The third element to managing a barter economy is the company’s currency deficit.  A deficit is the amount by which a sum of money falls short of the required amount. In a national economy, it is the difference between government spending and the total revenue from taxes.

This same principle applies to the BizX economy. A barter economy makes the majority of its business purchases from member’s of its network. When BizXchange uses BizX dollars to make these purchases the deficit increases.

A common misconception about a barter economy, is that the exchange can make purchases with the currency without regard for how much is spent. It is often assumed that the currency isn’t tracked, because the barter company can just spend currency whenever they need to. In reality, this would be detrimental to the company and the entire network of businesses. This would have a direct effect on the money supply in the economy. The money supply would increase and the positive balances of member’s accounts would exceed the negative balances of member’s accounts, causing inflation.

A check on a barter economy’s health is making sure the positive balances of members minus the negative balances of members equals the deficit. This means it is important for the trade exchange to budget spending depending on how much barter dollar revenue they expect to earn and how many defaulted credit lines they will have to fund. Unlike the national economy, the deficit of a barter economy should be zero at the end of each fiscal year.

For potential members of an exchange, looking at the pricing of goods and services within the network is important. Are prices consistent with the cash prices companies charge? And what are the rules, regulations and consequences associated with not charging the same as cash prices? Looking at these aspects of the economy can help determine how well the money supply and therefore the deficit of the economy is managed.

Another key element in managing a modern, sophisticated barter economy is the velocity of the economy’s currency. Just like in a national economy, constant spending is largely associated with economic strength. Having an active economy means people value their exchange’s currency, they are willing to accept the currency and they have valuable places to spend.

Velocity is a measurement of the percentage of total money supply that turns over each month. For example if the entire money supply turned over every five months, the economy’s velocity would be 20 percent—meaning that each month, 20 percent of the money supply turns over. It is essentially a measurement of economic activity.

In order to keep velocity robust, a healthy barter exchange constantly works to make connections between members who are able to use each other’s products and services, therefore increasing transactions and assuring a healthy velocity.

One of an exchange’s main jobs it to help members of their exchange spend. If a member is not able to find places to utilize their barter dollars, then they hold on to it in their account and the exchange is not able to turn these dollars, decreasing velocity. In order to ensure spending, they often assign each member an account executive who consults with the members on the best utilization for their barter dollars and even signs up new members that may offer a product or service that is needed. They will market each company to the rest of the network by using various marketing techniques and their relationships with other members. Assisting members with their spending is one of the most promising ways to ensure a strong velocity.

As a potential member looking into joining a trade exchange, one way to make sure the economy is healthy is to find out if the trade exchange will have a dedicated account executive. You will also want to find out what types of marketing tactics the exchange employs to ensure that each business is promoted. Some valuable questions you can ask when looking to join an exchange are: Do they send out emails to promote members? Do they have networking events? Do they have tradeshows? Do they market their members through a newsletter? What else do they employ to make sure their members are always thinking about ways to spend their trade dollars and are able to find the products and services they need to spend their trade dollars?

In the barter industry, it is not uncommon to hear barter dollars referred to as “funny money,” which often implies that it is not a legitimate currency and that the barter economy is properly administered.

In reality, the complexities and considerations associated with managing a modern, sophisticated barter economy hold many similarities to managing a national economy. One of these similarities is the tracking and management of money supply, so there isn’t an infinite amount of barter dollars around.

Just as a national economy tracks the total money supply, a barter exchange must do the same. Every month, the economy should determine the money supply by taking a measure of all members’ positive balances. They should also take into account members’ negative balances. When combined the positive and negative balances should equal zero, so members who have barter dollars are willing to spend and those who don’t have barter dollars are willing to accept. If there are too many barter dollars in the system, then the value of the dollar will decrease and naturally drive up the prices of products and services available within the exchange.

Businesses looking to join a barter company often look at the number and types of members to see if they can purchase what they need. But potential members should also look at the value of the exchange’s dollar.

By knowing the total money supply in the economy, the barter exchange is able to regulate other measurements including deficit level, velocity and the amount of credit they can and need to lend.

In the next couple weeks, look for more points of comparison between the two systems and examples of how barter exchange should be successfully managed.

If you are a member of an exchange, what qualities did you look for when choosing to join?

By Michael Sheppard, BizX Account Executive

Just like any business purchase, making a barter purchase requires planning and strategy in order to get the most out of the barter network as possible. Having open lines of communication with your Account Executive and letting them know everything that is going on in your business and everything you are looking to buy, can make you much more successful in an exchange.

One of the main tactics that barter members should use is to ask for anything and everything from their exchange, but with the expectation that everything may not be fulfilled. The longer the list they have to work on, the more products and services they will be able to find for you.

This was exactly what happened when KEXP, a public radio station in  Seattle and New York, was planning on broadcasting live from the Ace Hotel in New York City. They had an extensive list of needs to make this broadcast possible. They needed hotel rooms and since they were broadcasting from a new space, they needed a lot of the equipment necessary to make a broadcast possible. They had a list of about 20 requests, which required multiples of certain equipment and specific brands.

By using their trade exchange’s reciprocal relationships with other exchanges, their needs for the broadcast were able to be fulfilled. Hotel rooms were found just a few blocks away from where they were broadcasting and all of their rental gear was fulfilled. They saved over $5000 cash.

Initially, they thought asking was a long shot, but learned that asking never hurts especially since a barter network’s job is to find ways to save your company cash.

Often barter is seen as an ancient method of paying for goods and services where two individuals swap to receive what they need. Today this type of direct barter has been updated to a more sophisticated system, which allows for complex trading. It exists in conjunction with modern monetary systems and is part of many companies’ day to day transactions.

Direct trades can only take place when there is a simultaneous coincidence of wants, meaning each company wants what the other company has, in the exact same amount, at the exact same time. This is often difficult to achieve and makes direct barter difficult to find and negotiate.

A more ideal situation is to perform multilateral trades, where a number of companies or individuals are participating in the trade. This eliminates the need for a coincidence of wants and allows many companies to receive the products or services they need without spending cash. This type of trading can become increasingly complex if not monitored closely. This is why many companies who participate in this type of modern barter are members of a trade exchange.

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Something Silver, a ten-store sterling silver jewelry retailer, joined BizX, a business barter network in 2004. They are known for offering the finest in silver jewelry and showcase more than 50 local and international designers.

When owners, Cheri and Tony Swan, heard about the barter exchange they thought it posed a great opportunity to improve and grow their business and offered immediate benefits. “I really liked the idea of being able to use it for perks for our staff, to promote our business through the marketing options and use electricians and plumbers by paying with barter dollars,” Cheri said. “We can basically use it to service our basic business needs and use it for growth potential.”

Always looking for ways to reward their employees, they saw one of the biggest advantages of joining the barter network was the opportunity to reward employees without spending cash. [Read the rest of this entry...]

There are a number of reasons to use barter in your business and a number of benefits to being a member of a business-to-business trade exchange. When you join a trade exchange they provide record keeping, networking opportunities and the ability to buy from and sell to a group of other companies.They also provide an additional sales and marketing force for your business.

In a B2B barter exchange, members are generally matched with a broker or an account executive to help manage and assist with purchases and sales. Here are a few ways they can help:

• Find ways to save cash: An account executive will proactively find ways to save you and your business cash. They will present you with the best offers and potential purchases to help your company offset current cash expenses or create new budgets and find the right companies to make it happen. By understanding the vision and short-term goals of your company, they can help target the resources you need to get there.

• Market you company to the network: An account executive will find your business new customers. Using the marketing materials of the trade exchange and the relationship with other members, they will find customers in the network to purchase your product or service and will work with the other account executives to make sure you are getting in front of the right types of customers. By being a member of a trade exchange, you are essentially hiring a new sales force.

• Manage your listing: They will make sure the information that is available to the network is up-to-date. Whether that is an online listing, marketing materials or the information other brokers are giving out about your company, your broker will work to make sure it is correct. Therefore bringing you more customers and the right customers.

• Oversee your purchases and sales: They will make sure everything you buy and sell is recorded correctly. They will make sure the billing goes through for each purchase or sale and that the correct amount is charged.

After joining a trade exchange, your account executive will help make the B2B trade exchange become a beneficial business tool for your company.

When joining a trade exchange one of the first questions asked is “What can I buy?” Although this is an important aspect of joining, there are a number of other things to think about when joining a b2b barter network. This ensures that you receive the most out of a barter network and see the benefits from the relationship.

Where are you currently spending cash? – Knowing what products and services your company spends cash on monthly allows you to assess where you could be spending barter dollars instead.

What other products or services do you want to be spending on? – Are there expenses that you haven’t purchased yet, because you don’t want to be spending cash on them? Joining a trade exchange is a great chance to create a budget for expenses you haven’t wanted to purchase with cash in the past. Other business expenses, could you also offer more employee incentives? If they work off commission would they be willing to take part of their commission from trade transactions in trade if they were able to spend it on restaurants, car maintenance, spa services and other personal expenses?

Do I want to increase or start advertising? – Trade exchanges are a great way to purchase media space. Media companies are always looking for new advertisers and ad space to fill. Find out about advertising opportunities through the barter network. Then your company can add to an existing advertising budget or create a new advertising budget with trade dollars.

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Barter can make it easier to give to your charity of choice, by offering an alternate way to donate.

Many companies make charitable contributions, but many companies don’t realize that these contributions can come in the form of barter dollars as well. Companies pay taxes on barter dollars at the end of the year, just like cash profits. Many companies look to use their barter accounts to donate to charitable organizations. This donation is treated exactly like a cash donation. It is tax deductible and brings the same value to a non-profit.

Charitable organizations always need donations to help their cause, pay their employees and run their operations. Donations and fundraisers raise money for all of these purposes, but non-profits can always use more money to support their mission.

The charitable organization can use the barter dollars to offset their operational expenses like printing, accounting services or IT services. Or they can use the barter dollars to purchase auction items, like tickets, gift certificates, hotel stays or other entertainment to help raise money for their organization. However non-profit uses the barter dollars, it is a great way to save or raise more cash to pay employees and support their overall mission of helping others.

Weddings can be expensive. From paying for a venue to the caterer to the dress, the expenses can accumulate. Unless money is no object, couples generally find areas to cut and save expenses while splurging on others.

One of the benefits of being a member of a business barter exchange is that barter dollars can also be spent on personal items. Funding a wedding through barter is one way that you can expense all or part of your wedding purchases.

Bartering for wedding purchases can include:

• Venue
• Catering
• Wine and beer
• Dress
• Photographer
• Videographer
• Wedding party gifts
• Transportation to and from the ceremony and reception or a getaway car
• Stationary for invitations, thank you notes, programs, etc.
• Accommodations
• And more.

Barter purchases are paid for with the trade dollars earned through business being brought to your company by the trade exchange. And you will save cash to spend on other areas of the wedding or to save for the honeymoon, married life, etc.

Bartering for wedding purchases is a great way to make sure you can afford the wedding you want and save cash at the same time.