New Business Formation
New Business Formation EW-B6
Community meeting, May 2, 1992
Business committee has the authority to use a total of 5000 hours and $20,000 for investment, inventory, and expenses towards the formation of new businesses in any given year, so long as cash outflow does not exceed cash inflow by more than $5000 ($5000 will be budgeted as a miscellaneous business expense for this purpose). Business committee also has the option to appoint a new industries meta whose role would be similar to that of the new industries meta at Twin Oaks. Following are tasks which business committee is likely to delegate to the new industries meta:
* Approve small funds and hours for researching one particular business (up to 50 hours and $100)
* Help sponsors of new business ideas develop plans, projections, and proposals for Business Committee or community meeting.
* Help with finance, planning, and administration or any other necessary managerial support during the startup period for new businesses.
* Provide regular reporting on new businesses to the Business Committee, including hours, expenses, and inventory.
The limits for individual projects shall be:
Business committee may delegate the authority to approve individual projects costing up to $100 and 50 hours, so as to facilitate individuals gathering information, building prototypes, putting together a proposal, etc. (this was previously a resource manager function)
The business committee may approve individual projects requiring up to $8000 of expense, investment and inventory and 2000 hours, so long as cash outflow does not exceed cash inflow by more than $2000 for any particular project. This allow for small scale experimentation and training, as well as launching very small businesses such as community bookshelf or retail crafts.
Projects requiring more than $8000, 2000 hours, a first year loss of more than $2000, or which the business committee feels need community support (too risky, too controversial, etc.), must go before community meeting in addition to this business committee process.
The business committee can exercise its discretion as to what degree of planning and goal-setting is necessary, but will generally want sponsors to do the following:
* Give a purpose for the business
* List the personnel involved, including someone to manage the business
* Describe the costs and benefits (both financial and non financial).
* Estimate income, hours used, and $/hour during regular operation.
* State return on equity with expenses and $5/hour wage subtracted from income
* Estimate monetary and labor costs broken down by production, sales, and administration.
* Estimate startup costs and time until regular operation begins. Include this in the framework of a plan which spans form the present until the business is in regular operation.
The business committee is allowed to exercise flexibility and discretion in deciding whether to allocate money and labor to a new business. The one criterion which must be met is:
* A new business must earn better than $5/hour return on labor during regular operation. It does not have to earn $5/hour during the startup period, which could be several years in duration.
Other criteria the business committee might use are:
* Generally, low risk businesses may have low returns on equity, whereas high risk businesses should have high returns on equity.
* It's better to have more than one person involved in the new business and most of the people involved should be full members with a good record of carrying through on projects.
* If the business has a number of indirect benefits to community, it will be looked on more favorably. Conversely, if there are many hidden costs, these will be factors against starting the new business.