We are now truly in a difficult and challenging economy which, depending on the publication you read is, either already in recession or on the verge of getting there.
This brings all sorts of additional problems and issues to businesses, especially small companies that have less flexibility to manoeuvre. Sales fall, costs increase, and the result is reduced profits, or worse, losses and negative cashflow.
The result is that businesses find themselves forced to cut back on the very things that they need to be doing to help them overcome these problems and grow. Things such as marketing and advertising are the first casualties often followed by a reduction in sales activity in whatever form it takes. The result is self-perpetuating and negative.
There is, however, a really creative and innovative tool available to combat these issues, and one that the largest companies in the world have been using for many years: barter.
Bartering is the oldest form of trade, and is currently used by some 85% of the world's Fortune 500 companies. Almost $1 trillion worth of barter transactions are carried out annually, and that only accounts for that which is trackable.
However, bartering has remained largely the sole domain of these international businesses that can fund and staff internal barter departments. This began to change in the 1980s when trade exchanges began to appear - initially in the USA - and technology developed to an extent that made transactions easy to carry out.
The result is that today this imaginative way of doing business is freely available to even the smallest of companies by joining a trading exchange and being able link up with a vast range of other business with which to trade. Bartering has developed even further with it now becoming an increasingly popular way for consumers to trade with each other using "swap clubs".
Historically, the disadvantages associated with bartering have been those of one-to-one transactions, equality of value, accountability and timing. Modern trade exchanges allow these to be overcome and properly managed.
An example could be a restaurant that needs £1,000 worth of printing done and, while that would be fairly straightforward, would the printer really want £1,000 worth of meals in that restaurant? Even if he did, how long would it take him to utilise this amount and therefore realise the payment for the job already carried out?
If, however, both of these businesses were part of an exchange, the transaction would be carried out in the same way but the restaurant would now have his exchange account debited with £1,000 and the printer would have his credited with £1,000.
The restaurant now owes £1,000 worth of meals to anyone in the exchange and not to the printer, and the printer has been paid straight away and can now spend his £1,000 on anything he likes, which may include some meals at the restaurant.
This demonstrates how straightforward doing business is via bartering. But what are the real benefits, and how does it help businesses in these tough times?
Firstly look at the restaurant. He has been able to make a purchase without using any cash from his business; clearly a significant benefit. However, just as important, he uses his own product - meals - to pay for that purchase. If he can utilise spare capacity (tables that would have been empty anyway and earning him nothing) then the only cost to him to fill those tables would be the product replacement cost; i.e. the actual food and drink itself, because all of his fixed costs are already been paid by the existing cash business coming through the doors. This means that the true cost to him of that £1,000 worth of meals is only around £400, working on the normal gross margins of restaurants. So he has saved valuable cash and effectively got a 60% discount on his printing.
Now apply this to those businesses that find themselves having to cut back on the vital areas such as marketing. With barter they can now maintain, and in fact increase, these areas of spend without a negative impact on the business, and by increasing promotional spend additional business is gained, which is of course normal cash business that further enhances cashflow.
The same benefits accrue to the printer in the example used in that he has gained new customer which he would not normally have had, because if he was not using a barter system the restaurant would not have used him. He can then use his £1,000 to purchase any product or service he needs, and is currently using cash to pay for. In addition, as he has used spare capacity to fulfil the restaurant order, the same equation applies to him in that the true cost to him to provide the printing will not include his fixed costs so if he works on say a 50% gross margin, he effectively gets a 50% discount on everything he purchases when he spends through barter.
This highly innovative and rapidly expanding method of trade is a perfect antidote to tough times and an extremely effective business tool.
Brian Whitford MBE is marketing manager at Bartercard UK Ltd. For more information visit www.bartercard.co.uk
