Barter for a Better Bottom Line
When Paul Fitzsimmons has a leaky roof or a problem with plumbing, he doesn't pay for the repairs with cold, hard cash. He pays with business cards, T-shirts and signs from his Pensacola, Florida, printing company, Print Now Inc. Fitzsimmons, 37, uses printed goods as currency in the Gulf Coast Trade Exchange, which allows him to conserve cash by spending barter dollars earned from "selling" products and services to other member companies.
When he bought Print Now in 2003, the company was already a member of the barter exchange. Though new to bartering, Fitzsimmons recognized the benefits immediately. Not only has the barter exchange helped offset operating expenses, but along with roofers and plumbers, he also uses it to obtain cleaning and electrical services for his approximately $1 million business. It has also been a steady, reliable source of new business. "Not only does it bring in trade dollars, it also brings in cash," says Fitzsimmons, who estimates his business has grown 6 percent as a result of the barter exchange. "It's a definite networking tool. I probably would never have had [these additional sales] if they hadn't known about me through the exchange."
Bartering is hardly new; an age-old way to trade goods and services, it has moved into the mainstream thanks to professional barter exchanges that provide a venue for swapping goods and services, getting rid of excess inventory, turning downtime into revenue and attracting new business. Here's how a barter exchange works: A business offers a good or service for trade and in return receives a trade credit based on the dollar value of that offering. That credit can then be used to "purchase" a product or service from someone else in the barter system. While no money is exchanged, these deals are considered cash transactions and must be reported as income.
"The people who really benefit from barter are those people who are looking for new customers and are flexible in their buying habits--they'll change where they buy their printing and the kind of copy machine they're going to use," explains Tom McDowell, executive director of the National Association of Trade Exchanges.
Barter was once limited to specific geographic regions, but thanks to the internet barter exchange, members can often trade with partners across the United States and even abroad. For his part, Fitzsimmons has leveraged his membership with the Gulf Coast Trade Exchange to barter for hotel accommodations and restaurant meals in New York City and New Orleans while attending industry trade shows there.
To determine whether a barter exchange is right for your business, McDowell suggests the following: "Find out who the members are, see if there are at least three members in that trade exchange who would buy what you sell, and then make sure there are at least three people who sell something you would buy."
Joining a barter exchange usually involves an upfront fee ($100 to $500) as well as ongoing maintenance fees that can run $10 to $15 per month, says McDowell. That's on top of the 10 percent to 15 percent commission most exchanges charge their members per transaction.
Before taking the financial plunge, talk to members to see how well the exchange makes matches--some allow members to trade goods and services electronically while others rely on brokers to match up businesses--and to carefully vet potential trading partners, just as you would for a nonbarter transaction. Having a formal contract is critical.
Bear in mind that as members come and go, some types of businesses may periodically be under-represented in the exchange. "Certain sectors are limited and sometimes go away," Fitzsimmons says. "You can't rely on it all the time."
If you decide to go down this path, remember it's possible to have too much of a good thing. That's why McDowell recommends limiting barter to a maximum of 5 percent of your total business revenue. "You need to maintain cash flow because that's how you pay your suppliers," he warns. "One thing you don't usually get through barter is your raw materials."