Using barter for cash management - Entrepreneur's Notebook - Column

For any business, maintaining a balanced cash flow means a series of trade-offs.

For me, maintaining the cash flow of my 4 1/2-year-old fitness-equipment company, U.S. Fitness Products, in Raleigh, N.C., literally has meant trading my equipment for goods and services through bartering. Since joining the local chapter of Business Exchange International (BXI), a Los Angeles based bartering network, in 1992, I have used barter dollars to "pay" for carpentry work, office furniture, and the plumbing, electrical, and lighting systems in our current showroom--a total value of $20,000 to $30,000.

Barter also has paid for several trips and $1,700 worth of transmission work on my truck. As we prepare to relocate, it's my intention to again remodel and outfit the showroom through bartering. In fact, before buying anything, I examine the pros and cons of bartering for what I need rather than laying out cash. By doing this, I've expanded the business and "sold" slow-moving goods without taking on debt or losing money.

With BXI, the process works as follows: Businesses and individuals join a local chapter for a small fee. For us, it was $300. Trades with other network members are paid in "barter dollars," which are put m a network account that functions once a bank checking account. (Taxes and shipping costs are paid outright, separate from barter dollars.) Hard currency can figure into trades: If the item or service retails for more than $1,500, the seller can accept the total value in barter dollars or a combination of up to $1,500 in barter dollars plus cash.

Network members can refuse any trade, although trading is the only means of acquiring barter dollars. Accepting a trade--and deciding whether to do it entirely in barter dollars or as a combination of exchange units and currency--should depend on your business needs and goals.

Currently, I'm doing a lot of bartering knowing that I'll use as many barter dollars as possible to limit my cash outlay during our move. At other times, I have limited or held off on trades to accommodate cash-flow needs. Barter sales can approach 5 percent of our annual sales of about $1.5 million.

While there are additional benefits, such as nationwide networking and annual bartering shows, which expand your potential market, bartering has risks. It's important to consider barter dollars as real money. Frequently, you see people at bartering shows getting caught up m buying things they wouldn't purchase with hard cash.

Before signing with any bartering network check out how long it has operated in your area, the number of members locally and nationally, and whether member businesses are well-established and offer services or items you're likely to want with the quality you demand. You must also try to assess the demand for your products or services. If they cater to a limited audience, you may find limited trading possibilities.

Once you join, bartering becomes as much a tool for inventory control as for cash management. If I have items on the showroom floor that aren't moving, I can offer them for barter, allowing me a bigger profit--albeit in barter dollars than if I sold them at a discount, and opening up space for equipment that's hot.

While bartering does not involve haggling--the prices are set, and the only decision is whether to accept an offer and how payment will be structured--it does involve hands-on management. Most entrepreneurs don't need something else to put their hands on--other than cash. If you think of bartering as a means of getting or keeping that cash, it's easy to see how it has a place in a business plan.

For More Information

Bartering networks operating in your area can be found in the Yellow Pages under Barter & Trade Exchanges. A trade group, the International Reciprocal Trade Association, can help you check out a network's background and reputation; send a stamped, self-addressed envelope to IRTA, 6305 Hawaii Court, Alexandria, Va. 22312.

What I Learned

A bartering network can help a company maintain smooth cash flow, but there are risks to avoid.

Bill Martin, president of U.S. Fitness Products, in Raleigh, N.C., prepared this account with Contributing Editor Susan Biddle Jaffe. Readers with insights on running or starting a business are invited to contribute to Entrepreneur's Notebook. Write to: Editor, Nation's Business, 1615 H Street, N.W., Washington, D.C. 20062-2000.

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