STANDARD BUSINESS:
Owner Comment: None
Announcements & Affirmations: None
Calendar and Timeline: The next meeting will be July 11th at 5:00pm.

SUBMITTED AGENDA ITEMS:

Set New Date for July Meeting
· The next scheduled meeting falls on July 4th. Dave will be gone that whole week, so we should look at rescheduling.
o We will tentatively schedule for July 11th

Review of April Financials
Finance Manager Kevin Oder presented the April financial statements.
· April sales were down but we are seeing sales increase in May.
· We had a positive bottom line for the first time this year, so the debt to equity ratio improved.
o It seems like there was not as much progress on the bottom line by this time last year.
· The education and outreach line was quite a bit above budget. This was due to the Spring Owner Mailer, the Growth Brochure and the Owner Meeting all coming close to the same time.
o The budget for this line has typically been flat with the same amount for each month. Next year, more will be allocated to April to account for the timing of these expenses.
· Marketing and merchandising expenses were over budget for the month but are still well under for the year. The spike this month was probably due to increased circulation of ten percent coupons and Earth Day promotions.
o This is another line item that is budgeted flat. We can explore allocating to specific months during next year's budget cycle.
· Commissary food costs are fluctuating. This is due to a lack of a standard inventory procedure. This is the first year this department has taken an inventory and the procedure is still rough. We took steps during this last inventory to refine and develop a process that will lead to a more reliable inventory value.
· Cost of goods was up by a few percent. Is this due to inventory problems or simply missed margin?
o There may be a slight amount attributable to inventory evaluation, but this is mostly a margin problem. April is not an inventory month, so cost of goods sold is estimated.

Discussion of Changing the Non-Operations Funding Mechanism / Patronage Dividend Planning
· Under this proposal, funding for non-ops would come from the operating income of the prior year. However, this funding will not affect the operating income, only the bottom line. This would not produce the fluctuations that are described.
o Actually, operating income does vary from year to year, so non-ops spending, will not affect operating income, but will be affected by operating income.
· It may not be possible to fund outreach programs on such varying amounts. If we do not have consistency, there is no way to plan.
o There are some options detailed for achieving this consistency. The main programs that need to be scrutinized are discounts and owner worker wages. The other outreach programs together do not constitute a large enough portion to matter.
· We could explore the possibility of basing outreach spending on gross profit minus labor, rather than operating income.
o I'm not sure you would want to exclude the other operating expenses since they too are costs of running the store.
· Low-income discounts could be reevaluated. Perhaps we could require that customers prove their low-income status.
o Currently we require them to sign a form, but do not require any proof from them. This could be looked at.
· One of the problems we are facing in any changes to these programs is that once you have extended a service it is extremely difficult to take it away.
· We should view these outreach programs as our type of marketing. It would be helpful to compare our outreach budget to the advertising budgets of larger stores.
· This idea makes sense fiscally, but our outreach programs are the things that define the Co-op, separating it from bigger box stores.
o The problem will only be the transition period. The benefits from getting through this initial period may exceed the growing pains.
o The thrust of this proposal is to create a situation where we have more money for our programs by conserving money elsewhere. The transition period may be made easier if we fix the interest rates of the loans.
· The other thing to keep in mind is that there are many competing needs for our cash. Outreach is only one of them. Any analysis of our outreach programs should be done with these competing needs in mind.
· Does the bank look at our outreach spending and think that our profit could be greater if this spending were cut? Are there any other metrics that the bank would view that could achieve the same results as reducing outreach spending?
o Typically, the bank looks at the bottom line. There are many reasons for this; cash gives you flexibility, it gives you strength against competitors. Other things that we may look at are your current ratios. We look at debt service coverage. We also look at your management team. However, in the end, we look at the bottom line. If you can achieve a strong bottom line while increasing non-operating expenses, then that is the prerogative of the business.
o It is in the bank's interest to be a trusted financial advisor. Collateral repossession is not in our interest. We want to help you accomplish the mission that you have set out to accomplish, and if that is through lowered interest rates, then that is what we will try to help you do.
· Unfortunately, there is a strong pathos appeal to our outreach programs. Though it makes perfect fiscal sense to cutback these programs, these are a crucial component to our success.
o I think what we are trying to explore, with this proposal, is not where we can make major cuts, but small cuts that have the intent of stabilizing both the bottom line and outreach spending.
o Another avenue to explore may be a non-profit foundation that could operate these same programs.
§ To do this, you would have to first set-up your non-profit organization.
§ One problem is that once the money has been given away, we lose control of it. We want the money to stay here in the community and be spent on the programs of our choosing.
· There are many competing needs that are pinched when we continue to spend heavily on outreach programs.
· It may be that our current spending system is the most cost effective way to reach the amount of people in the way that we do.
· The main programs that need reevaluation are owner benefits, including discounts and owner workers.
o The owner worker program has been reviewed before, and it seems that we decided that the benefits outweigh its detractions and costs. A way to save in this program could be to not refill the shifts when owners quit.
o Another possibility would be to move this program back into the labor budget. If managers had to fund this program out of their budgets, they would not rely on it so heavily as a labor source.
o Support discounts could be converted to coupons, or a store credit, rather than a discount. This would provide a more equitable benefit and additionally would give us the ability to track the costs of specific programs, which we currently do not have. This also allows us to expense this program at the time the work is done, which is also beneficial from an accounting standpoint.
· The Board is awaiting a report on this patronage and outreach discussion from the Finance Committee.
o We will submit the three documents that Kevin has prepared along with Rivka's outreach report. Dave will prepare an agenda item.

Meeting adjourned: 6:35 pm