Could Barter Be in Your Future?

Written by CMG News Contributor, Doug Carleton

The history of barter dates all the way back to the Mesopotamians, who, as far as historians know, created it about 6000BC. It was first perfected and used widely as Phoenicians spread their empire across the oceans. Fast forward to the Great Depression in the 1930s. Due to the lack of money, many people turned to barter to obtain food, for example, for other goods and services. Now come forward to 2021. For small businesses barter offers several benefits under the right circumstances. Since a simple one-to-one barter transaction – say accounting services for advertising works fine as long as there are two parties in the same general area that have those services to trade. But what if there is no local counterparty? This type of situation has led to the creation of barter exchanges – organizations whose members, usually for a fee, join to list their products or services. This dramatically extends the number and reach of potential products or services available to other members. The exchanges generally take a fee of some level on each transaction.

Some of the advantages to a small business owner could be:

  • The opportunity to save cash. This is probably the most important advantage of bartering because cash and cash flow are always one of the most important issues facing small businesses. Instead of spending cash to purchase a particular product or service, an exchange could possibly be made, keeping more cash in the business. Even with the transaction fees paid to an exchange, the net saving of cash remaining in the business could be significant. Being a member of a barter exchange could allow you to possibly gain new customers by exposing your product or service to a much wider audience.

  • For a startup, it could offer the opportunity to demonstrate the benefits of its products or service, opening up markets that it might have taken a much longer time to reach, if at all.

  • Another use of bartering is to potentially get rid of excess inventory. Every day that inventory sits, it is cash that is not coming in to make up for the cash that went out to purchase the inventory originally. Bartering it through an exchange could get rid of some or all of that excess inventory, eliminating the cost of carrying it and sometimes receiving something of value in exchange. What the ultimate price of the inventory gotten rid of may be considerably below what it originally cost, but it eliminates the cost of carrying it and gets at least something of value in return. So your profits take a hit because of the loss on the original cost of the inventory, but your balance sheet gets a boost; plus, you now have cash freed up to purchase new inventory to sell at the profit margin you expect and possibly (let’s assume likely) make up for the loss on the product bartered away.

Barter is just one more tool that could be used to keep cash in your business. You may not get to use it often, but any time you can, it’s good to know that you have it. Cash is king.