oneshare of common stock, and meets other condi-tions as may be prescribed by the board of direc-tors, may become a member of the association.

No craft producer may be excluded fro mmembership or participation in the cooperativebased on race, color, sex, or national origin.

All applications for membership must beapproved by the board of directors. Memberstatus is effective as of the time the boardapproves the application for membership.

Note: In non-stock cooperatives, this sec-tion should include a discussion of membershipfees. The amount of the membership fees shouldbe set by a majority vote of the board of directorsand set forth in the minutes as to the amount.

Section 2. Suspension or TerminationIn the event the board of directors of the

association shall find, following a hearing, thatany of the common stock of this association hascome into the hands of any person who is noteligible for membership, or that the holderthereof has ceased to be an eligible member, orthat such holder has not marketed through theassociation the products covered by a marketingagreement with the association, or not otherwisepatronized the association for a period of ( )years, or otherwise violated the articles of incor-poration, bylaws, or other agreements madewith the association, the association may sus-pend such holder’s rights as a member and ter-minate the membership.

When a membership is terminated, theassociation shall repurchase the member’s shareof common stock for par value. The holder shallreturn to the association the certificate evidenc-ing the holder’s share of stock. If such holderfails to deliver the certificate, the associationmay cancel such certificate on its books andrecords, and the certificate is then null and void.

A suspended or terminated member shallhave no rights or privileges on account of anystock held, nor vote or voice in the management

or affairs of the association other than the rightto participate in accordance with law in case ofdissolution.

Article III. Meetings of Members

Section 1. Annual MeetingThe annual meeting of the members of this

association shall be held in the city of___________________, during the month of_______________________ of each year, at suchtime and in such place as the board of directorsshall designate, or on any date the board shalldesignate at least thirty (30) days in advance ofthe date specified above.

Section 2. Special MeetingsSpecial meetings of the members of the

association may be called at any time by order ofthe board and shall be called on written requestof at least _________members, or at least__________percent ( %) of the membership,whichever is a greater number. (Check with Statestatues for percentage.)

Section 3. Notice of MeetingsW ritten or printed notice of every regular

and special meeting of members shall be pre-pared and mailed to the last known post officeaddress of each member not less than ( ) daysbefore such meeting. Such notice shall state theobject or objects thereof and the time and placeof meeting. No business shall be transacted atany special meeting other than that referred to inthe notice.

Section 4. VotingUnless otherwise stated in the articles of

incorporation, or these bylaws, or required by

applicable law, all questions shall be decided bya vote of a majority of the members votingthereon.

Each member shall be entitled to only onevote. A member must be present to vote. Votingby mail shall not be permitted. Proxy votingshall be allowed. Each proxy shall be in writing,and no member shall vote more than one proxy.Cumulative voting is not permitted.

If a membership is held by a partnership,corporation, or other legal entity, the membershall designate in writing the person who shallvote on behalf of the member. That designationshall remain in effect until written notice of aproperly authorized change in the designatedvoter shall be received by the association.

Section 5. QuorumA quorum at annual special membership

meetings shall consist of ( ) members or per-cent ( %) of the membership, whichever is alarger number. (Check with State Statue for per-centage.)

Section 6. Order of BusinessThe order of business at the annual meeting

shall be:1. Roll call, followed by proof of due notice

of meeting.2. Amendment of the articles of incorpora-

tion and amending and/or adopting thebylaws (if required).

3. Reading and disposal of minutes.4. Annual reports of the board and com-

mittees.5. Unfinished business.6. Community reports.7. New business.

8. Election of directors to fill expiringterms.

9. Adjournment.

Article IV. Directors and Officers

Section 1. Number and Qualifications ofDirectors

The association shall have a board of direc-tors of ( ) members of the cooperative. Eachdirector elected shall be a member of this associ-ation in good standing.

No person shall be eligible to be a directorif that person is in competition with, or is affili-ated with any enterprise that is in competitionwith, the association. If a majority of the board ofdirectors of the association finds at any time fol-lowing a hearing that any director is so engagedor affiliated, that person shall thereupon cease tobe a director.

No director after having served for ( )consecutive full term(s) shall be eligible to suc-ceed him or herself, but after a lapse of ( )year(s) shall again be eligible.

Section 2. Election of DirectorsAt the first annual meeting of the members

of this association, directors shall be elected tosucceed the incorporating directors. ( )direc-tor(s) shall be elected for one (1) year; ( ) direc-tors for two (2) years; and ( ) directors forthree (3) years. At each annual meeting there-after, new directors shall be elected for a term ofthree (3) years each to succeed those directorswhose terms are expiring.

All directors shall be elected by secretballot, and the nominee(s) receiving the greatestnumber of votes shall be elected.

Section 3. Election of OfficersThe board of directors shall meet within

seven (7) days after the first election, and withinseven (7) days after each annual election, andshall elect by ballot a president, vice president,secretary, and treasurer, each of whom shall holdoffice until the election and qualification of asuccessor, unless earlier removed by death, res-ignation, or for cause.

The president and vice president shall bemembers of the board of directors. The secretaryand treasurer need not be directors or membersof the association.

Section 4. VacanciesWhenever a vacancy occurs in the board of

directors, other than from the expiration of aterm of office, the remaining directors shallappoint a member to fill the vacancy until thenext regular meeting of the members. If the termof the vacating director does not expire at thatregular member meeting, a special election shallbe held to select a director to fill the year oryears remaining in that term.

If one or more officer positions becomevacant, such offices shall be filled by the board ofdirectors, through election by ballot, at either aregular or special meeting of the board.

Section 5. Regular Board MeetingsIn addition to the meetings mentioned

above, regular meetings of the board of directorsshall be held monthly, or at such other times andat such places as the board may determine.

Section 6. Special Board MeetingsA special meeting of the board of directors

shall be held whenever called by the president orby a majority of the directors. Only the business

specified in the written notice shall be transactedat a special meeting. Each call for a special meet-ing shall be in writing, shall be signed by theperson or persons calling the meeting, shall beaddressed and delivered to the secretary, andshall state the time and place of such meeting.

Section 7. Notice of Board MeetingsOral or written notice of each meeting of

the board of directors shall be given each direc-tor by, or under the supervision of, the secretaryof the association not less than ( )hours priorto the time of meeting. But such notice may bewaived by all the directors, and their appearanceat a meeting shall constitute a waiver of notice.

Section 8. QuorumA majority of the board of directors shall

constitute a quorum at any meeting of the board.

Section 9. Reimbursement and CompensationThe association shall reimburse directors

for all reasonable expenses incurred in carryingout their duties and responsibilities.

The compensation, if any, of the membersof the board of directors shall be determined bythe members of the association at any annual orspecial meeting of the association.

No member of the board of directors, ormember of the immediate family of any boardmember, shall occupy any position in the associ-ation on regular salary.

Section 10. Removal of DirectorsWhenever any director shall fail to meet the

qualifications as described in Section 1 of thisArticle, or fails to attend three (3) consecutiveboard meetings, either regular or special, with-out just cause and provided that notice of such

meetings has been given in accordance withthese bylaws, then it shall be the duty of theboard to remove said director and to fill thevacancy in accordance with Section 4 of thisArticle.

Members, through petition noting thecharges and signed by at least ( ) or ( )percen ( %) of the membership, whicheveris a greater number, may request the removal ofany member of the board. Such director shall benotified in writing of the charges and given anopportunity to be heard at a membership meet-ing of the association. Removal of a director shallrequire a vote of ( ) % of members voting.Any vacancy resulting from such action shall befilled by nomination and vote of members atsuch meeting.

Article V. Duties of the Board of Directors

Section 1. Management of BusinessThe board of directors shall have general

supervision and control of the business and theaffairs of the association and shall make all rulesand regulations not inconsistent with law, thearticles of incorporation, or bylaws for the man-agement of the business and the guidance of themembers, officers, employees, and agents of theassociation.

Section 2. Employment of ManagerThe board of directors shall have power to

employ, define duties, fix compensation, and dis-miss a manager with or without cause at anytime. The board shall authorize the employmentof such other employees, agents, and counsel asit, from time to time, deems necessary or advis-able in the interest of the association. The man-

ager shall have charge of the business of theassociation under the direction of the board ofdirectors.

Section 3. Bonds and InsuranceThe board of directors shall require the

manager and all other officers, agents, andemployees charged by the association withresponsibility for the custody of any of its fundsor negotiable instruments to give adequatebonds. Such bonds, unless cash security is given,shall be furnished by a responsible bondingcompany and approved by the board of direc-tors, and the cost thereof shall be paid by theassociation.

The board of directors shall provide for theadequate insurance of the property of the associ-ation, or property that may be in the possessionof the association, or stored by it, and not other-wise adequately insured, and, in addition, ade-quate insurance covering liability for accidentsto all employees and the public.

Section 4. Accounting System and AuditThe board of directors shall have installed

an accounting system which shall be adequate tomeet the requirements of the business, and shallrequire proper records to be kept of all businesstransactions.

At least once in each year, the board ofdirectors shall secure the services of a competentand disinterested public auditor or accountant,who shall make a careful audit of the books andaccounts of the association and render a reportin writing thereon, which report shall be submit-ted to the directors and the manager of the asso-ciation and made available to the members ofthe association.

This report shall include at least a balancesheet showing the true assets and liabilities ofthe association and an operating statement forthe fiscal period under review.

Section 5. DepositoryThe board of directors shall select one or

more banks to act as depositories of the funds ofthe association and determine the manner ofreceiving, depositing, and disbursing the fundsof the association and the form of checks and theperson or persons by whom they shall be signed,with the power to change such banks and theperson or persons signing such checks and theform thereof at will.

Section 6. CommitteesThe board of directors may, at its discretion,

appoint from its own membership an executivecommittee of ( ) members and determine theirtenure of office and their powers and duties. Theboard of directors may delegate to the executivecommittee all or any stated portion of the func-tions and powers of the board, subject to thegeneral direction, approval, and control of theboard. Copies of the minutes of any meeting ofthe executive committee shall be mailed to alldirectors within seven (7) days following suchmeeting.

The board of directors may, at its discretion,appoint other committees as it deems appropri-ate.

Article VI. Duties of Officers

Section 1. Duties of PresidentThe president shall (1) preside over all

meetings of the association and of the board ofdirectors, (2) call special meetings of the board ofdirectors, and (3) perform all acts and duties

usually performed by a presiding officer. Thepresident shall also appoint such committees asthe board of directors may deem advisable forthe proper conduct of the association, except theStandards/Pricing and Nominating Committees.These latter committees shall be elected by theboard.

Section 2. Duties of Vice PresidentThe vice president shall act as chairperson

of the Standards/Pricing Committee. In theabsence or disability of the president, the vicepresident shall perform the duties of the presi-dent, provided, however, that in case of death,resignation, or disability of the president, theboard of directors may declare the office vacantand elect any eligible person president.

Section 3. Duties of SecretaryThe secretary shall keep a complete record

of all the meetings of the association and of theboard of directors and shall have general chargeand supervision of the books and records of theassociation, other than financial. The secretaryshall sign papers pertaining to the association asauthorized or directed by the board of directors.The secretary shall serve all notices required bylaw and by these bylaws and shall make a fullreport of all matters and business pertaining tothe office and present this report to the membersat the annual meeting. The secretary shall keepthe corporate seal and all books of blank certifi-cates, complete and countersign all certificatesissued, and affix the corporate seal to all papersrequiring a seal; shall keep a complete member-ship list; shall keep complete stock ownershiprecords; shall act as secretary to the ExecutiveCommittee; shall make all reports required bylaw; and shall perform other such duties as may

be required by the cooperative or the board ofdirectors. Upon the election of a successor, thesecretary shall turn over all books and otherproperty belonging to the association.

Section 4. Duties of TreasurerThe treasurer shall be responsible for the

keeping and disbursing of all monies of the asso-ciation and shall keep accurate books of accountsof all transactions of the association. The trea-surer shall perform such duties with respect tothe finances of the association as may be pre-scribed by the board of directors. At the expira-tion of his/her term of office, the treasurer shallpromptly turn over to his/her successor allmonies, property, books, records, and documentspertaining to his/her office or belonging to theassociation.

Section 5. Duties and Powers of the ExecutiveCommitteeThe Executive Committee shall be autho-

rized to act in place of the board between boardmeetings, with its actions subject to review bythe board. The executive committee shall meet asfrequently as the efficient operation of the associ-ation requires, or upon call by the presidentand/or manager.

Article VII. Operation at Cost andMembers’ Capital

Section 1. Operation at CostThe association shall at all times be oper-

ated on a cooperative service-at-cost basis for themutual benefit of its member patrons.

Section 2. Margin AllocationIn order to induce patronage and to assure

that this association will operate on a service-at-cost basis in all its transactions with its members,

the association is obligated to account on apatronage basis to all member patrons on anannual basis for all amounts received from busi-ness conducted with members on a patronagebasis, over and above the cost of providing suchservices, and making reasonable additions toreserves. Such allocation shall be on the basis ofthe volume (or dollar value) of product mar-keted through (and/or purchased from) theassociation.

The association is hereby obligated to payall such amounts to the patrons in cash or bycredits to a capital account of each memberpatron.

Section 3. TransferNo assignment or transfer of any amount

credited to the capital account of a patron shallbe binding on this association without the con-sent of the board, nor until it shall have beenentered in the books of this association.

Section 4. Per-Unit RetainsEach member also agrees to provide capital

in such amounts as determined by the board ofdirectors based on the dollar value of productmarketed through the association. Such per-unitretains shall be allocated to the member’s capitalcredit account.

Section 5. DividendsNo dividends shall be paid on any capital

credits.

Section 6. Records and DocumentationThe books and records of the association

shall be set up and kept in such a manner that, atthe end of each fiscal year, the amount of capital,

if any, so furnished by each member is clearlyreflected and credited in an appropriate recordto the capital account of each member.

The association shall, within eight and one-half (8-1/2) months after the close of each fiscalyear, notify each member of the capital so cred-ited to the member’s account. The notice shall bein the form of a written notice of allocation orper-unit retain certificate (as those terms areused in Subchapter T of the Internal RevenueCode) or other appropriate written document.The board shall have discretion to issue suchnotices and certificates in either “qualified” or“non-qualified” form as permitted by theInternal Revenue Code and other applicable law.

Section 7. Fiscal YearThe fiscal year of this association shall com-

mence on the first day of (month) and end on thelast day of (preceding month).

ARTICLE VIII. Equity Redemption

Section 1. Regular Redemption, RevolvingFundIf, at any time, the board shall determine

that the financial condition of the associationwill not be impaired thereby, capital credited tomembers’ accounts may be redeemed in full orin part. Any such redemption of capital shall bemade in order of priority according to the year inwhich the capital was furnished and credited,the capital first received by the association beingfirst redeemed.

Section 2. Discretionary Special RedemptionNotwithstanding any other provision of

these bylaws, the board, at its absolute discre-tion, shall have the power to retire any capitalcredited to members’ accounts on such terms

and conditions as may be agreed upon by theparties in any instance in which the interests ofthe association and its members are deemed tobe furthered thereby and funds are determinedby the board to be available for such purposes.

ARTICLE IX. Consent

Each person who hereafter applies for andis accepted to membership in this association,and each member of this association on the effec-tive date of this bylaw who continues as amember after such date, shall, by such act alone,consent that the amount of any distributionswith respect to his/her patronage occurring afterthe effective date of this bylaw, which are madein qualified written notices of allocation or quali-fied per-unit retain certificates (as defined in 26U.S.C. 1388), and which are received by him/herfrom the association, will be taken into accountby him/her at their stated dollar amounts in themanner provided in 26 U.S.C. 1385(a) in the tax-able year in which such written notices of alloca-tion and per-unit retain certificates are receivedby him/her.

W ritten notification of the adoption of thisArticle, a statement of its significance, and acopy of the provision shall be given separately toeach member and prospective member beforemembership in the association.

ARTICLE X. Nonmember Business

This association may conduct business withnonmembers on either a patronage or non-patronage basis. However, this association shallnot market the products of nonmembers in anamount the value of which exceeds the value ofthe products marketed for members. It shall notpurchase supplies and equipment for nonmem-

bers in an amount the value of which exceedsthe value of the supplies and equipment pur-chased for members.

ARTICLE XI. Nonpatronage Income

The nonpatronage income of the associa-tion shall be its gross receipts derived from allsources which under law do not qualify aspatronage income, less all expenses properlyattributable to the production of such nonpa-tronage sources of income and all income taxespayable on such receipts by the association.Nonpatronage income shall be used in behalf ofthe association and its members in accordancewith such lawful purposes, including assign-ment to an unallocated reserve account and allo-cation in whole or in part to members, as may bedetermined by the board of directors.

ARTICLE XII. Losses

Section 1. Patronage LossesIn the event the association suffers a loss

during any year on business conducted with orfor patrons, such loss may be apportionedamong the patrons during the year of loss so thatsuch loss will, to the extent practicable, be borneby the patrons of the loss year on an equitablebasis. The board shall have full authority to pre-scribe the basis on which capital furnished bypatrons may be reduced or such loss otherwiseequitably apportioned among the patrons. In theevent of a patronage loss in one or more depart-ments or divisions of the operation of this associ-ation, but not so much as to cause an overall lossfor the fiscal year, such loss or losses may be pro-rated against each of the remaining profitabledepartments on the basis of their respective per-centage of the net margins during such fiscalyear.

Section 2. Nonpatronage LossesIf, in any fiscal year, the association incurs a

loss other than on patronage operations, suchloss may be charged against any reserve accu-mulated from nonpatronage earnings in prioryears.

Section 3. General ProvisionsThe board of directors shall have no

authority to make assessments against members.This section shall not be construed to deprive theassociation of the right to carry backward or for-ward losses from any source whatsoever inaccordance with the Internal Revenue Code orState taxing statutes.

ARTICLE XIII. Dissolution and PropertyInterest of Members

Upon dissolution, after all debts and liabili-ties of the association shall have been paid, allshares of preferred stock and common stockredeemed, and all capital furnished throughpatronage shall have been retired without prior-ity on a pro rata basis, the remaining propertyand assets of the association shall be distributedamong the members and former members in theproportion which the aggregate patronage ofeach member bears to the total patronage of allsuch members insofar as practicable, unless oth-erwise provided by law.

ARTICLE XIV. Indemnification

The association shall indemnify its officers,directors, employees, and agents to the fullestextent possible under the provisions of the(applicable State law), as it may be amendedfrom time to time.

The association may purchase liability insurancecoverage for any person serving as an officer,director, employee, or agent to the extent permit-ted by applicable State law.

ARTICLE XV. Amendment

If notice of the character of the amendmentproposed has been given in the notice of meet-ing, these bylaws may be altered or amended atany regular or special meeting of the membersby the affirmative vote of ( ) of the memberspresent or voting by proxy.

APPENDIX D

Sample Marketing Agreement

(For more details on marketing agreements,see Cooperative Information Report 40,Sample Legal Documents for Cooperatives,available from USDA’s Rural Business-Cooperative Service.)

I hereby agree to deliver to (Name of craft cooperative) the fol-lowing items, to be marketed wholesale and/or retail at the discretion of the management:

Quantity Item Price

by (date), unless terminated in writing by either party within thirty (30) days of specifieddate. The association agrees to market said crafts in the manner described herein.

As a member producer of (name of cooperative) I agree to:

1. Be bound by the cooperative’s articles of incorporation, bylaws, rules and regulations nowor hereafter adopted.

2. Agree to offer all of my approved products to the cooperative first, before offering them toany other market.

3. Abide by the association’s price structure that in the event I produce more items (or avolume of items) than the association can sell, I can sell to another market at a price no lessthan the association’s price. If I sell to an individual, I must sell at retail price.

4. Appoint the association my agent to sell all the crafts contracted for which have beenapproved by the Standards Committee. After approval, all products received by the associ-ation will be inspected for quality and workmanship; I will accept the return of unsatisfac-tory products.

5. Deliver such crafts at such time and to such places as may be prescribed by the association,or its representative.

6. Notify the association of any lien on the products delivered.7. Sell to the association only these products designed and contracted for by the association.8. Pay the cooperative a penalty on any crafts not delivered as agreed in this contract. The

penalty would be equal to the gross margin lost to the cooperative by the undeliveredcrafts, plus any legal fees it incurs in the collection of the penalty.

9. Provide my patterns/designs, for approved craft products, to the association, and/or I willassist in training other members to meet market needs.

The Association agrees to:

1. Accept craft producers as members when their products have been approved by theStandards Committee.

2. Act as agent for the marketing of products of the member producer as herein provided.3. Dispose of producer’s crafts in a manner deemed to be most advantageous for its members.4. Account to the producer in accordance with this contract for all amounts received from the

sale of these products.

Date _________________________

Producer's Signature __________________________________________________

Print Name __________________________________________________

Address __________________________________________________

Street and number/route and box number __________________________________________________

City _________________________ State _________ Zip _____________________ County _______________________

Social Security Number _________________________

Telephone:Day _________________________ (Night) _________________________

Accepted this _________ day of __________________ , 20_____

(Name of Craft Cooperative) __________________________________________________

By _____________________________________________ , Manager

APPENDIX E

Cooperative General Manager's Job Description and Board Duties and Responsibilities

Manager’s Job DescriptionOne of the most important decision a coop-

erative board of directors makes is choosing amanager, delegating responsibilities and evaluat-ing job performance. Boards of directors setpolicy. Managers carry out policy decisions setby the board.

The manager has specific responsibility inplanning, organizing, directing, coordinating,and controlling operations of the cooperative.For the board of directors to function effectively,it must agree on specific manager responsibili-ties for day-to-day operations as well as thelong-range implementation of policy.

By following a set plan or job description,both the board and manager have guidelines toevaluate the manager’s performance.

The cooperative’s membership has dele-gated to the board of directors responsibility forconducting all business operations. The board, inturn, expects a manager to carry on day-to-daybusiness within set policy guidelines. The boardlooks to the manager to have an effective opera-tion that produces desired net margins, main-tains cooperative assets, provides assistance andguidance to the board, and develops desiredgrowth in sales and volume. The manager isresponsible to the board of directors.

To attain this objective, the following spe-cific manager’s duties are outlined:

Planning1. Make policy recommendations to the

board in all areas of management.2. Analyze the potential of and make rec-

ommendations on products or services the coop-erative will provide.

3. Prepare operating and capital require-ment budgets for board review and approval.

4. Develop a staffing plan with job descrip-tions for each specific area of employment.

Organizing Work1. Submit monthly and other special

reports as needed, provide general informationand recommendations to the board of directors,assist the board in formulating policies, and pro-vide all available facts and information useful inmaking board policy.

2. Implement staffing plan, including train-ing and development, to achieve cooperative’soperational goals.

3. Organize work schedules, staff assign-ments, product flow, marketing initiatives andother procedures to achieve cooperatives opera-tional goals.

4. Promote cooperative membershipthrough publicity and other means.

Directing Cooperative Business1. Carry out board policy.2. Carry out sales/production promotions

on all products as planned for in the budget.3. Assign realistic sales goals, duties, and

responsibilities to each employee.4. Direct and supervise all employees. 5. Train employees and develop employee

skills to improve their performance.

6. Hold employee meetings to give perti-nent information, get employee advice, anddevelop group interest and enthusiasm for vari-ous programs important to the cooperative.

7. Encourage member and employee self-development.

8. Arrange for receipt of craft productsfrom members and payment to members asdescribed in policy and procedure manual

9. Provide for adequate maintenance for allequipment and facilities.

10. Enforce facility regulations and developsafe work habits for employees.

Coordination1. Coordinate all production, marketing,

inventory, shipping and other business functionsof the cooperative.

2. Coordinate board/manager communica-tions, committee functions and membershipcommunications.

3. Carry on community relations activities.4. Develop to the utmost a sound working

relationship with other cooperatives and thebusiness community whenever feasible.

5. Personally and officially represent thecooperative by participating in communityaffairs.

6. Develop the image of the cooperative asan economic institution in the job community.

Fiscal Controls1. Make yearly budget projections for the

board of directors and submit data to directorsperiodically. Submit monthly operating reports,comparing them with the same periods fro mprior years and with the budget projections.

2. Maintain desirable gross margins,expense ratios, and inventory controls.

3. Monitor accounts receivable and payableon a regular basis and implement procedures toaddress any deficiencies.

4. Assist the board in completing annualaudit. The auditor reports to the board.

5. Make monthly and/or periodic reportsto lenders according to agreements.

6. Arrange for the board to review/receiveinsurance and bonding coverage annually.

Duties and Responsibilities of Directors In addition to the general duties and

powers of directors as set out in the association’sbylaws, the following responsibilities are impor-tant:

1. Hire a competent manager, determinesalary, and outline duties and authority.

2. Adopt policies for guiding the managerand make them a part of the minutes. The poli-cies should include such items as credit topatrons, source and limits of supply inventories,inventory policy, general personnel regulations,etc.

3. Require written monthly financialreports and operating statements for boardmeetings.

4. Direct the manager to prepare, before theclose of each fiscal year, an operating budget forthe fiscal year for board approval.

5. Attend regular and special meetings ofthe board.

6. Understand the terms of all contractsinto which the cooperative has entered byauthority of the board: leases, loan agreements,orders for supplies, etc.

7. Be sure that any projected expansionprogram is definitely needed and that adequatefinancing is provided before giving finalapproval.

8. Maintain an active interest in the amountand condition of inventories and make inspec-tions as conditions warrant.

9. Employ a qualified auditor to make anindependent audit at least once each fiscal yearand report directly to the board.

10. The secretary should make the minutesof the board of directors’ meetings available tothe auditor for actions that might affect the audi-tor’s report.

11. Review at least once each fiscal year theamount of insurance of various kinds carried bythe cooperative and determine if coverage is suf-ficient. Fidelity bonds on employees should alsobe checked.

12. Continue to give your cooperative closeattention even when it seems to be functioningsuccessfully under able management.

13. Develop good patron and public rela-tions as a joint undertaking with management.

14. Plan with the manager to conductannual meetings and provide the membershipwith reports based on the annual audit.

15. Be alert to every opportunity toimprove knowledge and understanding of coop-erative business procedures.

16. Abide by and support all decisionsreached by a majority vote of the board.

17. The board should not delegate any ofthe responsibilities clearly belonging to it.

18. Remember that boards of directorsmake policy decisions and should not assumeresponsibilities clearly in the field of manage-ment.

19. A credit policy established by directorsfor members should be observed in everyrespect by directors themselves when makingpurchases.

20. Individual board members should notact independently on matters that should bedecided by the entire board.

21. A director continuously failing to usethe services of the cooperative should be dis-qualified from board membership.

Rules for Board MembersWhen elected, directors should:

1. Attend and participate in board meet-ings.

2. Be attentive.3. Be prompt.4. Notify someone they will be absent if

unable to attend a meeting.5. Help the chairperson stay with the

agenda.6. Not ask for or expect special favors fro m

the cooperative.7. Not use their position for personal gain.8. Be loyal and support the cooperative.9. Be fully informed and knowledgeable

about the cooperative’s operation. The coopera-tive must be defended from attacks of peoplewho don’t understand how cooperatives areorganized and how they work.

10. Remember that their job is to direct thecooperative’s business. They establish policy,they don’t manage. The most common errormade by directors is to infringe on manage-ment’s prerogatives.

11. Set policy and see that management fol-lows it. Such important functions as keepingbylaws and articles of incorporation current,

obtaining long-term financing, setting creditpolicy, and assuring that the cooperative has anannual audit by a qualified Certified PublicAccountant (CPA) are clearly board functions.

12. Keep personal accounts paid up.13. See that the manager is adequately paid.14. Not let themselves be nominated for a

board position if they are only “lukewarm”about serving.

15. Close board meetings by 11 p.m.“sharp” and not at 2 a.m. “dull.” This can beaccomplished by starting on time and stayingwith the agenda.

Separating Board and Management Decisions Identifying where board decisions leave off

and hired management decisions begin contin-ues to be a problem for cooperative board mem-bers. Certain criteria or guidelines can be used todetermine which decisions should be made bythe board and which by management. The listbelow outlines some of the more important deci-sions.

1. Ultimate accountability to members isvested in the board of directors, who may subse-quently grant certain authority to officers,agents, and employees. The general manager, inturn, is accountable to the board and initiatesaction within the boundaries of authoritygranted by the board.

2. The board of directors is concerned pri-marily with idea decisions, while management is concerned primarily with action decisions.

3. Decisions on overall objectives, policies,and goals are the responsibilities of the board.

4. Decisions related to how and whenobjectives, goals, and policies are to be attainedare the responsibility of management withinguidelines established by the board.

5. Decisions involving long-range commit-ment of resources, which include facilities,finances, or manpower, are the board’s responsi-bility.

6. Decisions involving intermediate andshort-term commitment, organization, and con-trol or resources are the responsibility of man-agement.

7. Decisions related to assurance of capablemanagement succession by providing for execu-tive depth and training are the board’s responsi-bility.

8. Decisions specifying the ideal pattern ofboard performance and for review of and per-petuation of this ideal through indoctrinationand training of directors are the board’s respon-sibility.

9. Control over long-range financial com-mitments, financial structure, objectives, policies, public and member relations, and overall man-agement performance are decisions of the board.

10. Control over operatives, subordinatemanagers and employees, budgets, procurement, production, marketing plans, and industrial andemployee relations programs are decisions formanagement.

U.S. Department of Agriculture

Agricultural Cooperative Service

W ashington, DC 20250-6576

Rural Business-Cooperative Service (RBS) provides research, management, and educa-tional assistance to cooperatives to strengthen the economic position of farmers and otherrural residents. It works directly with cooperative leaders and Federal and State agenciesto improve organization, leadership, and operation of cooperatives and to give guidanceto further development.

The cooperative segment of RBS (1) helps farmers and other rural residents develop coop-eratives to obtain supplies and services at lower cost and to get better prices for productsthey sell; (2) advises rural residents on developing existing resources through cooperativeaction to enhance rural living; (3) helps cooperatives improve services and operating effi-ciency; (4) informs members, directors, employees, and the public on how cooperativeswork and benefit their members and their communities; and (5) encourages internationalcooperative programs. RBS also publishes researches and educational materials and issuesRural Cooperatives magazine.

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programsand activities on the basis of race, color, national origin, sex, religion, age, disability,political beliefs, sexual orientation or marital or family status. (Not all prohibited basesapply to all programs.) Persons with disabilities who require alternative means for com-munication of program information (Braille, large print, audiotape, etc.) should contactUSDA s TARGET Center at 202-720-2600 (voice and TDD).

To file a complaint of discrimination, write: USDA, Director, Office of Civil Rights, Room326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC 20250-9410 or call 202-720-5964 (voice and TDD). USDA is an equal opportunity provider andemployer.

Approach to CraftsThe Cooperative - Rural Developmentcooperative approach to solving craft marketing problems, and offers development guidelines for craft cooperatives. This publication

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