02/01/2017
Bartering Can
Pay Many Business Expenses
By James Harvey Stout, Former Writer For BarterNews
By bartering, we can acquire many
goods and services for our business. Those items include
accounting, office supplies, advertising, printing, employee
benefits, office equipment, cleaning, printing, computer
hardware and software, etc. Some barter clubs have members
in those categories and in many others; we can also set up
one-to-one deals with our current providers -- and if they
won't barter, we can look for providers who will
barter. If we barter for those goods and services, we have
more cash available for our profit and for our cash-only
expenses -- taxes, salaries, lease, utilities, etc.
We don't really want money; we want
the things which money can buy. Money is just an
abstraction, a unit of exchange; it is a middle-man --
sometimes an unnecessary one -- when we could acquire the
things almost as easily by bartering. When we start to think
this way, we create a different model for both selling and
acquiring; now, money is only one option in our system of
exchange. Sometimes we spend and receive money; sometimes we
"spend" and receive the specific goods and services which we
want.
We need to control our balance of cash
and barter. We cannot live by barter alone; we still need to
receive some money. Our life is already a mixture of cash
and barter; for example, we trade in a used car as a partial
payment for a new one. In our balance of cash and barter, we
can consider these points:
- Losing
our cash customers to barter. When we announce our
willingness to barter, we will attract new customers who
would prefer to deal with us than with our cash-only
competitors. However, some of our current cash-paying
customers will want to switch to barter; obviously, this
will reduce our cash flow -- but the situation might not
be a problem as long as these current customers offer us
something which we need anyway, and as long as we still
have enough cash coming in. To prevent our cash-paying
customers from changing to barter, we can ask our barter
partners not to tell anyone about the deals, and we can
consider the deals to be special cases, exceptions to
the rule.
- Cash
to a supplier. When we barter our goods, we have to
replace those goods by buying them from our supplier --
probably for cash. In some cases, we might be able to
find a supplier who is willing to barter; the supplier
might even be a member of a barter club. (One club says
that its staff is willing call your suppliers, to ask
them to join the club.)
- Cash
for services from a third party. For example, a doctor
might be a member of a barter club -- but if you require
tests from a lab which is not a member of the club, you
will probably be billed in cash for those tests. An
agreement could say, "Out-of-pocket costs are payable in
cash" -- and then the agreement would specify those
costs.
- Cash
for the parts from a third party. For example, a plumber
might be willing to barter for the labor, but we
probably have to pay for the parts which are being
bought with cash.
- Buy at
100% barter, but sell for part cash and part barter. In
one barter club, this arrangement is available to
manufacturers, wholesalers, retailers whose products
cost more than $1,000 (e.g., car dealers), and retailers
who earn only a small profit on each item (e.g., grocery
stores).
- Select
a particular percentage which can be paid by barter. At
a barter-club, we might find various options:
-
Barter only. When we buy, 100% of the price is
charged to our account. When we sell, 100%
of our price is credited to our
account.
- In
a "part cash" program, we choose the percentage
which will apply to both our purchases and our
sales. For example, as a "50% member," we receive
50% cash on our sales, and we spend 50% cash when we
buy.
- In
some clubs, the percentage depends upon our type of
business:
-
Services: we receive
payment in 100% barter-club units.
-
Services which
require materials (e.g., a landscaper's trees):
we receive 25% of our payment in cash, and 75%
in units.
-
Retailers: we
receive 50% of our payment in cash.
-
Wholesalers and
manufacturers: we receive 75% of our payment in
cash.
-
Expenses which are directly related to bartering. When
we use a barter club, we have new expenses (most of
which must be paid in cash): annual dues, transaction
charges, etc. We can consider these issues:
-
Small profit margin. If the transaction fee is 10%,
and our profit margin is only 8%, we are losing
money when we accept a barter-club check. Some clubs
will allow us to refuse to sell some of our goods to
the members; for example, we might prohibit members
from buying goods which have a profit margin of 15%
or less.
-
High-priced items. For example, if we sell a $20,00
boat, a 10% transaction fee would be $2,000.
However, some clubs have a lower percentage (in the
contract, or by individual negotiation) on
high-priced items, so that we might have to pay only
5% or less.
-
Low-interest credit. The barter-club membership is
an expense, but if we use it as a line of credit, we
are still paying less than we be paying for a credit
card which would charge 20% interest on our
purchases.
-
Perishability. Although a trade might cost money (for
the barter club's fees and other expenses), it can still
be worthwhile if we have perishable items:
-
Goods. If the goods are going to be discarded
anyway, we might as well barter them and accept
whatever payment we can get. These goods can include
anything whose value is diminishing: grocery
produce, discontinued items, products which are
going out-of-style, etc.
-
Services. Bartering starts to look like a good deal
as we look at our vacant hotel rooms, our empty
appointment schedule, and the unsold advertising
space in our newspaper. Day by day, we "use or lose"
our services, and so we might be more willing to
trade them for any useful items.
- The
monetary value of our time.
- If
we are bartering through a club, we might require
more time for bookkeeping and paperwork. However,
one dentist said that he prefers customers
who are barter-club members because he doesn't have
to bother with credit problems, or insurance
paperwork, or the creation of time payments.
- If
we are doing one-to-one trades, we will require time
for negotiating the trades. However, some
businesspeople enjoy this "haggling" as a
challenge and a game.
-
Frivolous expenditures. Whether we are using one-to-one
deals or a barter club's units, bartering can set us
free, like a kid in a candy store. Units might not seem
like real money, so we might be tempted to
spend them on non-essentials (like an exotic vacation)
while we are ignoring our cash-only bills.
We can pay some of our cash debts by
bartering. When we barter, we are usually focused on our
current expenditures, and our future debts -- but we can
also erase some of our past debts. We can consider
these options:
- We can
pay the debt with our goods and services. For example,
if we have a long-standing $1,000 debt to a store-owner,
the store-owner might allow us to pay off the debt by
using our carpentry skills to do $1,000 worth of
remodeling in the store.
- We can
pay the debt with barter-club units. This offer might be
acceptable if the creditor is a member of the barter
club.
- We can
barter to get something which is needed by the creditor.
If the creditor is not a barter-club member, and if he
or she does not need our goods or services, we can
approach a third party with the barter-club units (or
with a one-to-one deal) to acquire goods or services
which the creditor needs.
- We can
convert a cash debt to a barter debt. For example, if we
are making cash payments for a car, we can sell the car,
and then barter for a different one from someone who
will let us make the payments in barter -- perhaps with
a monthly amount of barter-club credits, or with an
ongoing service (e.g., hairstyling, if we own a hair
salon) until the debt is paid off.
We can pay for some salaries and
benefits by bartering.
-
Salaries. The options include:
-
Paying part of our employees' salaries in
barter-club units. The employees can spend these
units like cash, at other businesses which are
barter-club members. Obviously, we cannot pay our
employees in 100% barter -- but even a small
percentage will reduce our cash expense, and it
might allow us to give raises (in the form of
barter-club units) which we could not afford
otherwise.
-
Using outside contractors. For example, instead of
hiring another part-time data-entry person (who
would need to be paid in cash), we send the work to
a secretarial service which is a member of the
barter club (or is not a member, but is
willing to make a one-to-one deal -- perhaps trading
the data entry for meals in our restaurant).
- Job
benefits. Whenever we offer goods and services (in the
form of benefits) to an employee, we are bartering;
i.e., we are using a non-cash commodity in partial
payment for the employee's services. We can offer many
types of job benefits by bartering:
-
Our services. For example, many colleges offer free
tuition to the instructors and their children.
-
Our goods.
-
Free goods. For
example, restaurants usually give free meals to
their employees during the shift; this is a job
benefit.
-
Discounts. Many
retail stores have "employee discounts" which
allow employees to buy the merchandise at a
reduced price.
-
Wholesale prices.
For example, at one pizza restaurant, employees
were able to add their own household orders onto
the restaurant's order for cheese, meat, and
vegetables, to take advantage of the wholesale
rate.
-
Stock in the
company. Some companies permit their employees
to buy the stock at a reduced rate.
-
Goods and services from a third party. With
barter-club units, or with one-to-one trades, we can
acquire many items which can be used as job
benefits.
-
Standard job
benefits. One large barter club has a benefit
program whereby we can offer dental services and
legal services to our employees at a 50%
discount; we pay the other 50% with our
barter-club units. We might be able to make a
similar deal with a service-provider without
having to go through a barter club.
-
Incentives. These
incentives might include a Caribbean cruise for
our top salesperson.
-
Christmas turkeys.
-
Prizes. The prizes
can be goods, services, or gift certificates.
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