In Tough Times, Triad Business Turn to Bartering
In tough times, Triad business turn to bartering
A black Boston terrier named Neo jumped up and down, as if on a springboard, trying to peek through the Plexiglass window above the four-foot-high retaining wall of the dog day care area of Downtown Hounds. Neo was one of 10 dogs placed in the care of co-owner Nicole Bianchi on Nov. 20. Downtown Hounds can accommodate up to 20 canines in its dog day care facility, and the concept of unused capacity, Bianchi says, is what convinced her and her two partners to join Velocity Trade Exchange, a Greensboro bartering firm.
Founded by Cathi Vogel a year and a half ago, Velocity Trade Exchange works on the barter principle, which offers new businesses a way to capitalize on their unused capacity by converting it into “trade dollars.” This, in turn, allows businesses to hold on to their greenbacks. Advertising is critical to building awareness of a new business venture but normally, excess cash simply isn’t available when you first open your doors. By joining Velocity, Downtown Hounds has saved $2,000 in advertising, Bianchi said, and spent its available cash on more pressing needs. Bianchi is not alone in feeling the cash and credit crunch. In October, the Small Business Administration reported a 30-percent decline in loans approved for small businesses since 2007. On Nov. 14, the federal government reported that US retail sales in October suffered the worst monthly drop on record. The way Vogel explains it, bartering is all about new businesses maximizing their capacity, building their clientele and growing their bottom line. On Nov. 20, she interviewed a prospective client via telephone about joining the exchange. The client, owners of a graphic design firm, talked to Vogel about their business goals and immediate and long-term business needs. Vogel acknowledged that she already has a graphic design firm in her membership base, and said she normally guards against overlap of goods and services. But her membership base is rapidly expanding and she’s willing to accommodate more than one vendor in a particular category. “I think at the point we’re at, it would be good to bring in another graphic designer,” Vogel said. Vogel informed client that Velocity would require a joining fee of $225 and would receive a small percentage of each trade dollar transaction. Vogel then explained how her service would help the client up-sell their products and services. “It’s like we’re your salesperson-slash-purchasing partner,” Vogel said. The client agreed to join Velocity, but Vogel still had to perform a vetting process. “I kind of treat this like recruiting because there are unethical people who are attracted to barter and I don’t want them to hurt my reputation,” she said. “I don’t hesitate to remove them. We try to work with them first, but if we can resolve the issue, we close out their account.” There are a lot of misconceptions about how bartering works, Vogel said. She used the example of a restaurant needing remodeling work but not having enough money in its coffers to pay for it. If a restaurant needs renovation work done and can’t afford to pay for it in cash, it can pay a contractor through Velocity instead of with gift certificates. The trade dollars transfer from the restaurant’s trade account to the contractor’s trade account. Then, if the contractor wants advertising services, it can use those trade dollars for that or something else. There are limitations to the goods and services available to Velocity members, but Vogel has addressed that issue by joining the National Association of Trade Exchanges. Mary Needham, owner of EntrÃ©e Vous, will celebrate her catering business’s one-year anniversary next month. Needham joined Velocity in May, and said she hasn’t built up enough trade dollars to pay for major capital improvements. However, she has managed to get some advertising and a massage out of the deal. “It’s real important to me since I don’t make a salary yet, for me to get some perks,” Needham said. Needham estimates the business she gets from Velocity members represents a small percentage of her current business but expects that percentage to significantly increase. Each Velocity member can personalize the way bartering works for them, Needham said. For example, food costs comprise 40 percent of EntrÃ©e Vous’ overhead so when a Velocity member gets $100 worth of food, she comes out $60 ahead. “It’s usually that one wants what someone has, and someone wants what somebody else has,” Vogel explained. “People are doing it primarily for the additional exposure. They’re not just doing it from the buying side. They’re looking to increase revenue.” Joining a trade exchange like Velocity is the equivalent of opening a bank account without the cash, Bianchi said. Saving thousands on advertising is a concrete advantage to joining a trade exchange. Increased word of mouth from satisfied customers is an intangible that shouldn’t be underestimated. Still, exchange members only represent a small portion of Downtown Hounds’ overall business, but that could soon change. Vogel said Velocity’s membership base has swelled nearly 60-percent in the past year. The trade exchange’s growth appears to be part of a larger trend. Publicly traded companies like International Monetary Systems and the Itex Corporation, and smaller operations like U-Exchange.com have recently reported big spikes in membership and transactions, according to the ADP Small Business Report. Amie Gauthier and her mother, Betsy, know how hard it is for a new start-up business to secure a loan. Last year, the Gauthiers were turned down by six different banks before finally being approved by a lender to start their gourmet chocolate shop, Loco for Coco. “That was a year and a half ago,” Amie said. “Imagine what it’s like now with only some banks lending.” Bartering in one form or another has always existed, but having it organized by a trade exchange that arranges third and fourth-party transactions can help a small business survive, Gauthier said. For example, one of Loco for Coco’s best customers is another exchange member who specializes in making gift baskets. The vendor uses trade dollars to purchase Loco for Coco products rather than paying cash, which affords her the chance to upgrade her product. In that transaction, Gauthier’s cost is only $30, yet she receives $50 worth of trade dollars. William Conley, owner of the AllOver Media franchise in Greensboro, said in the current economic climate, if he had to start a new business he probably wouldn’t qualify for a loan. Recently, he was reminded of just how tough the current economy is for small businesses. AllOver’s corporate headquarters informed him that five candidates applying for franchises in other regions had their loan applications declined by the bank, which underscores the importance of conserving cash. Conley estimates transactions involving other exchange members account for nearly 30 percent of his overall business. He attributed Velocity’s success to its membership in the national network, and Vogel’s commitment to helping her clients find what they truly need. “If I’m doing advertising for a guy who sells green hammocks, how many green hammocks could I possibly want?” he asked. Since he joined the exchange 18 months ago, Conley said he’s spent his trade
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Nicole Bianchi, co-owner of Downtown Hounds in Greensboro, grooms Chicago, a 2-year-old Bichon Frise, on Nov. 20. Bianchi and her partners joined a local barter exchange 18 months ago to use their unused capacity to acquire advertising and office supplies by using trade dollars rather than cash. (Photo by Keith T. Barber)