Profits and Patronage

Under the current system profits can go to the collective reserve account or be paid out as partonage. A portion of the patraonage is paid immediately with the option that the rest may be retained for a period before being paid out. The problem is that the earnings of a worker cooperative may not result in cash flow. Some earnings may arise from unrealized capital gains. Usually those earnings would need to be reinvested until those assets are sold.

The solution to this problem is to cap total patronage payments at the free cash flow generated from the earnings. If there are unrealized gains contributing to the earnings they should result in larger or additional investments for the members instead of patronage payments. One way to accomplish this it to revalue the members securities higher to reflect the earnings not paid out in patronage. These investments would bear interest but would not need to be paid out by the cooperative.

The rule can be generalized to state that the total payments made or allocated to the members (including wages, salary and patronage) cannot be larger than the free cash flow of the coop for an extended period of time. Larger payments would reduce the finite liquidity of the coop. Additional earnings must be credited to the members in the form of securities which would remain outstanding at least until cash flow from those earnings is generated.