Increasing Your Profits Through Buying Groups Strength In Numbers

Increasing Your Profits Through Buying Groups Strength In Numbers

Why Join a​ Buying Group?
Because wholesalers give pricing breaks to​ customers who buy in​ large volumes, small businesses are at​ a​ disadvantage. They usually can’t afford to​ purchase in​ huge quantities like the larger vendors. So many small businesses are turning to​ buying groups to​ level the playing field and allow them to​ compete with bigger sellers.

Attorney Harry B. Ray, of​, explains, "A buying group is​ a​ group of​ businesses in​ the same industry who combine their purchasing power to​ negotiate better prices and terms from the vendors." Buying groups can potentially do a​ lot for your small business:

• Because you’re buying in​ larger quantities, you get pricing breaks that enable you to​ be more competitive.

• With the combined buying power of​ your group, you can meet enormous purchase minimums you could never afford on your own.

• You get better payment and freight terms. With certain-sized orders, wholesalers will even waive the freight altogether.

How Do They Work?
There are different buying group models, but two are the most common:

• The democratic model — everyone owns an​ equal share in​ this type of​ group. Ray asserts, "This is​ a​ good model for a​ new group because you get instant loyalty from the members if​ they feel like they own the group. They’ll more likely contribute their time and effort to​ make the group successful and certainly be more willing to​ put money into the group to​ make it​ work."

In this model, everyone has a​ say in​ everything — vendor selection, product selection, group policy, etc. The manufacturer rebates are divided equally among the members.

• The benevolent dictatorship model — here, one person, or​ several people, start the group and own it. an​ advantage of​ this model is​ that it​ allows decisions to​ be made quickly.

The other members are like subscribers: they get the advantages of​ belonging to​ the group, but have no say in​ the way things are run. The owners can also elect to​ keep the rebates themselves, or​ they can keep back a​ percentage and pass the rest on to​ the group.

What’s Their Financial Structure?
Buying groups often use their manufacturer rebates to​ pay their operating expenses, and divide the remainder among themselves. Since the rebates are found money — money the members wouldn’t have anyway — no one misses them or​ minds using them to​ cover business overhead. They also charge a​ fee to​ join and participate in​ their benefits, as​ well as​ membership dues.

Most buying groups just break even on their investment — their purpose is​ saving money, not making it. Whether or​ not you expect to​ make money is​ one of​ the primary factors in​ deciding how to​ structure your group. a​ C-Corp and an​ LLC (limited liability company) are the most common legal structures for a​ buying group and generally the most practical. if​ you’re starting a​ new group, make sure you talk with your attorney about which one is​ right for you.

Increasing Your Profits Through Buying Groups Strength In Numbers

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