IX. Using the income generated by the economic activities
When the activity has been well managed and produced a profit, i.e., the proceeds have exceeded the costs, the operators should decide how to divide up the profits.
Groups or associations should, before all else:
- set aside a sum to cover depreciation. This means setting aside enough to cover the replacement of material and equipment when they become unusable.
The amount will depend on the life span and cost (value) of the material and equipment. For equipment costing 100 000 F and having a life span of five years, the annual amount will be:
100 000 F /5 = 20 000 F
To cover total depreciation, this calculation will have to be done for each item of equipment and the results totalled.
- set aside a sum for contingencies, i.e. any serious losses the operation may suffer.
Example: Cabbage and tomato producers load a lorry with produce to sell on a nearby village market. As ill luck would have it, however, torrential rainfall on market day makes the road impracticable. Part of the load spoils and has to be sold at half price on another market two days later.
This type of situation is not uncommon in the countryside, and it causes producers huge problems. We therefore strongly recommended that at least 10% of an activity's profits should be set aside to cover losses of this kind.
- use their own resources (money and other goods) to resolve the activity's financial problems.
Example: If a group has 100 000 francs and needs to purchase raw material costing 75 000, it would be preferable to dip into its own reserve for this, as banking credit is not easily obtainable, and even if it were, interest payments would probably be rather high. (Remember what we said earlier about using credit wisely).
Group members should be encouraged to tap their own resources and to resort to credit only to top up the group's own efforts.
After provision has been made for depreciation, contingencies and self-financing, the remaining profits may be shared equally among members, or in proportion to their contribution to the operation.
Equal profit sharing:
If it is assumed that all members have contributed equally to the profit-making activities, earnings are then divided by the total number of group members and each is allocated an equal share.
Profit-sharing based on each member's contribution
In this case, the profits are shared in proportion to the volume of work put in (this is the basic principle of cooperation). This is a very equitable method of profit sharing, strengthening solidarity and the competitive spirit among members.
Income-generating activities run by individuals
The same provisions should be made for depreciation, contingencies and self-financing.
When dividing up the profits let us not forget that preference should always be given to saving; actively reinvesting in self-financing, or placing the money in an interest-earning deposit account, for instance.
If they carefully build up their savings, the operators may then envisage setting up a small group savings and credit fund which, if well-managed, will gradually solve some of their funding problems.
Pooled savings may also be used to provide loans to members. Such loans would be repayable at a sufficient rate of interest to replenish the fund and maintain its purchasing power.