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A saviour when cash is tight

April 10, 2009 12:42 IST

Cash is tight, but small businesses still need goods and services. That's why more have been turning to bartering -- trading what they have for something they need. The International Reciprocal Trade Association estimated that 400,000 companies around the world did $12 billion worth of transactions last year, up 10% from 2007, with American companies accounting for the bulk.

A barter deal can be a one-off transaction between two parties -- say, an exchange of $5,000 in dental work for $5,000 in landscaping. It can also take place through a formal exchange. These clearing houses facilitate trade by equating each product and service to a certain amount of "trade dollars," thus ensuring both sides get something of equal value in return.

Bob Bagga, chief executive of BizXchange, says his Seattle-based barter network, which orchestrated about $50 million worth of trades last year, saw a 40% increase in new members and a 55% increase in the number of transactions from 2007. This year, the IRTA predicts that North American exchange networks will see a 15% to 35% increase in deals.

Ted Klinger, vice president of Pappy's Place, a diner in Portage, Mich., is a believer in bartering. He has been trading on the Midwest Business Exchange for more than two decades. "Most members of our exchange are family-owned businesses," he says, so it almost feels like a team effort.

In exchange for meals at Pappy's Place, Klinger has received everything from advertising to snow plowing. Barter deals now total $100,000 annually, or 10% of Pappy's budget, and they're worth every trade penny, he says. "If three guys come in for lunch and one pays with trade dollars, we're still better off because the exchange member brought us two cash-paying customers."

Barter networks generally charge a one-time entry fee, from $450 to $800, and take a sizable cut of each trade, from 8% to 15%, usually half from the buyer and half from the seller. Some demand a minimum dollar amount of trade per year -- say, $200.

Savvy bartering takes creativity -- and an open mind about the kind of stuff worth trading for. If you're looking to trade for something very specific, you might be better off with a one-off deal than going through a network. Suffice it to say, you should put all transactions in writing. Stipulate precisely what each side will give and receive, and under what time frame the transaction will occur. Have a lawyer bless the deal, for good measure.

If you go the exchange route, make sure you choose a network that includes members in a wide variety of industries -- the more diversity, the better. Ask to peruse the member list and try to get a feel for the demand for your product before you sign up.

Exchange networks come in handy for another reason in this credit-starved environment: Some allow members to borrow trade dollars to finance new projects. BizXchange's Bagga says his network recently lent a restaurant 150,000 trade dollars, at a 7.5% interest rate, to make necessary renovations using labor and equipment purchased through the exchange. The restaurant will pay down its debt by hosting 10 corporate parties, at a price of 15,000 trade dollars each, for other members of the network.

Make no mistake: Cash is and will always be king. Focus all of your energies on those looking to spend it; otherwise, consider making a trade. Says Ron Whiney, executive director of IRTA: "The real value of barter comes when can use your otherwise unused capacity."

Melanie Lindner, Forbes
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