Follow Sound Business Practices

The major challenge to cooperative members, the board of directors, and operating management occurs after business operations begin. Many of the startup responsibilities continue after the cooperative begins operating.

For example, it’s critical to operate on a sound business basis to avoid year-end losses. Requirements include developing and installing a double-entry accounting system, preparing financial reports including operating and capital improvement budgets, reporting to the membership in a clear and timely manner, and conducting long-term planning.

Beyond complete and accurate documentation of income and expenses, a cooperative must keep exact member records. They account for members’ initial and subsequent investments and member purchasing, marketing, and/or services used to determine patronage allocations from net earnings. Members also need these records for their own personal accounts, particularly for income tax purposes.

The management staff prepares periodic operating statements and balance sheets to inform the board and members on how the cooperative is performing and its financial condition. A full report is typically issued annually, with abbreviated monthly or quarterly reports for board use. Reports should come often enough for the board to satisfactorily monitor business activities, take appropriate actions, and to keep members informed on how their cooperative is progressing. An annual independent audit serves as an outside appraisal of the cooperative’s financial condition, a check on the business and accounting procedures, and how the cooperative has conformed with tax and other legal requirements.

Once the cooperative is organized and operating, members need to consider how they want it to grow. That takes both short- and long-term strategic planning. Long-term planning, which looks 3-to-5 years ahead, usually gets inadequate attention. But this is becoming more important because of more rapid technological, economic, and social changes. Planning involves developing a vision and mission statement, appraising the future, assessing the external and internal business environment, defining desired goals with stated objectives, and developing a course of action to reach them.

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