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Bartering Basics

Written by: Heidi Flis

Article Overview: A simple introduction as to why businesses and professionals should barter.

Bartering Basics

In today's economy with business loans becoming harder to obtain and cash being somewhat scarce for many businesses it makes sense to consider the ancient practice of bartering some excess inventory or professional time...

The following is a short introduction to barter and pertains specifically to "the cost of a barter dollar"

It is a general "rule of thumb" that a typical trade member should do no more than 10-15% of their business in trade...that assures that they have enough cash coming in to pay for "incidentals" such as property taxes, mortgages, utilities, etc...

One of the big "selling points" of barter is that it will bring a company additional business which it otherwise might not have and hopefully also referrals from the traders to their friends, family, etc.

Let's take a chiropractor as an example: Their overhead (lights, rent, staff, etc.) stays more or less the same no matter how many patients they treat on an average day...now a trade customer calls who wants to come in once a week...to get treated for a nagging backache...the doctor will look at his schedule and see that he is always slow on Wednesday mornings...so he tell the trader that they can have an appointment on that day, for the next 8 weeks...instead of sitting around on Wednesday morning, they now have a customer with no insurance forms to fill out and they generate trade dollars which they can spend on flowers for the office, staff incentives, etc. i.e. items they would not necessarily spend cash on but which add greatly to the overall "office environment"...and as long as they spend their trade dollars for business related expenses...there is NO tax liability, as they have spent their trade dollars...and Joe, their trade customer I so happy with the great service they provide that he will tell Mary about it when she complains about her shoulder pain from sitting on the computer so much...and Mary will come in and pay CASH...and the staff is so nice, 'cause they get little gifts from the boss and the flowers just make the place look so friendly...so one trade customer has just made a big impact in the lives of a number of people...and at almost NO additional cost to the practice...

Now let's look at a pizza parlor...they will order roughly the same amount of food supplies every day, depending on how much business they expect to do on that day...so a trader comes in with scrip (gift certificates) in $ 10 denominations to buy a pizza...the pizza he selects costs $15.00, so now he can either give them 2 x $ 10 and get no change back (that's called breakage and is very common in the food industry, either with gift certs or scrip) and the pizza place gets to keep $ 5.00 in trade dollars...or he pays $ 10 in scrip and $ 5.00 in cash..either way the pizza place makes out...one additional pizza per day really makes almost no difference to them (it's similar to a 2 for 1 promotion) and they have trade dollars to spend now...plus the trader takes the pizza back to the office and 4 other people now get introduced to the new pizza place with no promotional costs...and perhaps the next time they need pizza that's where they'll go...

Now, if the trader had come in and ordered 30 pizzas on trade for a party, that would have been a problem...that's why we recommend that food establishments issue scrip...so the volume of business can be controlled and they can limit how much food they trade to any one customer on any one day...anyone needing 30 pizzas would have to make prior arrangements and probably pay at least for some of it in cash... I am sure the trader would be happy if he got $ 450 worth of pizza for about $ 225 cash and $ 225 trade and, with the average food cost being approx 32% of the final price, the pizza parlor would get $225 cash for about $ 150 worth of ingredients, plus $ 225 in trade with which to buy uniform shirts or more advertising...or maybe movie tickets for the staff who worked so hard to make all these pizzas...

Now in a sit down restaurant, the margins are even bigger, and most of the time alcohol is not included in the trade (in Texas we cannot legally trade alcohol of any kind)...so the restaurant collects cash for tax, booze (people will drink more if they do not have to pay for the food) and we generally recommend a minimum tip of 20% to the server...so you bet the wait staff is happy to see trade customers...

Tradesmen such as electricians, plumbers, etc. generally trade their labor and the parts have to be paid for in cash...so we are filling "idle" time again...for example after our recent deep freeze here in Houston, a large number of people had broken water pipes...a water pipe in my back yard was leaking (I turned it off) and we called the plumber who told us they would be there the next day, when they were already in the area and it took only a few minutes to find out that this was "normal" and no repair was needed...so I paid the $ 87.50 service charge in trade and was glad I didn't have to spend cash to learn something new about weird gadgets in TX, where the pipes are above ground...if I had needed emergency service right then and there, I would not have expected to receive it on trade at a time when the plumbers were super busy...

So you see, there are many reasons a company or a professional should consider barter...to save cash on every day business expenses, such as printing, uniforms, accounting services, etc or to enhance the personal lifestyle of the owners such as taking your loved ones to the ballgame in a limo, having flowers delivered to your sweetheart or simply dining out...

So the next time you think that you cannot afford something...think about what you may have to barter and go on line and find a professional barter company that you feel comfortable with and ask them how you can earn and spend barter dollars.

Related Articles
  The Barter System -- Overlooked and Underrated
  Bartering 101 – Tax Implications
  The Hidden World of Bartering
  3 Key Reasons A Business Needs To Keep Books
  Use Barter In Your Business

Article Tags: barter, bartering, trade exchanges
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Related Forum Posts
Re: How Much Do You Need To Start? - I have been called the Bootstrapping Queen by many of my friends. I've started businesses with no money and only the ability to sell anything. Once I had an 'order' I took the deposit and invested in what I needed to deliver. In my own consulting and business development company we are really great for clients who say, I have no money because often they really do but arent using it well, or we can share some ideas that are very low investment. The key is to focus only on revenue generating activities. I have also developed a very strong network of freelancers and people who can help me. Bartering is great when you start too, as long as you both measure value with the same criteria. For someone just thinking about starting, I would recommend they really do the research first. Always sell it first before building it....just be upfront about timing and delivery. good luck J
Book: Secrets of Six Figure Women - Secrets of Six Figure Women: Surprising Strategies to up your earning and change your life Barbara Stanny, 2002 Jacket: Maybe you've noticed - a subtle trend is gathering steam. Quietly and steadily, the number of women making six figures or more is increasing, and it continues to rise at a rate faster than for men. From entrepreneurs to corporate executives, from white collar executives to free lancers and part timers, women are forging careers with considerable financial success. Through extensive research and hundreds of interviews, including dialogs with more than 150 high earners whose annual incomes range from $100,000 to 7 million, Stanny discovered that ...they all had certain traits in common: 1) a profit motive 2) Audacity 3) REslience 4) Encouragement 5) Self-awareness 6) Non-attachment 7) Financial knowhow She amplifies on these in the book itself. Table of Contents Intro: Welcome to the era of the six-figure woman 1. The Queen in the Countinghouse 2. The Lowdown on low earners 3. Raising the bar 4. Strategy 1: The Declaration of Intention 5. Strategy 2: Letting go of the ledge 6. Strategy 3: Get in the Game 7. Strategy 4: Speak Up 8. Strategy 5: The Stretch 9. Strategy 6: Seek Support 10. Strategy 7: Obey the rules of money 11. Claiming our power Appendces: Resources and websites Tips for getting out of dent Investing Basics: Wealthbuilding 101


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