Buying Groups

Helping You Understand the Aspects of a Buying Group

Contributing to Your Success

Buying groups are also known as group purchasing organizations (GPOs) and cooperative purchasing alliances. They give independent businesses like yours a way to level the playing field against your larger competitors.

Through cooperation with others in your industry, you leverage your collective buying power to purchase the products you need at better prices. As a result, you maintain competitive rates with bigger companies.

At Ray Law Firm, PLLC, we specialize in helping people navigate the legal details that go along with group purchasing collectives. Whether you’re looking to start, join, or even leave a buying group, we are here to help you every step of the way.

Forming a Buying Group

Before you start asking people to join you, you need to understand the key selling points for belonging to a group and the ways of funding it.

Be prepared to discuss the advantages of being a GPO member because most of your potential members may be unfamiliar with a buying group. You also need to establish your organization’s objectives, assets, and activities.

Your alliance will always include the following benefits:

  • Bargaining power to lower the cost of merchandise
  • Streamlined ordering of goods through a more efficient process with the vendors
  • Better response time from the suppliers since members become high-volume purchasers
  • Increase in effectiveness by offering goods with competitive prices while still earning the profit needed for success
  • Advice or guidance in marketing, employing, and more
  • Collective strength for marketing, branding, and advertising under one brand name

Start by putting together a list of suppliers that your group will need. This record will help boost the appeal of your group to potential members.

Consider other vendors that provide the various needs of your business, such as payroll, insurance, postage, marketing, IT, collection, and answering services. When it comes to inventory, include sellers that offer wholesale items to give you options for carrying more product lines at lower prices.

It is normal for members to pay an administration or membership due to join the group. Make sure that the cost is low enough that it is more than offset by the savings they will get on their purchases. Set the fee as low as possible to make partnerships attractive.

The dues you collect will be used for staffing, office expenses, and even warehousing of goods. You will likely need to rent a small and affordable office space for the staff to work out of, so factor in that cost as well.

There will be some positions you can outsource, such as an attorney who specializes in navigating the legal complexities of buying groups. Your organization will need to hire dedicated people to carry out various duties such as ordering, coordinating shipping, and keeping the financial accounts of members to be billed for specific services and goods.

One of the most important roles is a chief executive officer. You want someone that is both an industry expert and well-respected by vendors and potential members. While it can be tempting to utilize a member for the CEO position, this can be a major mistake. Most business owners are too busy running their companies to devote time to manage the day-to-day operations of the co-op.

Once you have conquered the initial hurdles, start looking for members to set your plans in motion. Find like-minded people that will understand and appreciate the benefits you offer. You want your participants to be people that respect their fellow entrepreneurs and won’t see them as competition. They also need to be considerate and willing to do their part to maintain healthy relationships with the vendors the group chooses.

Buying groups come with a lot of legal hurdles. From the initial formation of the alliance to day-to-day activities like members joining or leaving, you need to be meticulous to ensure you are addressing everyone’s legal needs.

Buying group laws are different from traditional business regulations, so work with an attorney who specializes in co-ops.

Among the most valuable assets of a business are marks used to identify either its services (service marks) or its goods (trademarks). They are an integral part of the company going concern value.

Trademark Registration
To realize the value of a trademark, consider the fact that a bottle of water with a prestigious brand name sells for more than a generic container of water. Independent retailers are also willing to give up six to eight percent of their gross revenues for the privilege of brand name identity that franchisors offer.

Our team once received an email inquiry from a client, asking if it’s true that registering the name of his business on the internet is cheaper than getting a trademark registration. In response, we said that it is true, but it is a classic example of getting what you pay for.

Domain Name Registration
Domain name registration on the internet protects only the exact letters that have been registered. So if one simply varies or adds one letter to a phrase, a new domain name can be registered with no questions asked. Even more importantly, registration of a domain name does not, in and of itself, offer any protection beyond setting aside that particular clause as a domain name on the internet for the registrant.

For instance, we own the domain name BuyingGroups.com. We use that web page to provide legal information concerning purchasing alliances. The mere fact that we have a domain name registered would not protect us against another law firm that advertises itself as the “Buying Groups Law Firm.” If we did not have BuyingGroups.org registered, that law firm could register it as a domain name.

To protect the name of your alliance, choose the correct title. Your company needs to select an attractive name that would help market its services. It must also be a handle that does not infringe upon the rights of others.

First Step: Conduct a Trademark Search
At a minimum, the records of the U.S. Patent and Trademark Office should be scanned. Anyone can conduct a federal trademark search online through http://www.uspto.gov/web/menu/tm.html.

It is vital for the company to have a search done in each state where he intends to do business under that name. Generally, state trademark records are also accessible by the internet through the Office of the Secretary of State. There is no charge for online federal trademark and state searches.

If no conflicting registrations are found after the searches, it would be a good investment to have a trademark lawyer perform a probe on the mark under consideration. The level and the cost of the inquest will depend on the extent of the mark’s use. Various factors go into considering whether the proposed logo conflicts with existing registrations or pending applications which require the expert judgment of a skilled lawyer.

How Trademark Search Protects You
It is very important to have the search done before either a state or federal registration is undertaken. Your company could be better off using an unsearched mark without registration than to register an unsearched mark.

Some registered owners maintain monitoring services to alert them of all new applications and registrations for federal, state, and even domain names. If an application for an unsearched mark comes anywhere near the scope of protection offered by a monitoring service, it may trigger a cease and desist letter from a lawyer.

Second Step: Register Your Mark
The next step is to protect the selected trademark through registration. If you are only going to use the service mark within one state, then registration with the Secretary of State is all that is needed. You need to consider a federal registration if you plan to use your mark in several states.

Using Word Mark
One way to register a service mark is to put it on record as a word mark. This means that just the words, without any accompanying design or logo, would be registered. Those words will be protected, regardless of any changes in the logo the owner may make from time to time.

Using a Stylized Logo
Another way of registering the service mark would be to include the stylized logo. A design mark registration would prevent a competitor from changing the words of the mark but using the same type of logo. If the logo is a key part of the service mark, then both types of registrations are recommended.

Protect Your Brand
Common law acknowledges that marks have rights of protection, even if they are never registered. The priority of a mark is based upon first use. Common law security extends only to the geographic area where the mark is used. Federal registration of a trademark offers nationwide cover even if it is utilized in only three or four states.

Third Step: Monitor Your Mark
The next step in protecting a service mark is to preclude others from using or registering marks that could be similar. You can do this through a monitoring service or by repeating the search process from time to time to see if there have been any new registrations filed at either the federal or state level. If others are allowed to use identical marks for similar services, the logo becomes so weak that it is no longer protectable.

Last Step: Follow the Law
The final step is complying with the additional filing deadlines required by law. A Statement of Use must be filed on a federal registration between the fifth and sixth-anniversary date of registration to avoid cancellation.

Renewal papers must be filed between the ninth and tenth-anniversary dates to avoid expiration dates. State registrations generally require renewals every five or ten years. These deadlines must be followed, and because they are so far off, it is easy to lose track of them.

Operating a Buying Group

Having a viable purchasing program requires skillful efforts on two fronts, almost simultaneously. The first front is with the members of the group. Simply put, the group will need to get them rowing in the same direction to effectively negotiate with its vendors, the second front. For a purchasing program to be effective as to any given product line, several key elements must be present. These include the following:

  • There are at least two or three strong competitors offering a comparable product.
  • The product line offered by each of these competitors must be of high quality and is reasonably interchangeable with those offered by the other competitors.
  • The vendor must be able to service the entire group with a high rate of shipping performance.
  • The vendor must be willing to sell to all of the members of the group upon the same terms and conditions.
  • The members must have the ability and willingness to drop one vendor’s line and go with the line of another vendor in order to support the group’s program.

If a group cannot put most, if not all, of these elements together as to any given product line, the program will have a difficult time succeeding.

Perks of Joining a Buying Group

Being a part of a buying group or group purchasing organization (GPO) is a great way to increase your purchasing power while decreasing your cost per item. However, many buying alliances provide a lot of other benefits to their members. This includes fewer risks and discounts on the services you need to run your business.

Let’s take a look at the pros and cons of joining a buying group, so you can make a solid decision on whether you want to jump in or stay out.

The number one reason anyone joins a buying group is to improve their financial situation. Consider the following advantages of becoming a member.

  • Because you are leveraging the buying power of a group, you are able to buy your products and services at lower prices. But you’ll generally enjoy lower invoice pricing as well as regular rebates.
  • As a higher-level client, you can also get better payment terms with most vendors as well. This can include extended invoice terms.
  • You can also enjoy more access to unique items that you wouldn’t have access to without the improved buying power of the co-op.
  • The group also centralizes billing through them, which means fewer receipts and invoices for you to deal with. You generally just make a single payment to the group and reserve your manpower for more productive endeavors.
  • You will gain access to co-op advertising programs. Your collective buying power extends beyond products. You can leverage the group to save money on regular business services like marketing and advertising.

Following the monetary ones, buying groups offer many additional benefits.

  • If the individual members succeed, the group succeeds. This means each member supports the others, giving you a network of peers that can help you through tough decisions by lending their expertise and opinions.
  • In case your exit strategy is to sell your business, you will have a waiting pool of potential purchasers that already know how your business operates.
  • You leverage your increased status with suppliers to gain access to senior executives at your preferred suppliers. They wouldn’t normally take the time to meet with you as a small business, but they will take the time to attend an event with the group as a collective.
  • Negotiating with vendors happens at the group level, freeing you up from having to handle those hassles and allow you more time to focus on your business.

Joining a buying group can be a huge decision for your business, so make sure you get professional advice from an experienced attorney to find out if it’s a good move for you.
If you feel that the group won’t benefit your business, or if you don’t get along with other key players in the group, then it might be best for you to stay out. Buying groups work best when the members are like-minded entrepreneurs with matching goals in similar industries.

You have to focus on combining your strengths with others like you, so you can enjoy running a small business while still being able to price your items on a level that lets you compete with big-box companies. Instead of looking at your competitors as challengers to your footprint, you have to look at them as members of the same team and lean on each other.

If that level of cooperation doesn’t suit you, then a buying group might not be a good fit for you.

Leaving a Buying Group

Sometimes, group purchasing organizations aren’t for everyone. If you’ve joined a group and you are ready to leave, then you have some things that you need to keep in mind to minimize the impact it will have on your business.

If you are tired, frustrated, or done with your current buying group but still want the benefits, then moving to another group might be the best option for you. You can retain the ability to save with group purchasing power and find another group that meshes with your needs better.

In this case, you have a few legalities you have to handle. You have to terminate your membership with your current group, as well as sign up for the new group.

On certain occasions, you are just ready to be out of the industry for whatever reason. Whether you are retiring or just moving on to other things, you can let your business stay as a part of the group while selling it to a new owner.

In many cases, another member of the group will end up buying it. They generally already run similar businesses to yours and could potentially already be familiar with your business through the group. Legally, you have some stuff you have to deal with. You have to negotiate the sale of your business as well as the transferring of your group membership.

Maybe you are just done with buying alliances altogether and want to walk away. This decision will have a serious impact on your day-to-day business. Your ability to purchase at a reduced rate will be gone, so you will have to raise your prices to compensate.

You also will have more of the regular paperwork to deal with since you will order your inventory and pay each supplier individually, instead of paying one invoice to the group.

Get Help From Professionals

No matter which direction you want to go to when you are getting ready to leave, you will have a lot of legal hurdles to overcome. Count on our experienced attorneys who specialize in working with buying groups and understand the intricate needs you have. We have been helping people in your situation since 1985 and are happy to help you navigate these complexities.