Tuesday, October 11, 2011

How Bartering Could Help Your Business in a Downturn

I recently read about a pub in England. A pub that's very different from what I'm used to. But what's different about this pub? What's different about them is that they accept payment in pheasant, chard, and fish. 

Image: maya picture / FreeDigitalPhotos.net

That's right, you shoot it, hook it, or grow it, then bring it to the The Pigs, and if its good, you get your cold beer for free (or at least for less than usual). The owners of The Pigs, Edgefield, trade fresh game, vegetables, fish or meat in a classic barter system.

Apparently the sign on the wall of The Pigs states: 
"If you grow, breed, shoot or steal anything that may look at home on our menu, then bring it in and let's do a deal!" 
Reading about this system makes me happy. It makes me happy because it is a cool example of a small business owner 'thinking outside the box'. It's an example of a local business being relevant to their community. It helps both the client and the business to improve cash flow. At this pub, if your tomatoes are good enough, you don't pay for the beer. So the customer saves. The pub's management wins by getting streams of fresh produce delivered to them. 

Direct expenses are probably reduced for food supplies. I'll also venture a guess that the people that deliver the food to the pub are proud of it. This system allows for community; personally, it's much nicer to eat food, Judy from next door has grown, than the I'm-not-sure-what-they've-done-with-this-food commercial variants. I know that such a system won't work everywhere, but The Pigs is a good example of what is possible through bartering.     

Wikipedia tells us that bartering is a direct exchange of goods or services, without the use of a medium of exchange. That means money is not changing hands, which may be a good thing, especially during times when money is scarce (and scary).

It appears that bartering is on the increase; logical, considering the plight of the world's financial system at the moment. Wikipedia notes that bartering replaces money during times when the currencies become unstable; so when money sucks we return to basic trade.  

Bartering seems to be a more sustainable economic system. Maybe because you cannot inflate or increase your tomatoes with some kind of western banking voodoo (printing money), like our, now infamous, western banking system was able to do.   

In a bartering economy, you can only exchange something of value with something else of value.  

An example of the bartering phenomena is currently active in Greece. The financial crisis, in Greece, has led to the emergence of an alternative barter economy, running alongside the normal economy. People are exchanging goods, services and time, without the exchange of cash see I'm Broke. Let's barter. Greece's alternative economy (a 2.47 min video on youtube). 

So how could bartering help those of us in small businesses? Proponents of bartering tells us that it helps businesses to utilize excess capacity; something many small businesses and start ups typically have a lot of. 

It also helps you to control your cash flow by reducing direct expenditure.  Businesses often barter things like excess inventory, free capacity, or dead time, with other businesses, which if done right it helps both parties.      

I think we'll have to be much more creative and needs sensitive in a barter economy. "I have X, I need Y, how can I make the exchange happen?, who do I know with Y, uhmmm maybe Joe from ABC Corp ... but does  he need X?, Maybe Steven I met on Linked In? (etc.)". See where I'm going with this? 

Bartering opens up new possibilities. Instead of trying to trade with money, which we often don't have enough of, we could expand our businesses by trading things we have an excess of, time inventory, or capacity. This seems like a good way for SMME's to collaborate.  

Bartering may just take us from "I cannot do that because I don't have enough money" to "I wonder if someone will trade me this stuff I don't really need, for the things I actually do need to make my business grow". Seems to expand our possibilities, doesn't it?   

But does bartering work? I recently posted a question on Linked In to the Johannesburg Business Club Group asking whether the members of the group used bartering, and if it was beneficial to their businesses (see the discussion here http://www.linkedin.com/groups/I-am-curious-are-any-131389.S.74654001). 

The responses I gathered so far was very positive (thanks to all you guys that responded; I really appreciate it). One member suggested it (bartering) is a quick way to achieve mutual benefit. Another business owner expressed the value of bartering when in a restricted cash flow situation, especially during the start-up phases. An owner from Johannesburg suggested bartering  to be a powerful way to help a new business build a client base. 

So, we find that bartering may be able to help our businesses grow. But there are downsides to bartering. Arguably the most difficult thing about bartering is finding someone to barter with. There may not be an immediate demand for the goods, services, or time you wish to barter with.  

This highlights the importance of networking in a barter economy. The more connected you are the more likely you are to barter successfully. Fortunately this should not be hard considering the volumes of social networks we have online lately. Another possible drawback to consider is that bartering income is also taxable in most countries, but that's a story for another discussion.      

Curious about how to approach a barter deal? Read some suggestions here

Thank you for reading. I would love to hear your stories and views about bartering and business.    

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