Posts Tagged ‘Operating Expenses’
Turn Trade Dollars into Cash

Virtually every trade exchange member regularly pays cash for something that could be bought on trade, which can then be resold for cash. If you can’t find it yourself, your trade broker should be happy to assist you.

For example, one of our clients is a magazine. One of its major expenses is color separations. We found another business that does separations and signed them up specifically for the magazine client.

The pre-press company does the separations and film on trade, and the magazine charges cash to its advertisers. With the help of a creative broker, the magazine now turns its Trade Dollars directly into cash.

The separations were an established part of the magazine’s fixed cost, so it was fairly simple to recognize the barter opportunity. Creative traders can also develop new product lines or new ways of doing business that turn Trade Dollars into cash dollars.

For example, a parking garage teamed up with an oil change and auto detailing company. Parking customers find it convenient to drop their cars off and not waste time on minor maintenance. The parking garage pays for the work in trade, then charges cash to its customers.

With the help of creative trading, the garage owner found a way to offer a new service and generate a new source of cash flow funded completely on barter.

There are numerous examples of how businesses can turn trade dollars earned from new sales to new customers into cash sales to customers that aren’t members of the barter exchange. A lawn maintenance company can use trade dollars to purchase plant material and sod on trade. An auto repair company can use trade dollars to buy auto parts on trade that can be sold for cash.

With just a little creative thinking, the possibilities of using barter to expand a business and improve the bottom line are endless.

Earn Cash While Selling on Trade

Many businesses can also generate cash as a by-product of earning Trade Dollars. Hotels and resorts are a good example of this process.

The mortgage, insurance and utilities on a hotel are fixed, whether the hotel is fully occupied or nearly empty. The incremental cost of filling an unused room is minimal. To pay for the extra house cleaning, laundry, and complimentary items such as soaps and shampoos, it costs about $20 per room night.

But just think about how much cash revenue that twenty dollars can generate. The people staying in that room order room service, buy sodas from the machine, magazines and gifts from the gift shop and eat in the restaurant. It’s even more lucrative if it is a resort. When a destination resort offers sports, tours and entertainment, visitors spend a lot of money on peripherals.

The hotel has generated cash it would not have had while producing full value for the room in Trade Dollars. In addition to the new cash flow, the hotel can use the Trade Dollars it earned from selling excess unsold inventory to offset cash expenses.

There are many other types of companies that can also generate new cash sales from participating in a barter exchange. These include, auto repair facilities that also sell vehicles, computer repair companies that sell computers and HVAC service companies that sell equipment. The companies can offer their repair and maintenance services on trade and also market vehicles, computers and equipment to these new customers to generate new cash sales.

Barter Exchange Q&A: Credit Lines & Trade Fees

Q: This question has to do with running an exchange versus what the difference is between the line of credit and a debit to a member acct.

Since an exchange can “create” trade dollars as needed by simply assigning and increasing a line of credit to our exchange, and since those trade dollars have no tax consequences as they are created rather than earned through sale activity, what is the point of charging a member’s account $10 or $15 per month in trade dollars?

We were under the impression that the reason we debit a member account for trade dollars each month is so we have trade dollars available to the exchange for business and personal use, such as advertising for the exchange in a member magazine. But if we simply have the right to create and increase our exchange trade dollar line of credit there appears to be no need to debit the member account other than to create a sense in the member that they need to trade more often since we are debiting their account.

A: One is a credit line where you are using trade dollars that you haven’t earned, which is no different than a business getting a credit line or taking a business loan from a bank to use for business expenses. This credit line (when used) or loan has to eventually be repaid. Charging members a monthly fee in trade becomes trade dollar revenues to the exchange whereby you are earning trade dollars from sales (fees) that you can use to pay for business expenses, such as advertising, office cleaning, computer networking and repair, etc.

Let me correlate this to the US government. The government collects taxes (as an exchange would collect monthly trade fees). They use those taxes to pay for government operating expenses. But, they don’t collect enough taxes because the government spends more than they collect. So, the government is deficit spending, creating a huge deficit in the economy, which a) eventually screws up the economy and b) somehow the deficit needs to get repaid.

Spending a credit line for operational expenses is OK, but only to a certain extent as significant deficit spending will screw up your exchange’s economy. And like any bank loan or credit line, the credit that you extended (even to to yourself) has to be repaid. The only way an exchange has to repay the credit extended to an exchange is to earn trade dollars from monthly trade fees or from profit derived from trade sales.

Most highly successful trade exchanges attempt to maintain a zero or near zero deficit system, meaning the total of all of the positive account balances equal the total of all of the negative account balances, including the exchange’s operating accounts. Exchanges do this by earning as much trade as they need to cover trade dollar expenses.