FINANCING & BUDGETING • February 25, 2015
2 minutes Read
What do you do when cash is tight, yet the only way to generate more is to invest in your business? Sounds like a Catch-22, doesn’t it? Fortunately, it doesn’t have to be. Companies willing to barter, or trade, with other businesses can quickly build up a customer base even as they adjust for peak and valley sales periods.
Some companies, especially those just starting out, try direct barter arrangements. Direct trades are just what they sound like—two companies agreeing to provide an equal number of products or services to each other. For example, a new restaurant may offer to host a holiday party for a local law firm in exchange for legal counsel. Or a newspaper may sell ad space to a commercial cleaning service in exchange for getting their offices cleaned once a week.
These arrangements can work well when each business needs the other’s services. Trade exchanges are for-profit firms that connect member businesses to facilitate bartering.
Mike Van den Abbeel, co-owner with wife Kiri Wollheim of Mosaic Hair Studio and Blowout Bar in Orlando, Florida, joined a trade exchange even before he opened his salon. In 2001, fresh out of beauty school, Van den Abbeel joined Florida Barter as an independent stylist. Through the trade exchange, he got “a nice influx of business that I wouldn’t have gotten otherwise,” he says. “I built a nice clientele quickly,” using the trade credits he’d earned to market his business.
Three years later, in 2004, Van den Abbeel and Wollheim opened Mosaic and used trade credits to finish the building they bought to house the salon. A few years after that, when they expanded the salon by purchasing the building next door, they again used trade credits. They took out a line of barter credit they could use to pay for building renovations and equipment. “During the economic downturn, having my barter exchange as a back-up [for financing] was important for the expansion of our salon,” he says. In fact, barter made it possible. Today, trade credits from Florida Barter are helping to pay for a much-needed roof tear-off.
Trade exchange is highly organized; we’re not talking about Craigslist gigs here. Mosaic earns between $25,000-30,000 a year through barter, but no more than that; Van den Abbeel purposely caps his trade business at $30,000. Many businesses use trade to fill open appointments but since Mosaic is already fully booked—Van den Abbeel doesn’t need to earn any more credits. Additionally, Mosaic has to pay taxes on all barter earnings, in cash; it’s another reason Van den Abbeel prefers to restrict the amount of bartering he does.
When you have available capacity or excess inventory, barter can be a productive way to generate spendable trade credits.“Trade increased my ability to obtain resources for my business,” says Kenney. It’s a unique way to build resources and fuel a business’ growth without impacting cash flow.
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