Inadequate cash flow is a startup killer.
In fact, running out of money was reported as the second highest cause of failure in 101 startup post-mortems conducted by CB Insights.
Even with careful planning, surprise expenses and emergencies can throw a spanner in the works.
Luckily, there is a way to get some of what you need to grow your business without handing over precious cash: bartering.
Bartering is an ancient concept; it’s simply the exchange of goods or services without a medium such as money.
And it’s making a comeback.
“Beer economy” pages – where people trade booze for just about anything – are popping up all over Australia.
But don’t worry, there are also more sophisticated platforms available for business-to-business bartering if you don’t want to work for beer!
This post will give you some expert tips on the art of barter and a rundown of five major networks for cashless transactions.
By the time you’ve finished reading, you should be all set to do a swap and save some cash!
Most startups have a greater capacity than their market can occupy – this means a surplus of goods or services.
“If your business has any degree of unused capacity, in the form of time or inventory, you should use a barter strategy to maximize your businesses sales capacity,” says Ron Whitney, International Reciprocal Trade Association (IRTA) President and CEO.
You can barter with excess goods or unprofitable time (such as empty appointment slots) to gain something that will help grow your business and at the same time conserve cash.
“Bartering makes a HUGE difference in the daily lives of small businesses owners,” says Jared Krause, CEO of Currency, a bartering platform for businesses and freelancers.
“On average, they save over $5000 in cash every year and have access to services they otherwise simply would not pay for. Imagine having an extra $5k to spend on marketing, business development, and massages. It takes the edge off.”
Jared is not only in the business of bringing barterers together, but he’s also had experience navigating cashless trade.
“I traded with a graphic designer to have a logo done. I helped him navigate a complex investment situation he was in, and he made a beautiful logo for me,” he says.
“Some years ago, I traded with my landlord for six months of rent. I helped him build an app for his company in exchange.”
“Many times I’ve bartered with developers or product designers who want help raising money, in exchange for dev or design services for the tech project I’m working on,” he adds.
Bear in mind that governments in most countries treat barter exchanges like cash deals, which means they’re taxable.
Where to find barter partners
You probably already know other professionals who would be willing to barter – it’s just a matter of asking.
Some people use classifieds in places like Craigslist to find barter partners.
You can also join organized barter networks.
In a moment, you’ll get an introduction to five big cashless exchange platforms, but there are also hundreds of smaller, local bartering networks around.
You can find a nearby barter network through IRTA and the National Association of Trade Exchanges, or do a quick online search for groups in your area.
Benefits for startups
For startups, the biggest benefit of barter is preserving cash.
“When businesses are just getting started, it’s more important than ever to keep cash expenses low,” Jared says.
Joining a network can also open up business opportunities.
“Barter exchanges provide a built-in new market for start-up companies to sell to and buy from,” Ron says. “Participation in a barter exchange can provide an important jump-start for new businesses!”
Organized barter platforms may also extend credit to businesses when traditional banking facilities won’t – this is huge for startups, Ron says.
Tips for getting the most out of your trades
There are a few things you should keep in mind for a smooth transaction, so you can reap the rewards of bartering and avoid the pitfalls.
Jared’s advice is to keep your business hat firmly in place:
“In a nutshell, it’s important to treat it just like a cash deal. If you’d write a simple contract if the deal was in cash, do it when you barter. If you’re supposed to meet at 10 a.m., meet at 10 a.m.,” he says.
“Really, it’s all just basic business hygiene. The same stuff that makes cash deals work all make barter deals work, too.”
And don’t forget the number one benefit: preserving cash. Bartering with something you can get cash for defeats the purpose, trade with unused capacity instead.
Treating a barter like a cash deal also means understanding your costs and margins, so you know the value of what you’re trading and can negotiate a trade of equal value.
It also pays to do your homework. If you haven’t dealt with your prospective barter partner before, take the time to get to know them.
Online barter platforms
Joining a barter network gives you access to a much wider range of goods and services than you could find on your own.
Browsing a barter exchange site, you’ll see businesses offering everything from accommodation throughout the world to event planning to doggy day care to website design.
Another reason to join, Ron says, is “to get more business, pure and simple.”
Some barter networks facilitate direct exchanges, making it easy for you to find someone to negotiate a trade with.
Others use a private currency, so you can provide goods or services to other members and accumulate barter currency, then spend that barter currency on what you need later. (This isn’t “true” barter because a currency is used as a medium, but is commonly referred to as barter because it’s cashless trade.)
Organized barter networks will usually charge membership and transaction fees to support the platform, some of which will be in real money.
In a nutshell: Currency is a new bartering platform for businesses and freelancers – it’s live in Chicago and going live across the US soon, with plans to go global. Currency is designed to facilitate a direct swap by algorithmically matching members based on their past choices and profile. Businesses can submit specific requests, too, which the Currency team will find manually.
Own currency? No.
Fees: Currency will be free for the first 500 users in each city for 12 months, and $15 per month after that.
International Monetary Systems (IMS)
In a nutshell: IMS is the largest independent barter network in North America with around 16,000 members. It’s a reliable platform that has been running for more than 30 years. Membership comes with a personalized account manager.
Own currency? Yes, IMS trade dollars.
Fees: Yes. 7.5% cash transaction fee when you buy and sell, plus a monthly maintenance fee of $15.00 cash and $15.00 IMS trade dollars.
Summary: U-Exchange is a barter website for any type of trade, with a section dedicated business barter. It’s set up for finding people to do direct swaps and has directories for 82 different countries.
Own currency? No.
In a nutshell: ITEX is one of the largest marketplaces for B2B cashless transactions in the USA and Canada, with franchises throughout both. It’s a well-established network, which has been operating for more than 30 years.
Own currency? Yes, ITEX dollars.
Fees: Yes. 6 – 7.5% cash transaction fee when you buy and sell, plus a monthly membership fee of $20.00 cash and $10.00 ITEX dollars.
In a nutshell: BizX is another marketplace for B2B cashless transactions in the US and the United Arab Emirates. It has over 4000 member businesses.
Own currency? Yes, BizX dollars. Also has the option of a BizX card, which works like a debit card.
Fees: Yes. 7.5% cash transaction fee when you buy and sell.
By now, you should have a good handle on the wonders of cashless trade and what it can do for your business.
So it’s time to find barter partners to get what you need for your startup while you maintain a healthy cash flow!