Alternative Financing for Your Startup
Every new and small business has the challenge of managing cash flows in a way that yields enough cash flow to pay the bills yet provides enough cash to grow the business. Amid the economic recession and tightening on lending practices, more small businesses are regressing to an old method of payment exchange by bartering services rather than paying cash for goods.
Before the days of currency, trade was the primary means for individuals and small businesses to acquire and sell goods and services.
Perhaps it was my one camel for your 10 rugs or my fruits in exchange for your cloth. The economic recession has spurned bartering 2.0 as new and small businesses seek to exchange goods and services rather than paying cash for goods and services as a means for conserving cash while still moving the business forward.
Even before the economic recession, it was not uncommon for professional service firms, such as law firms, to provide their services in exchange for equity in a new start-up. However, small established firms, such as restaurants, are not able to exchange equity for goods or services as easily as a new technology startup emerging in Silicon Valley. So rather than equity, small businesses are now offering free goods and services in exchange for goods and services that they need. The best part of bartering if you are a restaurant, is that vendors whom you have bartered with can help fill up your restaurant making it look more popular than it truly would be otherwise (who wants to eat at an empty restaurant?).
The Wall Street Journal has recently ran several stories on small businesses bartering for services. There are even professional barter exchanges that have been set-up that act as a third party to manage and track the bartering of services between small businesses.
Bartering does not of course come with out its limitations. There is the trust factor involved that you will in fact receive a good or service at some point in the future if a trade is not made at the exact same time. Further, bartered goods are not as liquid as cash, meaning it is more difficult to trade than for a good or service than the cash in your hand. However, with the declining dollar, a very far-stretched ideal could prove service bartering more valuable than exchange for the U.S. Dollar.
Other consumer facing bartering services such as Home-Exchange (as seen in the movie The Holiday) have been established for several years offering consumers the ability to exchange homes while travelling or on vacation. The biggest expense travelers have, usually isn't the flight, but it's paying for several nights in a hotel. Businesses such as Home Exchange offer an economically friendly and increasingly popular way to still go where you want to go and do what you want to do, but with out having to pay cash for it.
Bartering has yet to become a mainstream way for paying for goods and services, but it is becoming a rapidly growing way of conducting business, both for small businesses and consumers. Don't be surprised to see more firms establishing themselves as an exchange to manage the bartering exchange between businesses or consumers. The next time you find yourself short on cash and need to find creative ways to stimulate your businesses or pay for a good or service, see if you can convince your vendors and customers to trade for it, rather than pay them in cash, and if they hesitate, just remind them how quickly the value of the dollar is deteriorating!
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