Carrying the Load Together

Cooperative buying gives businesses a competitive edge

Single taxation: Co-op members may receive a dividend from the co-op based on how much money they spend towards group purchases. Regular companies are taxed at the corporate level and again when stockholders receive dividends. Members of the co-op will only be taxed when they receive their rebates but the money invested with the coop for purchasing is not taxed.

DISADVANTAGES

Less independence: When you buy items through your co-op and not directly through a vendor, you lose a little bit of autonomy. You might have to adjust your buying schedule based on the co-op’s rules. Co-ops may have stricter payment terms compared to the revolving credit you have with a vendor.

Weakened participation: Sometimes small business owners refuse to make purchases through the co-op, which weakens its buying power. A lack of membership or inconsistent purchases can cause a co-op to be undercapitalized, which may limit the choice of goods and services it can purchase or the discounts it can get. Additionally, if one member fails to make a payment to the co-op, everyone in the co-op bears the burden.

Mismanagement: Cooperatives must elect a board of directors and hire a staff to manage the day to day operations of the cooperative. Like any business, mismanagement is a risk. Cooperatives must be diligent to find managers and corporate boards that have experience in cooperative finance, which is different from for profit corporations. If a manager does not understand the special nature of the cooperative’s patrons they may not be able to fulfill the co-ops short term and long term financial goals.

RESOURCES

A Reference for Forming Cooperative Businesses

A Guide for Cooperative Development

Basic Guide to Incorporating a Shared Services Cooperative

The National Society of Accountants for Cooperatives

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