Barter: The Ultimate Efficiency Tool
If your business has underutilized capacity or inventory, a smart bartering strategy can help drive top-line growth and increase cash flow. I am proud to have been in the barter industry for 19 years, and in this time, I’ve worked with thousands of businesses who have bartered to help make their companies more efficient.
Did you know that bartering is one of the oldest forms of transacting, and precedes money itself? To most businesspeople, it is an antiquated way of conducting business. To savvy business owners, it is a tool that gives them a competitive edge by driving new customers, reducing capacity and increasing cash flow, among other financial perks.
The Benefits of Bartering
How can bartering benefit your growing business? Bartering lets companies buy what they need without having to part with their precious cash. Instead, they pay with the products and services they already have. A company that’s sitting with idle capacity or inventory is taking a non-productive asset and off-setting it against a cash expense. This increases a company’s efficiency. In addition, the goods being bartered carry a margin, which enhances savings. Bartering businesses also gain new customers and save finance charges on purchases.
Types of Bartering
When most people think of bartering, they imagine a direct, one-to- one transaction. This is proven to work, though it can be tricky since both the buyer and seller have to have what the other wants in the same value and at the same time. These transactions happen quite frequently in industries like media and travel, but they are not efficient or scalable. Also, the accounting can get messy, since they’re difficult to record and track. Nowadays, entrepreneurs have options that not only make bartering more effective but also more efficient and with less risk.
Two of these options are organized barter exchanges and corporate trade companies, both of which have perfected the capabilities of leveraging barter within a business. These companies are incredibly valuable in that they create customized solutions to meet the needs of their clients. A corporate barter company uses “trade credits” to buy goods at a price higher than the return available through traditional liquidation channels. The business selling the goods uses these credits to off-set costs, such as advertising, freight, travel, etc. The corporate barter company will then sell the goods in approved channels or to their other barter clients.
Here’s a perfect example: A luxury brand business that is sitting with US$1 million in inventory from last season uses the services of a corporate barter firm, which agrees to buy the goods with trade credits. The luxury brand then uses these credits to off-set cash outlay against their global media budget by purchasing their advertising from other clients of the barter firm. In this instance,
The business greatly improves their position by moving their unutilized capacity and idle inventory through a barter company, and using the trade revenue to purchase products and services they need to grow without spending cash. The Power of Bartering in some parts of the world, bartering is a necessity, as there is very little liquidity and no other way to conduct business. In developed countries, forward-thinking businesses have embraced it to further their efficiency. In fact, progressive companies like general Electric, Boeing and Time Warner have all set up in-house barter divisions. With the current economic climate, more and more business owners are embracing barter as a necessary aspect of their business. I see the growing use of barter as a trend that will continue, even when the economy is back to normal.
Bob is the founder and CEO of Bizxchange, a barter and trade exchange, and is recognized internationally for his accomplishments in the barter industry. He was previously a member of EO Toronto and EO Seattle. E-mail Bob at [email protected].