Many cash-strapped small businesses delay investing in much needed repairs, investments, inventory, or even services. The problem with this is that growth is often slowed when these essential investments are not made.
Fortunately for these small businesses, there is an alternative to paying for these investments: bartering.
An Overview of Bartering
In a recent field trip with my son to Conner Prairie (Fishers, Indiana), we were able to tour the house of Mr. Conner. Inside this restored home from the 1800’s, we were able to view a replicated ledger which Mr. Conner used in his retail store from that time. Interestingly enough, the ledger was not designed to keep track of money that was received, but rather to keep track of of what was traded in exchanged for the goods he sold.
While money is almost the exclusive currency today, bartering can be a fantastic hack for any small business.
Bartering is the act of trading a product or service that you own or control in exchange for something from another that you desire or need. Differing from the act of basic trading, bartering can provide a collaborative relationship between two companies.
For example, if you run a private neighborhood pool and don’t have the cash to pay for an updated website with high quality videos - one of the best marketing investments a pool could make - the pool could offer free family memberships to a videographer and web designer, in exchange for their needed services.
Bartering is a great hack for any small business because it is a way to get essential products, services, or inventory at a minimal cost while also building collaborative partnerships.
How to Barter
While bartering is a fantastic hack for any small business, small business owner may be hesitant to utilize this hack as it isn’t as common as just paying for the service with cash. And they fear they need to refine their negotiation skills.
The following are five steps that can be used to negotiate a barter relationship with another business.
Step 1: Identify the Barter Need
The first step in establishing a barter relationship is to identify what you would like to receive. While there are many different things that probably need done in your business, it is important to consider two things when deciding what you would like done for your barter exchange.
First, it is important to choose a need that will provide the biggest impact for your business. The impact doesn’t have to be an instant impact - if it were, you probably would have filled this need already. Things like a modern website, a formal marketing plan, or search engine optimization can provide great value for a business, though the impact of those initiatives takes time to actually realize.
Secondly, it is important to identify a need that would be fairly easy to barter for. For example, if your business needs inventory but that inventory provides a very small margin for your supplier, it is fairly unlikely that a barter is going to be mutually beneficial. On the other hand, if you need a website redesign, a web designer may have a template that could easily be rebranded for your website - meaning that the only “cost” in developing your website would be the time of the web designer.
Action Item: Make a list of three of the most important needs your business has that would likely be possible to barter for.
Step 2: Identify the Barter Benefit
The second step in establishing a barter relationship is to identify a benefit that you could provide in the potential partnership. In order to ensure a successful barter, it is generally a good idea to offer the greatest value possible to provide a very desirable incentive. This can be challenging as our tendency is to try to ensure a “dollar for dollar” exchange.
A barter, however, is designed to help your business in a highly needed area that you may not get without the barter. Therefore, it is beneficial to offer the greatest value possible in exchange for your need - even if the exchange isn’t a “dollar for dollar” trade. Remember, a barter is also helping to create a strategic partnership.
Action Item: Make a list of things you could offer in your barter. Then add more to it to make your barter irresistable.
Step 3: Identify a Barter Partner
The next step in creating a barter relationship is to find a partner that will be willing barter instead of receiving a regular payment for their products or services. In finding a potential partner, there are a couple of things to consider.
First, look for a partner that you know personally. Family members and friends are often ready to support you just because they know you. And if you are offering them an irresistible value in exchange for their services, then it would be fairly difficult for them to refuse your offer.
If you don’t know anyone personally that can provide your needed services, the next step is to identify a business that is in a similar position as you but will benefit from the value you have to offer them. One of the biggest selling points in this approach is to be able to build a collaborative relationship where both businesses support each other - not only from the barter, but in growing and developing their businesses.
Another way to find a potential partner is to look for established businesses that are both privately (or family) owned and geographically close to you. A privately or family owned business is going to have greater flexibility to work with you compared to a large corporation. Also, in offering your value to them, they may be more willing to enter into a barter relationship with a neighboring business.
In addition to approaching local businesses on your own, there are several online services than could assist you in bartering. (One of the best benefits of using one of these services is that you can basically skip step 4 - asking for the barter.)
Action Item: Create a lists of potential partners. Organize them first by the value you may receive from them and secondly by the likelihood that they will enter into the barter relationship.
Step 4: Asking For the Barter
The next step in establishing a barter relationship is to ask a potential partner to join you in the exchange. While this can feel intimidating, it doesn’t have too - especially if the value you are offering in the exchange is clearly greater than the value they would provide.
When asking for the barter, there are two key elements to keep in mind. First, make it clear that you are looking to build a collaborative relationship where both parties equally benefit (even if you are offering a greater value than what you are asking for). Secondly, it is important that they fully understand the value they are going to receive in the exchange. If you undersell their value, you will likely get rejected.
Action Item: If you are nervous asking for a barter, practice on a family or friend. Remember that your primary goal should be to build a collaborative relationship rather than try to “sell” the potential partner.
Step 5: Sort Out the Details
The next step in creating a barter relationship is to sort out the details. First, you need to determine what tax implications there might be from the barter, so check with your tax advisor on specifics.
In addition, it is probably a good idea to get your barter agreement in writing - it just makes things easier for everyone.
Action Item: Sort out the details yourself so that your potential partner doesn’t become overwhelmed with unexpected work.
Step 6: Follow Through
The final step in a successful barter is to make sure you quickly follow through in your end of the bargain. When you follow through quickly, this will give your parter motivation to fulfill their end of the deal.
Again, it is important to keep in mind that you don’t want to be stingy here - this whole thing was your idea to get a service you really need. So, don’t view this as lost revenue, but rather, as an alternative form of payment for the service you are receiving.
Action Item: Make the barter one of your top priorities so that the value you are offering is quickly realized by your barter partner.