For printing and signage companies, keeping the presses running is vital to staying in business and turning a profit. There are a number of ways to fill downtime, including increasing advertising and promotions or offering discounts.
But printing companies also have an option that allows them to increase revenue without increasing costs. They can join a business trade exchange. Exchange membership can serve as a powerful financial tool for printers to reduce downtime, attract new business, and save cash on budgeted business expenses.
For years, many types of businesses have used trade as a strategy to help their companies thrive. However, unlike direct trading where two businesses must have what is called a mutual coincidence of wants (where each party has to have what the other wants at the same time, and both items or services need to be roughly the same value), exchanges provide companies with a private form of currency, allowing for significantly more flexibility and access to a network of businesses willing to accept the currency.
How an Exchange Works
Exchanges help bring their members new business and utilize excess capacity because few businesses run at 100 percent capacity. In conducting this new business, a company accumulates the exchange’s currency, which can then be spent with other exchange members in place of cash.
Here’s an example of how a modern, exchange-facilitated transaction would work involving a printer: Say an exchange member dentist needs new brochures printed. Instead of paying cash, she goes to a printer within the exchange and pays for the brochures using trade dollars she earned through providing dental services to other exchange members. In doing so, the dentist has kept cash in the bank. It’s that easy. And this is just one way she could have spent her earned trade dollars. She could have also spent them to eat out at a restaurant, purchase legal services, advertise, or pay for janitorial services.
An exchange also provides companies with the resources needed to use their trade dollars successfully. In addition to the network of businesses that accept its currency, a trade exchange provides various marketing channels to bring businesses new customers. So when used as a strategic business tool, trade exchanges can help a company improve its bottom line by increasing its sales, accessing new markets, capitalizing on surplus capacity and inventory, and saving cash.
A trade exchange also provides monthly account statements that track all sales and purchases, access to an online marketplace and directory, and access to a customer service representative when needed. Because a trade exchange offers these personalized services, members pay minimal transaction fees when they buy or sell over the network. And these fees are easily offset through increased cash flow as well as new business.
Before joining an exchange, however, a business must know its variable costs, such as ink and paper, since labor and fixed expenses will not increase from extra business earned through an exchange. By knowing his or her variable costs, a business owner can determine the difference between the cost and the price of what is purchased via trade.
Take, for example, a $10,000 ink purchase. If a printer purchases this on a cash basis, he simply writes a check and covers the cost out of savings or cash flow. If he were to make this $10,000 purchase through a trade exchange, assuming a 35 percent variable cost and 12 percent transaction fee from the exchange, the actual cost of making the purchase would be $3,500 and the transaction fees would be $1,200. Therefore, the cost of the exchange purchase would total $4,700, saving the printer $5,300.
The Legitimacy of Trade Exchanges
Generally speaking, business purchases made through an exchange are tax deductible. Furthermore, costs incurred to perform work for customers paying through the exchange are also deductible. To be clear, conducting business through a trade exchange is not a tax avoidance tool and has no inherent tax advantage or disadvantage.