Start Your Own Business (109 page)

SMARTER TO BARTER?

 

R
emember how pioneers would trade a deer skin for a musket? It was called bartering. Today, the concept is back in a big way—especially online. The companies are everywhere on the net: FreedomBarter
Exchange.com
,
BarterItOnline.com
,
Barter.com
,
Mr.Swap.com
... need we say more?

The barter industry is growing rapidly, with barter sales increasing from $40 million in 1991 to more than $20 billion in 2000. The North America Barter Association reports that approximately $30 billion in transactions were conducted in the United States alone during 2005, while the U.S. Department of Commerce estimates that 20 to 25 percent of worldwide commerce is bartered. Bartering can be an invaluable tool for a startup company.

 

 

Bartering can be good for your business in good times, but it can be even better in bad, and, let’s face facts, most startups have their share of downtimes. The main advantage to going the barter route is that if you have unwanted inventory, you can use it to trade rather than spend money you don’t have and pile more onto your already stretched-toothin budget.

 

Here’s how bartering works: Let’s say a landscaper needs a root canal. The landscaper belongs to a bartering organization and learns that a local dentist is also part of the same organization. But it turns out the dentist doesn’t need any landscaping done. OK, fine. So the landscaper instead does work for a small public relations firm and a restaurant management consultant. For that work, he has been banking “bartering dollars,” enough to pay for other members’ services, like a dentist, who will then use those bartering dollars to get something from another member. Meanwhile, to belong to a bartering organization, you’re paying a monthly membership fee of $5 to $30.

Who determines what each service or product is worth? You pay the fair market value, which is determined by buyer and seller. But beware: There are some dishonest barterers out there who will charge higher prices to members or not give a service or product that was part of a deal. You need to keep track of bartering purchases and provide clients with Form 1099-B so you can file it on your taxes.

WHERE CREDIT IS DUE

 

W
hen you book a credit sale in your business, you must collect from the customer to realize your profit. Many a solid business has suffered a severe setback or even been put under by its failure to collect accounts receivable.

 

 

It is vital that you stay on top of your A/R if you sell on credit. Here are some tips that will help you maintain high-quality accounts receivable:

•
Check out references upfront
. Find out how your prospective customer has paid other suppliers before selling on credit. Ask for supplier and bank references and follow up on them.

•
Set credit limits, and monitor them
. Establish credit limits for each customer. Set up a system to regularly compare balances owed and credit limits.

•
Process invoices immediately
. Send out invoices as soon as goods are shipped. Falling behind on sending invoices will result in slower collection of accounts receivable, which costs you cash flow.

•
Don’t resell to habitually slow-paying accounts
. If you find that a certain customer stays way behind in payment to you, stop selling to that company. Habitual slow pay is a sign of financial instability, and you can ill afford to write off an account of any significant size during the early years of your business.

Fiancial budget and Income Statement worksheet

Balance Sheet Worksheet

Cash-flow Worksheet