NEW YORK, NEW
YORK — Tina Ames owns the Craftsmen Cafe, a Clarence, N.Y. eatery that
specializes in organic comfort fare such as chicken soup and apple pie.
Recently she needed to replace her restaurant's roof, a $7,000 job. Ames
was loath to part with that much cash and didn't want to take out a
loan.
Her solution? She cut a deal with a local contractor who handled the
roofing job in exchange for a Ford F-150 pickup that Ames no longer
needed. "I grew up on a farm," she says. "If you had eggs and
someone else had corn, you traded. It's an old way of doing things, and
it makes a lot of sense."
Tina Ames, owner of Craftsmen Cafe, got a new roof
in exchange for a pickup truck she no longer needed.
Even in modern times, bartering remains
a practical choice for small businesses. It's a cash preservation tool,
something that's especially useful in a tough economy. It can also help
move unsold inventory or put idled staff to work. Done right, bartering
can even drive new cash business.
Many trades get executed informally, as when a dentist cleans her
accountant's teeth in exchange for tax preparation services. But
increasing numbers of small businesses are joining barter exchanges that
make it possible to arrange trades within a large online network. U.S.
exchanges now boast about 250,000 small business members, up from
200,000 five years ago, according to the International Reciprocal Trade
Association (IRTA), based in Rochester, N.Y.
Because so many swaps are informal, the size of the small business
barter economy is hard to gauge. But Bob Meyer, publisher of Barter News
in Mission Viejo, California, was willing to take a crack at it. Meyer
estimates that 1 million small businesses are involved in barter, either
informally or through exchanges, with a volume of transactions
approaching $20 billion annually. This figure combines the $10 billion
that IRTA attributes to exchange trades with Meyer's conservative
estimate that informal barter accounts for another $10 billion.
Typically, bartering activity spikes during economic downturns. Meyer
expects the total volume of U.S. barter transactions to grow 10% this
year (historically the annual growth rate has hovered around 5%). "Right
now many small businesses are starved for customers," he says. "If
you're a savvy owner, barter is just another doorway that brings
customers into your establishment."
Drew McLellan runs the McLellan Marketing Group, a firm with 10
employees and $5 million in 2008 revenues. A resident of Des Moines,
he's a devotee of informal barter and sees a real advantage in doing
deals within a tight-knit community of trusted owners. "These are my
neighbors," he says. "I know I'll bump into them at a Starbucks
so they can't afford to mess up and neither can I."
Even so, McLellan is careful to draw up a contract whenever he barters.
As in any business deal, the contract is a crucial formality that
entrepreneurs neglect at their peril. At the very least, experts say,
the parties should exchange emails that establish a written record of
their intentions. In the event that one party reneges on the deal, a
properly drafted barter contract would stand up in small claims court.
More important, a contract sets terms so that both parties know exactly
what's expected.
McLellan recently cut a barter deal with a local Internet provider: His
firm created a print ad for the Web business, and McLellan received a
high-speed connection and two years of service. McLellan values each
party's contribution at $10,000 - the amount he would have billed for
the ad, and also the cost of getting a much-needed Internet connectivity
upgrade for his firm.
Like so many small business owners, McLellan is spooked by the economy's
free-fall. Lately some of his clients have delayed payments because of
cash flow problems. Bartering for Internet service allows McLellan to
preserve his precious cash for rent, utilities and salaries. "I'm in
ultraconservative mode," he says. "Barter is a great way to nip
and tuck operating expenses."
McLellan also cut a deal with Des Moines consulting firm Kick in the
Pants, which is drawing up a strategic road map to help his firm grow.
In return, McLellan developed a cardboard point-of-purchase display for
a card game called Do You Q? that Kick in the Pants is shopping for sale
in bookstores and other retail outlets. The deal values each party's
work at $7,500, McLellan says.
Because of the soft economy, McLellan's firm hasn't been working at full
capacity. The barter arrangement gave McLellan's employees, who
typically create advertising posters and direct-mail pieces, the chance
to try something new. "It allowed them to stretch their skills,
particularly the junior staffers," he says. "And now my firm has
a new offering - retail point-of-purchase displays - that we can suggest
to other prospective clients." |
Christian Kar is
the founder of Silver Cup Coffee, a company with 16 employees and $3
million in 2008 revenues that's based in the Seattle suburb of Lynnwood.
The firm distributes high-end espresso machines and also creates custom
coffee blends. Its customers include indie coffeehouses, hotels and
restaurants.
In recent months Kar has bartered for Web site design, a walk-in
freezer, a phone system, vehicle maintenance, plumbing, catering for a
company holiday party and a parking lot paint job. Kar estimates that 5%
of his company's expenses are covered through barter: "Especially in
such a dicey economy, I always think, 'Do I pay in cash, or should I get
on the barter exchange?' "
Thanks mostly to the Internet, the U.S. currently boasts some 500 barter
exchanges, up from about 40 in 1980. Kar trades through an outfit called
BizXchange that's headquartered in Seattle. Here's how it works:
Say a printing company uses the exchange to buy $1,000 worth of Kar's
coffee. Kar will receive $1,000 worth of trade dollars that he can use
to pay for any good or service offered on the exchange. He doesn't have
to barter directly with the printer. In fact, if the printer goes
belly-up, Kar keeps his 1,000 trade dollars. He could split up his
barter purchases, buying 500 trade dollars' worth of light bulbs and 500
in window cleaning. "An exchange is like a small closed economy with
its own currency," explains David Wallach, executive director of
IRTA.
Silver Cup Coffee owner, Christian Kar, has bartered for
Web site design,
a walk-in freezer, a phone system, vehicle maintenance, plumbing,
catering for a company party and a parking lot paint job.
Most barter exchanges charge a onetime
membership fee plus a monthly fee. You also pay the exchange a
commission on each barter transaction. The fees buy access to a broader
range of barter transactions than you could structure for yourself. You
also get to join an online community consisting mostly of small business
owners.
Exchanges provide useful record-keeping services. All transactions are
reported to the IRS, and the exchange usually furnishes members with
monthly and year-end statements of their trading activity. Although most
exchanges focus on particular regions, they sometimes have reciprocal
arrangements with others around the country. This can be useful if
you're trying to locate an obscure item, or even for business travel.
Recently Kar booked trips to Toronto, Chicago and Miami through
exchanges with which BizXchange has a relationship.
Whether done informally or through an exchange, bartering allows
business owners to connect with customers whom they might not otherwise
find. Joe Gallenberger is a case in point. Gallenberger owns Cream City
Music, a store in the Milwaukee suburbs that sells new and vintage
guitars. He employs eight and posted $3.5 million in revenues last year.
Gallenberger often trades guitars for advertising. Last year he closed
enough barter deals to purchase $50,000 worth of spots, nearly half his
annual ad budget. He also cut deals for space in a Milwaukee "Pennysaver"
and in the local edition of "The Onion", a national humor publication.
Gallenberger also trades guitars for other business necessities, such as
printing and plumbing. All the while, he's careful to treat barter
customers with the same courtesy he extends to his cash customers. "You
never know who's going to talk you up to others," he says. "Word
of mouth from barter customers is just as valuable as it is from any
other kind of customer."
According to Gallenberger, barter helped increase customer traffic at
his store by 20% in 2008. He says about half the business came from
returning barter clients and the rest from ads. He wouldn't trade that
for anything.
Joe Gallenberger, owner of Cream City Music,
often trades guitars for advertising. |
