Cooperative Business Principles

Authors: Greg McKee, North Dakota State University, gregory.mckee@ndsu.edu, and Donald Frederick,
Rural Business-Cooperative Service, USDA

Cooperative Principles

Various writers over the past century have analyzed and observed the application of cooperative principles. Although slight differences in terminology appear on the various lists, three principles emerge as being widely recognized and practiced.

These principles are more than just good practices, policies or common sense. They distinguish a cooperative from other kinds of business. They are also recognized in state and …

Defining Financial Condition and its Warning Signs

Author: Chris Peterson, Michigan State University, peters17@msu.edu

Because members are owners, they need to care about the financial condition of their cooperative. Financial condition reflects a firm’s ability to raise and use funds. Strong financial condition results from effective operating profitability (revenues exceed expenses), efficient asset management (only necessary and profitable assets are invested in), efficient capital structure management (liabilities are not used in excess) and appropriate pay out of returns to owners through dividends and appreciation of ownership value. …

Cooperative Financing

Author: Chris Peterson, Michigan State University, peters17@msu.edu

 

What is finance and why does it matter to cooperatives?

In the context of business firms, finance encompasses all aspects of raising and using cash and related funds for the long-run and short-run purposes of a firm. Finance includes cash management (taking in and expending cash), extending and using trade credit (accounts receivable and accounts payable), investing in long-run assets (e.g., property, plant and equipment) and short-run assets (e.g., inventory), raising funds (e.g., …

Cooperative-Level Profits

Author: Chris Peterson, Michigan State University, peters17@msu.edu

Historically, cooperatives were thought of as “nonprofit” or “not-for-profit” organizations. These terms confuse the original notion of the operation-at-cost principle with profit-generating ability. Like all businesses, cooperatives need to generate profit to survive and prosper. They are never in business merely to break even.

Like all businesses, cooperatives create revenues through sales and have expenses. The difference between revenues and expenses is profit or net income just like any standard business would have. …

Returning Cooperative-Level Profits: Mechanics of Patronage Refunds

Author: Chris Peterson, Michigan State University, peters17@msu.edu

The mechanics of returning net income to members is rather straightforward. On an annual basis, net income is divided by patronage revenue. Assume that this number is 10 percent for a particular cooperative for a particular year. Each member receives a patronage refund equal to 10 percent of the value of the patronage business that the member did with the cooperative. If the member did $10,000 in patronage, the refund is $1,000 ($10,000 …

Unique Causes of New Cooperative Failure

Authors: Brian Henehan, Cornell University, bmh5@cornell.edu, and Bruce Anderson, Cornell University

Reviewers: Gerald White and Brent Gloy, Cornell University

New cooperatives can be prone to a number of unique business problems. The primary goal of new cooperatives is to help address the economic problems of members or seize new opportunities. If these problems are due to overall weaknesses in the industry that members operate in, the new cooperative may begin its life in a more hostile economic environment than other …

New Cooperative Development

 

B. Henehan.

Authors: Brian Henehan, Cornell University, bmh5@cornell.edu, and Bruce Anderson, Cornell University

Reviewers: Gerald White and Brent Gloy, Cornell University

Summary: There is increased interest in economic alternatives as individuals try to adopt needed technology and compete in today’s dynamic global markets. The cooperative organizational structure may offer a viable alternative. New cooperative development requires strong commitment and leadership from the potential members and a number of other stakeholders to result in the creation of an effective,

Basic Cooperative Principles

 

G. McKee.

Authors: Greg McKee, North Dakota State University, gregory.mckee@ndsu.edu, and Donald Frederick, Rural Business-Cooperative Service, USDA

Summary: This article provides a comprehensive summary of basic information on the cooperative way of organizing and operating a business. It covers the nature and extent of the use of cooperatives, compares cooperatives to other business structures, explains the roles various people play in a cooperative and discusses equity accumulation and income taxation. The purpose is to make available, in a

Future Challenges for Cooperative Finance: Reasons that more Capital, not less will be Essential

Author: Chris Peterson, Michigan State University, peters17@msu.edu

The good news about cooperative finance is that many members coming together to form and operate a cooperative have more financial resources collectively than each would have alone. As a result, cooperatives allow members to reap returns on assets related to their personal operations that they could not otherwise reap. But challenges exist for cooperatives and their members in the financial arena.

As the only source of equity capital, the total pool of …