Before you begin to shop, figure out what goods or services are the most cost-effective for you to trade. Begin by dissecting your income statement and balance sheet to find out which assets are performing (and when), and how poorly performing assets can be redeployed or traded. Case in point: Murtha wouldn't dream of pledging meals or stays during peak ski season or golf tournaments because at those times rooms will likely be snatched up and paid for well in advance. In addition, Murtha suggests you and your bookkeeper give yourselves a crash course in transferring "soft" barter dollars, which are considered taxable income. "Keeping track of them gets really messy really quickly," he warns.
Once you have a list of the products or services you need, call around for estimates of what each costs in its market, to be sure a barter exchange's bid is fair. When looking for airtime for a radio ad, Murtha settled on the Austin-based Barter Exchange because its bid was competitive and its reputation for excellent service and selection preceded it. A few well-placed phone calls revealed that the market price for a minute-long spot on a Dallas station was about $250, Murtha says. "We were ready to negotiate if it bid $300, but we didn't have to."
Now you're ready to interview barter exchanges. (For some names of exchanges, see "How Swap Deals Pay Off," Financial Strategies, April, [Article link].) Be sure to determine whether the exchange has a national presence. Does it have specialty subsidiaries? What products and services can its other members offer? You'll want to ask about an exchange's range of consulting programs (some offer such services) as well as its cash-to-trade ratio guidelines and general contract flexibility. Consider, too, the barter business's onetime enrollment fee (which can be up to $600), annual dues, and commissions taken on transactions (8% to 10%, usually based on volume of goods).
Overall, you want an exchange that encourages you to negotiate fees up front and to set reasonable terms of expiration on your own offerings. "We're still honoring trades we negotiated years ago because bartered lift tickets were good for three to five years," says Murtha. "Now lift tickets are good for one ski season. Sleep-overs are good for a year. The game is, 'Use it or lose it."
Bringing Production Back Home
My company produces metallic business cards. After three years of rocky subcontracting, I am equipping my own full-scale printing facility. What warnings do you have regarding the transition from subcontractor to full manufacturer?
Baron C. Hanson
"Head Buckaroo"
Flexcorp
Charlotte, N.C.
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In an age when more businesses are farming tasks out, you're thinking of housing manufacturing under one roof? That kind of counterthinking is the stuff of entrepreneurial legends, says many-time company builder Randy Kirk, president of AC International, a maker of bicycle accessories in Santa Fe Springs, Calif. "The pendulum's swung so far in favor of virtual over vertical that there are sure to be plenty of opportunities."
Only you can tell if your leadership style can stretch enough to accommodate the operation of a plant and the people inside. You're the one who knows if you have the financial resources to buy the requisite land and equipment, and the wherewithal to hire and train talented people. But, says Kirk, facility and personnel outlays are just the beginning.
Kirk, who recently wrote a column that extols the virtues of vertical integration ("It's About Control," August, [Article link]), offers some advice for handling the more frustrating questions that crop up during the transition:
How do you figure out what production elements you should bring inside first? The key here is to answer the question on both a gut level and a more scientific level. "In many cases, it boils down to necessity," Kirk explains. For example, you might want to quickly bring inside the tasks of suppliers that are chronically late on delivery or produce less-than-perfect components. At the same time you should run a reality check by doing a thorough cost-versus-savings analysis, complete with ratios such as returns on investment. "You can't go on emotion alone," says Kirk.
Is there any way around the typical scheduling snafus that plague new manufacturers as they initiate production? "As a rule, you'll need an extra 30 to 60 days beyond the target delivery date of your worst-case scenario," says Kirk. Most inexperienced manufacturers have no clue that it takes at least five people to install a huge chunk of machinery. "And once it's there, you can bet it won't work right the first time," he says.
How steep is the learning curve for subcontractors that make the move to full manufacturing? "It's shaped like a cliff," says Kirk, who admits that his own lack of manufacturing expertise nudged him into outsourcing back in 1981, before the strategy was fashionable. But Kirk says you'll go far in flattening out that curve if you or one of your associates is particularly good at hiring and managing engineers. n -- Reported by Karen E. Carney
