No Cash Needed
|
Tina Ames owns the Craftsmen Cafe, a Clarence, N.Y. eatery that specializes in organic comfort fare such as chicken soup and apple pie. Recently she needed to replace her restaurant's roof, a $7,000 job. Ames was loath to part with that much cash and didn't want to take out a loan.
Her solution? She cut a deal with a local contractor who handled the roofing job in exchange for a Ford F-150 pickup that Ames no longer needed. "I grew up on a farm," she says. "If you had eggs and someone else had corn, you traded. It's an old way of doing things, and it makes a lot of sense."
Even in modern times, bartering remains a practical choice for small businesses. It's a cash preservation tool, something that's especially useful in a tough economy. It can also help move unsold inventory or put idled staff to work. Done right, bartering can even drive new cash business.
Many trades get executed informally, as when a dentist cleans her accountant's teeth in exchange for tax preparation services. But increasing numbers of small businesses are joining barter exchanges that make it possible to arrange trades within a large online network. U.S. exchanges now boast about 250,000 small business members, up from 200,000 five years ago, according to the International Reciprocal Trade Association (IRTA), based in Rochester, N.Y.
Because so many swaps are informal, the size of the small business barter economy is hard to gauge. But Bob Meyer, publisher of Barter News in Mission Viejo, Calif., was willing to take a crack at it. Meyer estimates that 1 million small businesses are involved in barter, either informally or through exchanges, with a volume of transactions approaching $20 billion annually. This figure combines the $10 billion that IRTA attributes to exchange trades with Meyer's conservative estimate that informal barter accounts for another $10 billion.
Typically, bartering activity spikes during economic downturns. Meyer expects the total volume of U.S. barter transactions to grow 10% this year (historically the annual growth rate has hovered around 5%). "Right now many small businesses are starved for customers," he says. "If you're a savvy owner, barter is just another doorway that brings customers into your establishment."
Drew McLellan runs the McLellan Marketing Group, a firm with 10 employees and $5 million in 2008 revenues. A resident of Des Moines, he's a devotee of informal barter and sees a real advantage in doing deals within a tight-knit community of trusted owners. "These are my neighbors," he says. "I know I'll bump into them at a Starbucks, so they can't afford to mess up and neither can I."
Even so, McLellan is careful to draw up a contract whenever he barters. As in any business deal, the contract is a crucial formality that entrepreneurs neglect at their peril. At the very least, experts say, the parties should exchange e-mails that establish a written record of their intentions. In the event that one party reneges on the deal, a properly drafted barter contract would stand up in small claims court. More important, a contract sets terms so that both parties know exactly what's expected.
July 4, 2009
Copyright © 2009 CNN Money
