Here’s the deal: You paint my office, I’ll print your brochures. Thousands of businesses have made this sort of swap a billion-dollar enterprise.
When Jerry Trombo moved his printing company to a new building in Bedford Heights, Ohio, he didn’t pay the movers a dime…in cash. He paid with printing services. Then he traded printing for painting, carpeting, furniture, a new computer system, a stereo, the clock on his desk and new pavement for the driveway.
All in all, Litho Graphics did more than $50,000 worth of bartering in 1995, meaning that about 8% of its total sales weren’t sales, in the normal sense; they were trades.
"I don’t buy anything unless I pick up the barter catalog first," says Trombo, who has been bartering through the American Trade Exchange, in Cleveland, Ohio, for about 14 years. Voicing a sentiment shared by most small-business owners, Trombo adds, "I’ll do anything to avoid spending cash."
Thanks to today’s technology, business-to-business barter is booming. In the newest incarnation of an age-old technique, companies aggressively trade goods and services through computerized barter exchanges. Though a vast amount of one-on-one barter still goes on, such deals are, by their nature, limited. After all, a mover can only use so many printed fliers in a year, and a printer rarely moves.
That’s where barter companies like the American Trade Exchange, come in. Members build up accounts of "trade dollars" (sometimes called barter dollars) by "selling" to other businesses participating in the network. Members then spend what they’ve earned on any combination of products and services offered by other members. So a mover can use some trade dollars on fliers, if he wishes, and some on parts and service for his trucks. Or he can choose among the thousands of other items in the system: anything from furniture and printing supplies to travel and trash removal-even the services of doctors, lawyers and accountants.
Last year 250,000 companies traded an estimated $1.8 billion worth of goods and services through more than 400 barter networks, according to the National Association of Trade Exchanges (NATE), the industry association. Bartering among small businesses has been growing at a swift 10% or more per year since the early 1980’s, according to NATE.
Easing The Cash-Flow Squeeze
Think of barter as a supplement to your regular cash business, not a replacement for it. For most businesses, producing 6-8% of sales per year by barter is a reasonable ceiling. Some firms do much more, though. For instance a florist in Illinois, does about one-third of his $300,000 annual business in barter. Trade dollars he earns by bartering flowers buy things he otherwise would have used cash for, such as printing, office equipment, vehicle maintenance, shelving-even baskets, plants and flowers to supply his inventory. Because his barter exchange has ties to other networks, through its membership in NATE, he’s opened the door for new customers in distant locations such as Hawaii, Los Angeles and New York City.
His experience illustrates one of the key reasons to barter: It eases the squeeze on cash flow that often plagues small businesses. "It also give our clients a Competitive Edge," says Jack Schacht, president of Illinois Trade Association. Barter-network members tend to shop within the system first and satisfied barter customers make referrals to cash customers.
There are other advantages: You can move excess inventory and fill unused production time. Hotels barter rooms and airlines trade seats that would otherwise go unused. Jerry Trombo really appreciates barter jobs when his cash business is slow, so extra printing capacity isn’t wasted. "Barter is a win-win situation," he says.
Small businesses often find it easier to obtain credit through an exchange than through a bank. Though exchanges may require applicants to supply credit reports and collateral, they tend to evaluate businesses differently than banks do, focusing on prospects for selling within the network. Business owners can also use trade dollars as incentives and benefits for employees. A growing number of small businesses that can’t afford a health plan, for example, are arranging trades with doctors who are exchange members to provide services to employees.