In many industries, more and more companies are turning to barter to get rid of their excess inventory and boost their bottom line and oftentimes, generate new business.
In its simplest form, bartering involves an equal trade. One business swaps a good or service for another. Through professional barter exchanges, where members pay a commission for goods or services traded, more complicated trades are possible. Here's how it works: A furniture business lists a goods for trade through the exchange. In return, the business receives a trade credit based on the dollar value of the items offered. The furniture business can then use its trade credits to "purchase" goods or services offered by other members. The result is that the business is hooked up with a network of actively bartering companies.
Office Furniture Outlet, a retail chain headquartered in Aurora, Illinois, has been successfully bartering for 12 years. Eric Van Doren, manager of the company, has purchased the things he needs to run the business using barter dollars. From computers to building maintenance, painting and roofing, Van Doren has used trade. He also gets advertising and service to his truck fleet on barter. The company conducts about $200,000 worth of trade per year. "Another advantage," according to Van Doren, "is that barter customers bring cash customers. If someone sees a piece of our furniture in a customer's office and admires it, they don't know that it was purchased on barter. They will come to our stores because they like the merchandise." Barter is also a good way to turn over excess stock by providing you with business you would not ordinarily have.
Another example might be a radio station that wants an economical way to entertain its top advertising clients. The station may offer advertising time and trade its barter credits for meals at a local restaurant. The restaurant might trade its credits for lobby furniture. And the furniture company might trade its credits for radio ads. Three separate businesses have taken part in a buy and sell transaction without ever exchanging a dime, except for paying the tax in cash, of course.
While some people frequently mix barter and cash in their deals, others, prefer full trade barters. If you're not in a hurry, , you can usually find someone willing to do a full trade. And you don't have to use bartering strictly for yourself. One trader sent one of his employees to a top resort in Barbados, paying for the accommodation and airline ticket on full trade.
Indeed, the network of goods and services available through barter in growing. Today's barter exchange may have as many as a few thousand members nationwide. As bartering becomes more popular, some barter exchanges are starting to trade with each other, further expanding the opportunities available to their members.
By bartering, businesses can acquire the goods or services they need while conserving cash and reducing expenses. For example, if you pay $10,000 for a printing job with $5,000 in cash and $5,000 in barter trade credit earned with inventory that cost you only $3,000, you've reduced your printing expense by $2,000 on that job. That's an overall savings of 20%.
Bartering further bolsters the bottom line by enabling businesses to trade away excess inventory or resources. Through bartering, furniture manufacturers can receive up to full wholesale for their goods. Compare that to cash liquidation, which may get you just pennies on the dollar. Instead of taking a 60 to 70% loss on items, traders can earn credit for their full value through barter.
Bartering also provides another way of advertising. By bringing together buyers and sellers who may not have used each other's services before, bartering can introduce a company to new customers. These may be one-time customers or people who come back to purchase items once they've become acquainted with the business.
Companies that actively barter may do as much as 5 to 10% of their business annually through trades. That adds up. The National Trade Association, one of the nation's largest barter exchanges, recorded a record-breaking $40 million worth of trades in 1996 and boasts 4500 members nationwide.
Barter exchanges typically charge a one-time membership fee. Some may even extend a line of credit to new members. That way, they can start using credits before they've sold anything through a successful trade. Businesses can use credits accumulated for one item to trade for several different items that together add up to their total credits.
Companies that want to get involved in trading should remember that there is no tax advantage to bartering. Barter and cash transactions are the same in the eyes of the Internal Revenue Service...both are taxed equally. In fact, barter exchanges must report goods and services sold through barter directly to the I.R.S.
But, many businesses are finding that bartering definitely has its upside. It's a great way to get a tangible worth for dead stock. But furniture people should look at bartering as more than just an asset deployment problem solver. The people who are successful at it treat it like a piece of their business. For further information about bartering, contact the National Trade Association at 847-390-6000 e-mail them at email@example.com.
Furniture World Magazine-Business solutions for furniture retailers