CHAPTER 10

BARTER AND YOUR NEW SMALL BUSINESS

If you embrace the barter lifestyle, you may find that it becomes a bigger and bigger part of enriching your personal life. You will figure out what you have to barter, and if you get exceptionally good at it, you may even have a little cottage industry built around barter and a trade exchange. But what about your life on the job? How does barter fit into your work life?

At first it may not seem like barter at work would be much of an option. We’ve said all along that cash is king, and if you can get cash for your labor or stuff, take it. That certainly applies to the place where you earn a paycheck. But you may be one of the 50 percent of Americans who loathes their job. In many of those cases, a new job isn’t going to make those employees jump out of bed every morning, delighted at the prospect of going to work that day.

Many people have a yearning, a hope, a dream, or maybe a deeply buried desire to start their own business. In fact, about two-thirds of Americans say they’d like to start their own company. But money is almost always the major obstacle that stops them. Many people’s small-business desires die before they even have a chance to be planted because these budding entrepreneurs couldn’t envision a way to get the money necessary to get started. Either they need the financial resources to feed and shelter their families or they need health care and therefore can’t quit their job. In other instances, they must have large amounts of capital to buy a building and the equipment to get started. And in most cases, it’s all three. In the face of such a major obstacle, many people give up and just stay stuck in their miserable jobs.

But it doesn’t have to be that way. If money is all that is separating you from your dream of starting your own small business—ta-da! Barter to the rescue. Barter can help ease the tremendous costs of launching a business. Barter can give you an avenue to get started, even if you have only minimal cash, and it can apply to every single aspect of start-up costs. Barter can help you maximize the cash you have and leverage the power of your products or services to acquire what you need to get going and grow. We have seen barter push a small business from the brink of disaster to profitability, all by establishing a few key trading relationships. It can take you from hopeless to hopeful in just a few easy steps.

LEVERAGING THE POWER OF BARTER

We’re quite serious when we say that barter can apply to every aspect of your business before you even open the doors (or launch the Web site or set up the home office). If you’ve already got a cottage business in motion, keep rolling—but take the time to write a business plan if you haven’t done so already. Even if you haven’t started your company yet, a business plan is essential to keeping you focused on what your business is and how you are going to make it successful. A business plan doesn’t have to be elaborate, but it should cover the basics, including

• who your competition is and how much they charge for their product or service,
• who your prospective customers are,
• your marketing plan,
• how you plan to operate the business,
• who your key employees will be, and
• your financial projections (these will tell you what you need to operate monthly and when you’ll start making a profit, if you aren’t already).

There’s one last important point regarding your business plan: Barter should be an integral part of it.

WHY BARTER?

Obviously, you recognize that you have tremendous potential to save money on your start-up by bartering for what you need, but there are some other excellent reasons to barter that you probably haven’t even considered. In fact, many business owners miss out on opportunities to barter; it’s like they’re in the midst of battle with a secret weapon in their armory that they refuse to use.

By bartering, you will automatically generate your first customers. But they won’t be just any run-of-the-mill customers. Because it takes more interaction to buy and sell through barter, you’ll get to know these business owners beyond the mere transaction level. The relationships you create with your barter partners will build the basis for your first satisfied customers, who will serve as one of the most potent forces in promoting your new business: word-of-mouth advertising. These won’t be people who just walk in off the street or click over from a browser. These are your business allies who will get to know you and your business plan; in most cases, they will want to help you succeed, just as they wanted to succeed when they got started. If you treat them well, they will become your cheerleaders.

When your barter partners vouch for your business to their customers and vendors, you begin to build your brand to future customers you may not have been able to attract otherwise, even with a hefty advertising budget. Just think: If you started your business on a shoestring, you might have only two or three customers in your first few weeks of operation. But with your barter customers, you’ll have clients before you even officially open the doors. These clients will be able to offer testimonials to their customers and within your community. They can also post testimonials on your Web site, your blog, your Facebook page, and your Twitter account. Of course, you’ll want to offer your customers your own testimonials in return, along with your company name, to post on their Internet and social networking sites. Providing testimonials for your trading partners builds even more goodwill with them while simultaneously spreading your company name. Sneaky and savvy, all at the same time.

By associating yourself with established companies that have sterling reputations, your start-up will also get a boost. When you can list a respected firm as one of your strategic partners, your company automatically earns more respect and credibility in the marketplace. You go from being a fledging upstart to an innovative business with esteemed partners who inherently boost your profile and the appearance of stability among competitors.

For example, if you open a cake-decorating business and you provide a local radio station with a large, fancy party cake for its anniversary (or some other event) in exchange for advertising, you can now claim the radio station as a customer, and you’ll get the tremendous benefit of no-cashcost advertising on the air. Plus, since the station is a highvisibility customer, you’ll get an even bigger boost than if it was, say, a landscaping company. Beyond that, all the people who sampled your cake at the party can now become word-of-mouth “advertisers” for your cakes, especially if the station promotes your business as the cake provider at the event on top of your on-air commercials. Now you can see the exponential power of barter for a small business.

Besides word-of-mouth marketing, barter draws in other customers that you might not have attracted without having to spend large amounts of cash on promotions such as advertising and e-mail or direct-mail campaigns. When you provide gift certificates for your products or services to your barter partners in trade for their items, you create the opportunity to attract more new customers. Your trading partner is going to hand those gift certificates out in a variety of ways, but they will all go into the hands of people you most likely haven’t met yet and who don’t know about your business. If satisfied, they will bring their cash business to you and then refer you to even more of their friends and colleagues.

As new customers begin showing up, you will create a growing momentum around your business. That positive energy can be felt by customers, vendors, colleagues, and maybe even the banker, who will give you a much-appreciated cash infusion when you need it. Don’t make the mistake of thinking momentum is a soft, airy-fairy notion that lacks substance. Momentum translates into real money. Think of the difference between going into a store where there are plenty of customers shopping, chatting, and buying versus going into a store where there’s no one stirring except you and the owner, who looks a little desperate for sales. Or how about those times you’ve dined at a new restaurant when there were maybe one or two couples at other tables and the servers were tripping over themselves with nothing to do versus going into a bustling eatery full of smiling, talking patrons, happily sampling new dishes and taking in the atmosphere? When you compare those scenarios, the difference boils down to the momentum, buzz, and interest the business is generating. That momentum converts into hard cash.

Bartering as a novice entrepreneur teaches you valuable business negotiation skills that will carry over into cash-based purchasing. While many barter deals are straightforward, some will involve a bit of negotiation—a good skill to have. Even if you attended business school, these sorts of “street smarts” are invaluable in helping your company to grow.

Barter can help relieve some of the worry, fear, and emotional upheaval of starting a business. When cash is tight, our fears tend to pull our nerves taut. By creating barter relationships that guarantee you will attract customers, you will worry less about where the money will come from to get started and continue operations. Less stress means you are more pleasant to your employees, spouse, partner, children, and even clients. A frazzled owner definitely has an impact on the operation of the business, and it’s rarely positive.

Lower stress also means you’re more creative in your thinking. If the ceaseless hamsters of worry aren’t racing around your mental wheel, you’ll have more energy to put into thinking through how to solve problems, how to market to new customers, how to deal effectively with crises when they arise, and maybe even how to develop the next phase of your product or service. Being a creative thinker and problem solver is an essential ingredient for any entrepreneur, and barter relieves you of some of the worry that withers that creative muscle.

Barter for business also frees up your time to do the work you love and not to have to do as much of the activities you dislike or aren’t adept at. For instance, you could clean the bathrooms, scrub the break room, landscape the grounds, water the interior plants, launder the mats, and do a whole host of other maintenance duties. Or you could barter with janitorial, landscaping, and mat-cleaning services to do all that work for you. You could then spend your time selling more, creating more, and generally working on your business. Isn’t your time better spent working on your company rather than washing windows?

Because barter enables you to save cash for other purposes, you can smooth out some of the roller-coaster ride of slow sales versus heavy-volume cycles. Whether it’s feast and the greenbacks are flowing or famine and they aren’t, you’ll have a source of cash that you would otherwise have had to commit to essential operations. When cash-flow dips even out, you worry less about survival. You are able to purchase your raw materials or pay employees so that you have plenty of products on hand and the people to sell them. Barter gives you cash-flow peace of mind.

GETTING EXPERT HELP

No serious business that we know of is able to function without an accountant, bookkeeper, or lawyer at one time or another. The nature of small businesses often requires the use of these professionals and many others to help you get started and grow like gangbusters. The more complex the business you are starting, the higher the likelihood that you will need professional assistance in some form. Maybe you need a prototype firm to help create a working model of your idea or invention. Perhaps you need a lawyer to help you incorporate your company and an accountant to advise you on tax issues. You might even need a Web site developer, a graphic artist to design your logo, a database specialist to create your customer contact system, or a computer tech to set up your network. All of these professionals can be essential to small-business success, and they can put a big dent in your wallet when you use them. Barter can help divert your cash from the expense of these experts into other areas where you need it.

Besides getting essential services, barter can also help you contract with professionals or consultants that you wouldn’t be able to afford if cash was your only option. Let’s say you need a programmer to develop software for your company, and you don’t have anywhere near enough money to afford that service. You can barter your company’s product or service for the software developer’s work without burning through all your cash. In the same way, you might have enough money to afford a general attorney, but maybe what you really need is a more sophisticated law firm that can help you obtain a patent or protect an invention or intellectual property—services that a general attorney isn’t experienced with. Chances are good that you won’t be able to afford the hundreds of dollars an hour that big-firm lawyers charge, but if you use barter, you can get access to those legal eagles and protect yourself fully under the law.

KEEPING EMPLOYEES HAPPY

When you first open a business, finding the right employees can have an impact on your company’s success. You’ll put a lot of effort into finding good workers and paying money for help-wanted ads, and then, once workers are hired, you’ll spend hours of your time training them. That effort and time has a real value even if you were the one doing the searching and providing the training. You could have spent that time on sales or doing something else that produced money for your company, so there truly is a cost to searching for and training employees.

To make the most of your time and effort, you want to keep your valued employees on the job. If they quit, you’ve lost all the time and deferred earnings you invested in them. Plus, you’ll have to start the hunt all over again for a replacement. When you’re just getting started, chances are you won’t be able to pay your staff top dollar, so you need to find a way to reward them for being loyal, hardworking employees. Barter can help you do that. You can pay your employees part of their salary in barter or add to their compensation with barter scrip or gift certificates to restaurants, dentists, or other businesses that they would appreciate. You save on payroll expenses and keep your employees happy at the same time.

Barter can also help you set up a system of employee rewards for whatever goals you want them to meet. Maybe it’s being the employee of the month, making a certain number of sales each week, or making a targeted number of cold calls every month. Karen would regularly reward her employees with performance bonuses such as tickets to the circus that they could use for their families. Shera and her coworkers received a giant cookie on their birthdays as a gift from their employer, who was a member of a trade exchange. Prizes such as trips or restaurant certificates are easily obtained through barter for those incentive programs. You can allow your employees a certain amount in bartered goods and services from your own business, or, if you are a member of an exchange, you’ll have a wide range of items to choose from. You can let your employees choose barter scrip or gift certificates from restaurants, spas, grocery stores, shops, boutiques, or any other business that they would appreciate.

You can also reward employees for excellent sales, extra effort, employment anniversaries, birthdays, or any other reason with scrip or gift certificates. Once employees understand how to use scrip (if that’s the form of the reward you choose), they will be delighted at the gift or incentive, and you’ll have a happier employee who will want to work harder and stay with you longer.

Employees aren’t the only ones you can reward with trade credits or gift certificates obtained through barter. Give your best customers certificates from your barter partners. They won’t know you bartered for them, and they will feel valued and honored that you rewarded their loyalty and patronage. Building that sort of goodwill means they will want to return to do more and more business with you.

If you have vendors or colleagues who refer customers to you, you can reward them with bartered gifts as well. You can bet that when it comes time to refer someone again, they’ll choose you rather than your competitors—all because you built up such goodwill by giving them a great gift certificate to a restaurant or for a game of golf. Those sorts of relationships will carry your business a long way toward stability and growth.

WHEN CASH AND BARTER BLEND

In some barter deals, cash is a part of the transaction. This tends to be more the case in direct barter than exchange-based barter. As a buyer, if you are doing a cash-barter blend, you can decide if it’s right for you by finding the fair market price for the item and making sure you are paying an equitable amount of combined cash and barter. Even if the cash portion is half of the price, keep in mind that you will still be getting the item for less cash than you would have paid without the barter component.

There are times when you will want to be the partner who requires cash as part of a trade. For many start-ups, money is so tight that they may have to charge a portion of the sale in cash. For example, if your business is construction, you should require cash up front for the cost of lumber, concrete, or other raw materials that will be out-of-pocket expenses. But for a service business, knowing when to require cash is easier. Basically, if you have hard costs that must come out of your business revenue, you can charge cash for those expenses. In fact, some barter-exchange members make it a practice to charge a cash blend for things like construction, new vehicles, and large printing jobs. If you have low cash flow, that’s an excellent time to sell for cash and barter. You could charge cash for the fixed cost of producing your goods and barter for the remainder of the purchase price. Over time, you may find that you can convert pure barter customers into cash customers if you have established a good relationship with them and they truly desire your goods or service. But you’ll have to request that they switch to cash only or specify that you will accept cash only from that point forward—a risky move because they might decide to take their business elsewhere.

GETTING A LOAN ON BARTER

Since most entrepreneurs struggle because they have so little cash to work with, there is another lender most aren’t aware of. Barter exchanges will often extend a credit line to their members, even new ones. In other instances members can take out a loan through their exchange. New exchange members often start with a credit line when they join so they have some latitude to begin trading. The amount of credit an exchange issues is typically based on how much demand there is for your product or service, whether you’re in good standing with the exchange, and the business or individual’s credit report. If you’re a hypnotist and there’s not a huge clamor for hypnosis in the exchange, you probably will get only a small credit line. If your business is a fine dining restaurant, you’re more likely to a get a substantial line.

If your credit is poor or less than sterling, you may not get a line of credit from the exchange or get only a small one to start out. Once you’ve proven yourself, you’ll be able to access more credit. How well you treat people can also affect the amount you get. If your fellow exchange members report that doing business with you is easy and they are getting good value from the transaction, you’ll likely get a higher line of credit than if members find that you’re resistant to trades, that you inflate the price of your products, or that you provide poor customer service. Exchanges are a business like any other, and they want to keep their customers happy just like you do (or should want to, of course). If you reach your credit line, your account will be frozen from more purchases unless you can negotiate a higher credit limit with your broker. That won’t be difficult if you have a solid track record with your exchange.

Loans, on the other hand, are typically for a set amount of trade credits and will also have an interest rate attached. While most exchanges don’t charge interest on a line of credit, some do, so it’s important to ask before you commit yourself. One big advantage of applying for a loan through an exchange is that there is usually less paperwork; also, you typically won’t have to provide financial records or have to undergo a credit check if you’re an established exchange member. If you’re new to the exchange, a credit report is much more likely.

At times you will have to put up collateral, depending on how large the loan amount is. The loan and interest will be repaid with barter credits that you earn by doing business with other exchange members. Look at your annual trading volume to determine how large of a loan you might be able to qualify for. If you haven’t been a member of an exchange for that long, or you’ve been in business for only a short while, evaluate how likely the exchange membership will be to use your business and how much trade credit you might be able to generate each year. Make your proposal to your broker, and remember that you may be able to negotiate your terms and rates, especially if the brokerage is locally owned. To argue the case for a larger loan, you could offer to pitch members your product or service, and the exchange owner can base the amount of your loan or credit line on the future business his or her members have committed to. You’ll have a monthly repayment schedule, but you will still be able to trade beyond that amount.

If you aren’t ready for a trade exchange, you can still use barter to get start-up capital. Propose to a business owner you know (or have a connection to) that he or she give you a loan with interest that you will repay with services/ products from your company. This approach works especially well with companies that can use your goods and services repeatedly. When Karen started her two magazines, she approached a couple of business owners she knew and asked for cash loans of $2,500 from each of them. One of the owners accepted payment solely in the form of advertising in her magazines. He received double the value of the loan in advertising to repay the loan and interest. The other business owner received a combination of ads and cash in repayment. For Karen, these cash infusions came at an absolutely critical moment of survival for her young company, and without them, the magazines would have folded.

Karen also used barter scrip to pay her magazine’s writers, photographers, and graphic designers. Her staff were able to receive part of their pay in trade credits at the exchange where she was a member. They used them for gift certificates to restaurants and other retailers. Those deals lowered her personnel costs while allowing her to use valuable freelancers to produce the magazines and fill their pages with stories and photos. Karen took it a step further and bartered for answering, accounting, and legal services. In all, she saved about 70 percent of her cash start-up costs by trading. She also opened the business more quickly because she could use her cash for other needs that were not available through barter. At the same time, she attracted more cash customers because others saw businesses already advertising in her magazines. Barter not only was the fast track to getting started for Karen but was also the lifeline that kept her in business once it was up and running.

Barter can certainly do the same for you if you get that entrepreneurial urge.

GREAT TRADE!

When Michelle Nelson decided to start Back 2 Basics Marketing, she had just moved to St. Louis, knew only one person, had no business contacts, and had only a few hundred dollars to support herself and her son. Michelle immediately signed up with two local barter exchanges before she officially opened her doors. Within weeks, she had attracted several clients thanks to being promoted by the exchanges. Along with $5,000 in a new-member credit line from the exchanges, she earned barter credits from clients that allowed her to outfit her office with desks, chairs, filing cabinets, and the like, as well as print business cards and magnetic signs for her car. Shortly after she began delivering for her clients, Michelle got a delightful surprise. Her clients referred her to their colleagues and vendors, who then became cash customers. And the cashpaying referrals just kept coming.

Within two years, Back 2 Basics Marketing had six employees and multiple interns and was doing a booming business, all thanks to Michelle’s hard work—and the power of barter, of course.

TRADING TIP

When you’re trying to figure out how much barter you should do, use this rule of thumb: Set a goal of 3 percent to 10 percent of your total sales (known as gross revenue in business terms) as your target for barter. Start trading at the bottom of the range and see if the amount of cash flow you have and the profit you earn is still acceptable. Then try bartering a bit more. Again assess your profit and cash flow. If your numbers are still working out, keep trading until you have reached the maximum level of barter that you want to achieve.

TRADING TIP

Getting started outside of an exchange? Print your business cards with the phrase open to barter or ask me about barter. If you’ve already printed cards, put a little sticker on your cards with the same verbiage. Let your business card smoke out trading partners for you.