THE SECRET TO FUTURE SUCCESS

For Conceptual & Discussion Purposes only

BARTER – THE MISSING BUT CRITICAL LINK TO ENSURE BUSINESS SUCCESS

Possessing an advantage can spell the difference between success and failure. Businesses across the country are learning that barter can provide a potent competitive edge.

Maybe you’ve heard about barter, but haven’t learned enough to decide whether it’s right for you. If you’re already a member of a trade exchange, are you using it effectively?

Barter economics aren’t difficult to understand. By reading this guide you’ll be able to answer the question, "Could barter provide the competitive edge?"

Across America tens of thousands of businesses have already joined a trade exchange.

THE FIVE BENEFITS OF BARTER

1.      Barter creates new business.

2.      Barter can sell surplus inventories, capacity, or billable hours.

3.      Barter exchange members can use trade credits to replace other cash costs and improve their bottom line.

4.      Using the alternative financing available through a barter exchange can build business without resorting to cash financing.

5.      Finally, by spending trade credits instead of cash, businesses can improve their cash bottom line.

Perhaps it’s time to join a trade exchange or optimize the membership you already have.

HOW TRADE EXCHANGES WORK

Modern commercial barter is simple to use, efficient and profitable. Trade exchanges operate much like cash based markets.  Exchange economies use trade credits equal in value to cash. If an exchange member normally sells a product for $10 in cash, other members of the exchange can buy it for $10 in trade credits, debited from the buyer’s account and credited to the seller’s.

The trade exchange records transactions and provides regular reports of purchases, sales, and balances. At The Traders Network- Oregon, for example, exchange members receive a statement every four weeks.  Transactions are executed by using trade drafts from member accounts, pre-approved credit lines, or electronic credits and debits.

ATTRACTING NEW BUSINESS

New trade exchange members often find new customers as soon as they join, acquiring an experienced barter sales and marketing team through an assigned broker. The broker markets your business, lists it in the exchange directory, and arranges networking opportunities.

If you join a national exchange like The Traders Network- Oregon, your new customer base includes thousands of businesses coast to coast.  It is in members’ best interest to spend trade credits instead of cash buying from you.  You’ll beat your non-member competitors to immediate new market share.

SELLING YOUR SURPLUS

While many members eventually transact most of their business within the exchange, new members use it to profit from their surpluses, such as excess inventory, production capacity, or billable hours. You may no longer need to discount quality slow moving or excess products because they may be attractive other members with trade credits to spend.

The graph illustrates the difference between fixed and variable costs and shows how they relate to cash and barter sales. Fixed costs, which remain the same regardless of sales, are represented by the horizontal line at the bottom. Variable costs, represented by the green line, are determined by sales. In this example cash sales have captured a roughly two-thirds share of the market and the company’s profit is the difference between cash sales and expenses. By capturing more market share through barter, this company earns more profits.

Can manufacturers benefit?

Any manufacturer with surplus capacity can profit from barter.  A small increase in costs can significantly expand sales.

Barter benefits all economic sectors, even billable-hours professionals. Dentists, doctors, and attorneys with appointment vacancies can fill lost time with barter clients. Media outlets can trade spare advertising space for goods and services trade credits. Hotels can fill vacant rooms with barter guests,. The purpose of business is profit, and barter is a too often untapped venue. In addition to using trade to conserve cash, businesses can use trade credits to attract more cash paying customers, such as spending trade credits for advertising.

Barter often attracts cash profits.  By paying for expansion or improvements with trade credits, businesses can capture more cash business.  Members paying trade credits to stay at a hotel also spend cash in the restaurant and gift shop.

CONSERVING CASH

Trade credits can dramatically improve cash flow and the bottom line.

How would paying 30 per cent of operating expenses with trade credits earned from selling surplus products or services help your bottom line? Some businesses do even better.  The Traders Network-Oregon uses "Cash Expense Analysis" to help plan where to apply trade credits to maximize cash savings.

FINDING ALTERNATIVE FINANCING

Everyone knows it takes money to make money, but wouldn’t it be nice if the “money” spent was in trade and the money earned was in cash?

Many trade exchange members do just that. They use trade credits rather than cash to expand their businesses, purchase equipment and inventory, or invest in research and development. Using trade credits rather than cash, businesses enjoy increased flexibility when growing.  Need financing?  Borrowing money and/or credits from the trade exchange is often cheaper and more flexible.  Exchanges will also help find new business to repay the loan.

CALCULATING THE lNCREMENTAL COSTS OF BARTER

Every business has fixed and incremental costs. Fixed costs include rent or loan payments.  Incremental costs, like raw materials and shipping, are generated by production and sales. Remember that trade dollars are new income generated from selling your surplus. The expense of trade credit income is incremental cost.  A widget manufacturer has monthly cash sales of $100,000 over fixed costs of $45,000 incremental costs of $20,000:

Sales                          $100,000

Fixed Cost                  $45,000

Incremental Cost         $20,000

Total Cost                    $65,000

Profit                           $35,000

What happens if joining a trade exchange produces another $100,000 in sales, enough to add another shift?

New Sales                      $100,000

Incremental Cost              $20,000

New Profit from Barter     $80,000

Increased cost of earning trade credits is low, since fixed costs are already amortized.  Using new trade credits to pay a portion fixed costs generates essentially “free” money.

IS BARTER RIGHT FOR YOU?

Membership in a trade exchange means the opportunity for new business. In fact, small sole proprietorships and even Fortune 500 companies use barter.  A comprehensive cost analysis easily demonstrates the relative price of new trade credits, while a cash offset analysis conducted by your broker will show how to use trade credits to reduce cash expenses.  Generally speaking, barter is most effective for businesses with low incremental costs and high surplus capacity. However barter can increase the profits of virtually any enterprise, and provides a particularly effective safety net for startups.

Defn : The Traders Network- Oregon . - For Conceptual & Discussion Purposes only

No representations or other undertakings have or are implied in any other context other than by way of the explanation of what may be accomplished in a said activity if so constituted and if operational.