When Rich Kazimir was getting his IT services firm off the
ground in early 2004, the former engineer knew he and his staff
needed sales training, but he didn't have much cash to pay for
it. The solution? The 47-year-old entrepreneur offered to swap
services with a local business coach.
The trainer coached him on business development and helped him
set up a sales management plan for the business development manager
of his CM IT
Solutions franchise in Flemington, New Jersey. In return,
Kazimir got the trainer online. No cash changed hands. Instead,
both parties contributed what they could, and got what they wanted.
"We built her a nice website," Kazimir says, "and
she provided me with marketing and sales coaching."
Barter Background
Barter--the cash-free exchange of goods and services--is a huge
and long-established activity for businesses old and new, large and
small. The International Reciprocal Trade Association (IRTA), a
nonprofit organization of commercial and corporate barter exchanges
based in Rochester, New York, estimated in 2001 that $7.5 billion
in sales flows through commercial barter channels each year. The
IRTA also estimated that figure was growing at 8 percent a year,
and that 300,000 companies, including startups and Fortune 500
firms, would participate in trading exchanges in 2002.
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The numbers reported by barter exchanges are minuscule, however,
compared with the amount of barter that occurs directly between
firms, as in the case of Kazimir and the sales trainer. No one
tracks direct barter, so no one knows how big it is. But, says Tom
McDowell, executive director of the National Association of Trade
Exchanges (NATE) in Mentor, Ohio, "The amount of direct barter
dwarfs what we do on an organized basis."
Experts estimate that millions of companies, especially young
ones, employ barter as a regular or occasional business tool.
Barter provides one important benefit: helping companies dispose of
excess inventory by trading it for valuable goods or services,
notes Phyllis Malitz, a CPA and barter expert in Wilmette,
Illinois. That can be especially useful for startups whose markets
aren't developed enough to consume all their capacity.
At the same time, barter helps startups conserve cash because
they don't have to lay out precious, hard-earned dollars for
necessary goods and services. "Paying for business expenses
with trade dollars leaves more cash available for the payment of
strictly cash expenses," notes Malitz.
Barter also has some unexpected advantages. You may be able to
fend off a creditor by offering excess inventory as partial or full
payment for a debt. Likewise, if someone owes you money and
you're having trouble collecting it, you may be able to barter
part of the debt for useful services or products in lieu of
cash.
Startups using barter report that it's an exceptionally
powerful marketing tool. "One of the biggest benefits I've
seen is referrals," says Mark Patrick Collins, 32, owner of
Sign A
Rama in Skokie, Illinois. The former aviation-industry
employee, who started running his sign business in 2003, says
trades for computers, networking services and even a condominium
for him to live in have also helped the six-employee company's
nonbarter sales: "The businesses you barter with refer you to
other customers who will do cash business."
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