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10/15/2013

Selling Futures: Barter Your Future Production or Services

By Christopher J. Sweis

At age 18, I was already one of the youngest commodity brokers in America. I was on the road to discovering barter dollars, an age-old currency with a digital twist.

Futures, commodities, contracts
There I was, a young kid who knew only one thing well - hard work. I was in Chicago's heart, living to the beat of America's commodity drum as I breathed in what was to become the future of trading. I loved the exhilaration I felt. Learning about trading futures contracts at the Chicago Mercantile Exchange and the Chicago Board of Trade was something I hadn't envisioned before it became a reality. Little did I know, but the lessons I was learning were not just a means of survival and wealth - this was the beginning of a road that would lead me to barter dollars and the barter industry.

What is a barter dollar, anyway?

It's simple. Barter dollars are just like futures contracts traded at the Mercantile Exchange and the Board of Trade. Barter dollars are a currency. They measure the exchange of goods and services between businesses and individuals.
 Barter dollars give people the ability to purchase a future good or service that equals the amount of barter dollars they own.


 Each barter dollar is measured against the value of a product or service based on its cash (US dollar) equivalence. A barter dollar is like a �due bill� or �promissory note." It is legal tender - an enforceable and contractual right to purchase goods and services within a barter network. It is like a US dollar that is a Federal Reserve Note that is backed by the Federal Reserve, except that a barter dollar is backed by goods and/or services within a network of companies that accept barter dollars.

These wonderful barter dollars are spent like cash or credit cards - and, they may be used at stores that have nothing to do with original barter transactions!


Why would you want to use barter dollars?


Selling excess inventory using barter dollars helps you purchase items you would usually use cash for. You can also sell future products and services for barter dollars that you can borrow from an accredited barter exchange or barter bank. For entrepreneurs with lots of capacity but limited sales this can offer a real boost to their gross revenue and sales.
How do you measure a business' excess capacity?

Take an airline, a cruise ship and a radio station, for example:
 Airline:
Planes fly every day. Every time a plane flies with unsold seats, that's excess capacity. An airline doesn�t need to add more fuel, flight attendants or food to accommodate a full flight versus a flight booked to 70% capacity. Why not?
 Salaries are a fixed cost.
 Insurance has a fixed rate.
 The amount of fuel is fixed, too.
The very second a plane leaves the ground the opportunity to generate additional revenue thrusts into the atmosphere quicker than I can say, "barter dollar." So, if an airline on average sells 70% of its tickets, then you can say the airlines has 30% excess capacity.

Cruise ship:
Empty cabins amount to excess capacity as soon as the ship ships out. Talk about sinking! That revenue is lost and can never be regained � a total loss. A lost opportunity at sea.

Radio station:
Advertising's the name of the game. There are radio spots to sell every day. If a broadcasting company has a total of one thousand 30-second spots to sell per day but only sells about 700, then it must either give away the other 300 radio spots for free - or fill them with in-house ads and public-service announcements. Dead air doesn't fly when sound waves determine whether a company sinks or swims.
In all of these examples the excess capacity had an expiration date. Once that date had passed the revenue opportunity had, too.

Futures Contract

By offering a portion of your business' excess capacity in return for barter dollars you can reduce the amount you lose or waste every day by accepting barter dollars, which are recognized by the IRS as a currency and are considered gross revenue or income and act like �due bills� and �promissory notes.�

You can accept barter dollars for, say, 10% of your current monthly gross sales and still have excess capacity to meet sudden cash demand. In the case of the airline, they can offer all tickets not sold five days before a flight's takeoff to barter-dollar clients. This gives the airline an extra opportunity to sell the tickets for cash. Selling tickets for barter dollars also generates the highest MSRP (Manufacturer Suggested Retail Pricing) an airline can get for the tickets.

The barter dollars businesses acquire can be used to replace current cash expenses like radio advertising, printing and employee benefits - to name a few. Many businesses around the world today profit from accepting barter dollars for goods and services because they are able to move excess capacity and save the cash that they are spending on operational expenses.

A bright light

The whole barter dollar concept hit me in 1990 when Dean Hnilica showed me how to do my first barter-dollar transaction, for two fax machines that my business needed at the time. Then, it hit me �

Soybean futures contracts are traded daily at the Chicago Board of Trade (where many of my friends still exchange insanity and brain cells for wealth and debt) even though they don't deliver 100,000 bushels of soybeans until November. We can look at a barter dollar line of credit the same way - it gives you the right to buy today and pay back later with future products and/or services you will offer in return for barter dollars. This is what pays back your line of credit.

Companies can borrow barter dollars easier than they can borrow cash because the barter dollars are assigned to future products and/or services that a business guarantees in return for the barter dollars it can spend immediately.

All of this is like an interest free loan, which is great! Your business gets the capital it needs to grow and expand on a $100,000 line of credit, for example. All you pay are transaction fees similar to VISA or MasterCard transactions. The benefit is two-fold. You sell future goods and services now assigned in the line of credit. You also get to buy the things you'd normally pay cash for using these incredible barter dollars!

Management and bartering

Managing barter dollar transactions within your business is important. You want barter dollars to be additional and incremental newfound business on top of your current cash business. You must watch and make sure that barter dollars are used to offset cash expenses and do not get in the way of current cash orders or clients. Too much barter can affect cash flow negatively - and if a business does not use barter dollars to offset cash expenditures it loses its value.

Cash is King?

Kind of, but being a profitable business is your number one goal. If you accepted only cash and shut the door to credit cards, debit cards, gift certificates, private label lines of credit, purchase orders or any other means of payment, then you'd risk losing clients.

Dean of Barter Dean Hnilica�s father told a credit card processing salesperson who came into his shoe shop in the 70s that accepting credit cards as a form of payment was �crazy."

"No one in his or her right mind will ever take a credit card. I think we will stick with just cash on the barrel,� he told the salesperson.

Times, they are a changin'

Mentality has certainly shifted since the 70s. Today, if you don�t take credit cards, debit cards - or even smart cards - you are going to lose customers to your competition. The same can be said for barter dollars. In fact, I am going to say it right now:

�If your business does not accept barter dollars a form of payment, then you are going to lose potential clients to competition that accepts barter dollars for a portion of their goods and/or services!�

Barter dollars are a relatively new concept, but soon technology and education will bring this currency to the same point VISA and MasterCard transactions are at today. Currently, less than 1% of all US businesses barter. However, it's an industry that has grown every year for the last 20 years. Bartering grows in a recession and in a booming economy - and the Internet has made barter easier than ever.

As society educates itself on barter you will probably see critical mass as market penetration reaches 15%. It will be just like what you saw with credit cards, the Internet and TV (I had to throw that one in there since it is where I get to see all my favorite sports teams � the Cubs, the Bears, the Bulls - and, yes, I am a Cubs fan).
Remember -- an auctioneer will sell your goods and services for cash at a discount, maybe as low as 5 cents on the dollars. That's the truth - just ask any of the business owners who have recently gone out of business. Maybe they went out of business because they did not accept barter dollars, had too much excess inventory, not enough sales and used cash on expenses that they could have used barter dollars for.

"Hmmm," just a hunch.

When you accept barter dollars for your goods and/or services you typically sell them at MSRP or full value. Save your cash and use barter dollars to replace your cash expenditures and your business will be more profitable. And yes, cash will still - and always will - be King.

Copyright Ibart, Inc. Reprinted with permission.