HOW BATTERING PROCESS STRATEGY MOTIVATE BUSINESS GROWTH
Battering is the exchange of goods and services among businesses. This practice may be undertaken by single businesses, but in recent years many companies that choose to batter have joined organized battering networks that offer memberships to firms in a variety of industries. Both large and small companies have contributed to this growth. Companies of all sizes have been attracted to its capacity for putting excess inventory and resources to good use, while small businesses in particular have embraced its usefulness as a viable cash alternative to cover basic expenditures in such areas as business travel, facility maintenance and/or improvements, marketing, and a whole host of other areas. When it is properly done, batter gives smaller businesses the clout of a much larger company.
Participating companies should be aware; however, that barter income is treated like regular income by the Internal Revenue Service. Companies that engage in battering are expected to pay both sales tax and income tax on the goods and services they buy and sell (battered goods and services are taxable in the year that they are credited). Of course, this status also means that battering activity is tax-deductible for business expenses.
Organized Battering Networks
Batter networks or exchanges have emerged as a valuable tool for many businesses in recent years. Under these arrangements, member companies list goods and/or services that they are willing to make available for trade. When these goods or services are purchased by another company, the selling business receives trade credit based on the currency value of the product or services offered.
A business subsequently uses its trade credits to purchase goods or services offered by other members. The exchange helps promote members’ products and services through brokers (who act as an outside sales force for members), publications such as a batter directory and monthly classified ads listing specific items that clients have to sell. Many batter networks also have reciprocal agreements with networks in other cities, allowing members to trade with even more businesses. Most observers agree that these networks can provide small business owners with potentially valuable options when it comes to 1) pay debts during “cash crunch” periods, and 2) collect from clients who are undergoing their own financial difficulties. But practitioners also contend that it helps a company’s bottom-line even when everybody’s financial situation is stable.
Joining a Network
Since organized battering networks conduct a variety of administrative and recordkeeping tasks on behalf of their members, they require businesses to pay for their membership. These costs can take a variety of forms, including commissions on completed batters (often 10 to 15 percent of the value of each transaction), onetime fees, annual fees (some networks charge no annual fee, while others may charge several hundred dollars), maintenance fee, or some combination thereof.
Entrepreneurs who are intrigued with the idea of joining a battering network, however, should be aware that pursuing such a course of action is likely to be a waste of time if his or her company is on shaky financial ground or less than committed to providing top services or goods. Some networks will reject applicants whose solvency is in question, or even companies that are accepted should anticipate close monitoring during their few transactions. One battering broker says. “We watch the first couple of trades very carefully….the newer the members, the closer we watch them.” Some networks also assign established members to serve as mentors of sorts for new members.
Networking Within the Network
Battering through an organized network is inherently more flexible than using cash because the network facilities trade transactions among all its business members. Indeed, these networks are devoted to keeping members in touch with one another and facilitating transactions for the simple reason that they are reliant on trades for their very existence.
Many trade networks are adept at keeping the lines of communication (and thus the lines of battering) open between their members. In addition to directories, newsletters, and the like, many networks sponsor membership gatherings in which representatives from various businesses can meet and talk. These “mixers’ enable business owners to establish valuable contacts and, in many cases, make transactions that benefit both themselves and other network members.
Members of the batter network community also note that these face to face encounters tend to keep businesses focused on ensuring that they uphold their end of the bargain in batter agreements. A network member who provides substandard service to a fellow member will find that negative publicity can travel quickly in mixer settings.
In addition to serving as a facilitator of battering transactions, batter networks usually provide a range of ancillary services to their members, in addition to providing recordkeeping on all transactions that go through the organization, most networks will provide regular statements (monthly, quarterly, annual) to members and provide them with tax forms and information.
Advantages and Disadvantages of Battering
Battering has been hailed as a valuable new addition to the strategic arsenal for business owners for several reasons: Major advantages for batter exchanges include the following:
Employee Compensation
Business enterprises are often strapped for cash when it comes to providing bonuses or perks to their employees, but batter exchanges are an avenue for companies that want to reward their workforce in some way. For example, some companies have established system within batter network so that employees can choose rewards from the offerings of other exchange members (within certain financial limits, of course). Under these arrangements, business owners set up “sub accounts” for individual employees to which batter credits owned by the business can be transferred. Employees thus have the opportunity to spend those credits anywhere in the exchange as they see fit.
Make use of excess inventory and used equipment
Batter exchanges are often ideally suited for companies who want to unload excess inventory or old equipment (machinery, office furniture, etc.) while at the same time realizing some financial benefit. They can unload their extraneous goods and equipment in exchange for credits that can be used to procure valuable goods and services from other network members.
Business Travel
Increasing number of business owners are using battering as a way to cut down on costs associated with business travel, especially as the number of lodging facilities engaged in battering practices continues to grow.
Debt Collection
Businesses often depend on prompt debt collection to maintain their viability, yet using an attorney or commercial service for collections take both time and money, and writing off the debt is a no-win situation. Instead, business owners have begun to offer debtors the option of paying in merchandise or services, which are subsequently sold on the batter network with the credit going to the business that would otherwise have been unable to collect anything. In effect, the trade credits are equal to receiving the original debt in cash. Some of this value is sacrificed to network transaction fees, but businesses willing to use this option will receive a healthy percentage of the amount owed them.
Expand Customer Base
Batter exchanges are a valuable tool for businesses to contact and acquire new customers/clients. Many batter relationships eventually blossom into full-fledged cash business arrangements, as the companies in question develop trust and respect for one another.
Line of Credit
Battering networks can also serve as an alternative to more traditional means of financing for businesses. With this financing strategy, the batter network advances a set amount of funds to your company against its projected future sales. Generally, the batter network will determine the trade/dollar amount your company is likely to earn back in a one year period and base the advance on that amount. In addition, the interest that is charged on the line of credit may be paid in trade.
Analysts do admit, however, that there are drawbacks associated with battering as well. Some businesses that participate in battering may find that the range of products or services available does not fully address their needs, or they may not be available when needed. Finally, as mentioned above, providing shoddy service or materials to clients or other network members will likely result in a drop in community and/or industry reputation, a development that business owners should avoid at all cost.
Evaluating Batter Networks
Businesses interested in exploring membership in a local, national, or international batter exchange should consider the following factors when examining networks:
- Examine the roster of network participants/members to ensure that they have goods and services of value to your business.
- Study the number of members and the frequency with which they trade. Some exchanges are much more active than others, depending on the trading philosophy of participants and the rules of the network itself.
- Examine the attractiveness of ancillary network services (consulting, member mixers, information newsletters, etc.) for your company.
- Study the size of the trades made within the network. Companies that are interested primarily in battering expensive goods or services may find it difficult to find parties willing to engage in batter agreement.
- Compare pricing structure and other financial aspects of the network to ensure that battering makes financial sense for your business. Origination, monthly, and transaction fees can all vary significantly from network to network. In addition, entrepreneurs should attempt to gauge the level of sincere interest that the exchange has in helping their business. For example, some battering networks limit the number of businesses offering the same goods or services so that benefits of membership are not diluted among too many companies.
- Study the geographic location of other businesses within the batter exchange. For some businesses, close proximity to other network participants is essential for membership to be financially stable.
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