How should worker cooperatives think about profit?

How Cooperatives & Democratic workplaces should think about profit.

If profit “belongs to Capitalism”, how do businesses rooted in the Solidarity Economy1, including worker-owned cooperatives and democratically-run conventional businesses, deal with profit? In these types of businesses that are intentionally structured and governed to not exploit workers, we need to frame profit differently, not as something that’s inherently extractive and problematic, but rather something that is necessary for a business as a sustainable expense.

I’m going to first frame how worker cooperatives think about profit (i.e. not as extractive maximizing!) and then cover basic accounting and decision making practices for cooperatively-owned businesses. While some of the accounting practices are particular, these principles apply to any business that wants to think through non-exploitative profit and treating workers well.

This piece is adapted from a session that Neily Jennings of AORTA2 and I presented at the Vermont Employee Ownership Conference in June 2026. We facilitated this with giant piles of candy on the ballroom tables, both to juice the room with sugar at 3pm on a Friday afternoon, and to give attendees a prop to practice profit decisions. We highly recommend using candy as a prop to practice real and imaginary profit distribution scenarios in your own business.

Corporate Profits: Capital Employs Labor

In the dominant economics of Shareholder Capitalism (publicly traded corporations, etc…), capital employs labor. Profit is the result of value created above and beyond the costs of production or service delivery, and in corporations is owned and distributed to the owners of capital, a class of shareholders who are distinct from the workers generating value.

Ownership determines control of a conventional corporation: typically the more capital invested in the company, the higher percentage of ownership.

Profit—which we’ll define here as excess value created beyond costs in a business—flows to shareholders in proportion to the number of shares they own. Owning more shares = receiving more profits. Profit, when held, turns into more capital, which can then be invested to generate more profit.

Quarterly reporting for publicly traded companies creates an imperative and recurring 90-day deadline to show profits and continued growth. In this way, there is never enough profit; the reporting and larger systems don’t have a way to measure enough, they only measure growth over the last quarter.

A worker cooperative’s business structure flips this equation, labor employs capital. Workers and owners are the same people, and so rather than extracting maximum profits, a worker cooperative thinks about and uses profit distinctly.

Do Cooperatives need profit?

Rather than a problematic or morally bad substance, in a worker-owned cooperative:

Profit is an expense to support the future.

What profit makes possible:

• Parental leave, sabbatical, meaningful PTO
• Operating reserves to buffer contraction or uneven revenue
• Future hiring and growing membership
• Equipment, renovation, capital investments
• Member equity: wealth building for worker owners
• A cushion to say no to work that doesn’t fit.

This last one is an under-recognized purpose: Profit creates conditions of choice, and the ability to discern good fit work. When a business doesn’t have enough profit, cash flow inevitably gets tighter, and the ability to say no to projects or work erodes. The rationale for a yes becomes the money, not the fit.

All of these possibilities are expenses that happen not now, which is why we think of profit as an expense: it’s not an abstract substance, it’s not extracted as “extra”, it’s a fundamental part of the whole financial picture. Under-allocate to the profit portion of your pie, and your business will eventually run out of choices because it will run out of money.

Workers, rather than an expense sinkhole to minimize, are essential people to support abundantly. As a worker-owned cooperative, rather than attempting to minimize labor costs, we’re trying to balance labor costs within the full ecosystem of the business. We want to support our workers’ incomes and needs now, while also ensuring that all the business’s needs are cared for.

Rather than the shareholder imperative to “maximize” or grow profit year-over-year, Worker Cooperatives can calibrate profit to support long-term resilience: there can be enough profit. Time is the critical variable; because no business runs in a perfect balance of income and expense, profit is the buffer for the inconsistencies of time.

Accounting for Cooperatives

Most of cooperative accounting follows the systems and flows for any business: a P&L for a regular marketing agency and a P&L for a cooperatively-owned marketing agency will look about the same.

The main difference has to do with how profit and loss are allocated, and how each company structures their balance sheet. Worker Cooperatives account for owners’ share of profits via special equity accounts called Internal Capital Accounts. To get to how cooperatives can approach decision making about profit and loss, we need to first understand a bit of how the accounting works.

Retained Earnings: A story of value over time

All companies have an account called Retained Earnings, which tells an accounting story of value built up over time. This account, in the equity section, shows the running total of profit your business has earned and lost over its lifetime that hasn’t been paid out.

Every year that you are profitable, your retained earnings go up.

Every year that you carry a loss (are not profitable), your retained earnings go down.

Every time you distribute profit to any owners, your retained earnings go down. Literally, you’ve paid out earnings you had retained in the business.

A conceptual leap: cash in the bank and retained earnings are connected, but distinct numbers. Cash is what’s actually in the bank right now, today. Retained earnings are a story and a record of value built up over time: they are not the same number.

Using candy to illustrate how these two numbers work together, let’s say you and I go trick or treating together:

1. We return from trick or treating and count up our combined haul: 100 pieces of candy, and, in a feat of remarkable restraint, we save all the candy to eat later. Our cash (candy haul) increases, our retained earnings (record of all accumulated candy) increase.
2. Instead, we trade half of our candy to a sibling for a really good Pokemon card: our cash decreases (we have less candy), but our retained earnings does not change. We spent cash on a valuable asset and we own the value of the Pokemon card, recorded on our balance sheet.
3. We come back from trick or treating, and in an act of gluttonous sugar mayhem, we distribute and eat 25 pieces of candy each, half of what we took home: our cash decreases (we only have 50 pieces of candy left), and our retained earnings decrease (we distributed the candy out of our shared haul, to individual candy collection workers).

The takeaway here: every decision about profit needs to look at both cash in the bank, and the story about value built up.

Internal Capital Accounts

Here is where cooperative accounting diverges from traditional corporations: if we were a non-cooperative partnership, you and I would each have our own equity account cozied up next to Retained Earnings— mine might say “Kate Distributions” or “Kate Equity”. Whatever profits we choose to distribute to partners, in accordance with our ownership percentages, run through those account lines.

Cooperatives typically use a special version of an equity account called an Internal Capital Account to track and allocate profit and loss that the cooperative decides to allocate to the individual worker-owners of the business. Each worker owner has an internal capital account, which tracks their initial membership contribution, as well as allocations of profit and loss over time.

In a conventional corporation, if I own 55% and you own 45%, and we distribute $1000 of profit, I receive $550 and you receive $450.

Cooperatives distribute patronage dividends, usually allocated according to time worked: if you work 55 hours and I work 45 hours, you then receive $550, and I receive $450, of that same $1000 of profit.

Worker cooperatives, like most sound businesses, don’t distribute all the profits out of the business; they also need to decide first how much the business (the collective account) retains, and how much to allocate to individual worker-owners. Second, they need to make some decisions around cash flow: give owners candy to eat now? Or portion it out over time?

Two Decisions

Once we’ve closed the books for the year, and know what our profit or loss looks like, we have a first set of decisions to make as a collective:

How much profit or loss to allocate to the collective account?

How much to allocate to owners as patronage?

With that same $1000 of profit, we might decide that 30% will be retained in the collective account (as retained earnings), while we allocate 70% to owners as patronage (via internal capital accounts).

The $1000 of this first decision is the story of value. After that, we need to make a decision about cash:

How much cash do owners receive now?

How much patronage does the business hold onto until later?

Here, we might decide that of that $700 of profit we’ve allocated to worker owners, we want to pay out $350 now as cash distributions, while retaining the remaining $350 in the business, to be paid out over time.

…Tuned by three levers

These two sets of decisions balance three interdependent levers for the business:

1. Business Resilience (decision 1): Do we have enough retained profits and cash flow to ensure our resilience? This lever is about what the collective makes possible, and the longevity of the whole to support individuals and sustain whatever work this co-op does in the world.
2. Member Equity over time (decision 1 + 2): These accounts accumulate value for individuals over time, while allowing the business to use the capital for investment, growth, or other business-affirming activities.
3. Cash in Members’ hands now (decision 2): How much profit do we distribute as cash directly to members now? This is a shorter term lever, that impacts morale (it doesn’t feel all that great to never receive any cash profits) as well as individual livelihoods and needs meeting.

Two decisions impact and tune these three levers, they work interdependently!

I’ve been using positive profits as our through line, but cooperatives also must allocate losses, though only have to run the first, allocation, decision. Why would a cooperative want to allocate a loss to individual workers? In a word: balance. Co-op businesses owe the accumulated value of internal capital accounts to individuals, so if a worker owner exits the business, the value of their internal capital account will need to be paid to them. Allocating a portion of losses to individual internal capital accounts lowers the business’s obligations, and balances the collective and individual ownership of the business.

Questions for the Collective

Profit and loss decisions are always recurring (at least annually), and collective. The flow of the decisions follows the flow as above, but the context will change every year. There’s usually no “right” decision, but a good decision balances the needs of the collective with the needs of the individual.

Some questions to ask as you make your decisions:

• What is our target amount of cash to have saved in the business?
• How will this decision impact cash flow?
• What is our projected surplus/loss for the year(s) ahead?
• How will our decision impact worker morale?
• How will our decision impact business taxes and/or worker-owner income taxes?3
• Do we have any big investments planned?

Need help?

If your workplace is having a hard time navigating productive conversations about money and profit, may I recommend contacting the fine folks at AORTA?

If your workplace has fuzzy accounting and struggles to have a clear picture of profit and cash flow (or struggles to be profitable), we’d love to chat. Get in touch with Kate here.

This post is not intended to provide advice on state, corporate, or Federal tax law. Tax, legal, and bylaw variations and a bunch of nitty gritty and nuance live underneath all of these decisions that I’m intentionally not getting into because this is a mere article on a website. Talk to a qualified CPA or Attorney.

Thanks to our colleagues at the ICA Group for the “three levers” framing we’ve adapted here.