Bartering Can Offer an Edge in Difficult Times : Trade: Businesses large and small use the non-cash exchange of goods and services to stretch their hard-earned dollars.
Sylia Francis had always wanted to take piano lessons but couldn’t afford them. So when the 29-year-old Manhattan travel agent found herself caring for the children of a concert pianist, she traded her baby-sitting hours for instruction and practice time.
In Mesa, Ariz., meanwhile, McDonnell Douglas Helicopter was saddled with excess nuts and bolts that were officially worth $16 million, but that would bring only $500,000 from liquidators. So the company traded the items to a corporate barter concern for 16 million trade credits, which McDonnell can use with cash to obtain the services and merchandise of other corporate barterers.
Barter--the non-cash exchange of goods and services--is a time-honored way of doing business. But in hard times it can become a particularly effective way of remaining competitive or getting otherwise unaffordable items.
“Bartering is for people who have the time and not the business,” says Robert Meyer, editor and publisher of Barter News, a trade publication in Mission Viejo. “For years, barter has been associated with an underground economy. But we’re talking big business here. And it’s growing. Many smaller companies are doing 6% of their business in a trade manner. They use it as a competitive edge.”
It wasn’t until 30 years ago that bartering became an industry, after the advent of small computers made it possible to cheaply track many transactions involving different parties at different times. During the past decade, the business has grown from $200 million a year to $1 billion, Meyer says. Internationally, he says, the leap is greater and barter now accounts for about $1 trillion--or a quarter--of international trade.
Lots of people barter informally. An antique dealer recently approached Greg Murray, 48, a New York English teacher with a part-time furniture refinishing business, about restoring a Victorian dresser in exchange for an antique pool table and a radial arm saw, worth $1,600. Says Murray, “The job they wanted me to do was worth $350.”
Others trade through barter organizations (also called trade clubs), which serve as brokers between small businesses wishing to trade services. To trade clubs, small businesses are those with less than $10 million in sales or 100 employees for service-oriented businesses or 500 for manufacturers.
About 200,000 such businesses take part in trade clubs, says Meyer, and there are said to be 350 barter organizations. Companies or individuals with tradable skills--writing, for example, or accounting--barter their services for trade credits, which they redeem for the services or products from other club members.
For conducting the transaction and bookkeeping, the club takes a commission of 10% to 15%. Most require an initial membership fee of $300 to $500.
“It’s a recession boost--a way for business to get new business by marketing excess time or product,” says Stephen Friedland, president of Burbank-based Business Exchange International (BXI), a leading barter club with 10,000 members and 49 offices in the United States, Canada and Mexico. “Even in good times, bartering makes sense. You can purchase with trade, so that you can save your cash.”
Take Al Green, the owner of Bay Pharmacy in Pacific Palisades. He joined BXI 11 years ago when he hung up a shingle. “It’s great for a new business to get business you wouldn’t normally get because people come from all over. When I was just starting out, I needed painting and carpentry done. I didn’t want to put out cash and it was easier to exchange merchandise.”
Or take Tustin lawyer Gary W. Tannehill, who says belonging to two barter clubs has increased his client base by 15% or 20% and brings in additional business when barter clients refer cash-paying friends.
“Barter closes the margin between the limits of cash sales and a business’ full capacity,” adds Paul Suplizio, who heads the International Reciprocal Trade Assn. For example, he says, a hotel has the same overhead costs operating at full or half capacity. While filling empty rooms with barter clients doesn’t earn cash, those guests may still spend money in other parts of the hotel, such as the bar. And the hotel then has barter credits to spend on things such as advertising or cleaning services.
Barter is not without its pitfalls. First of all, it’s taxable according to the fair market value. The nature of the barter determines whether it is subject to sales and/or income tax.
“Bartering lost a lot of its effectiveness when it become a taxable service,” says Robert Giannangeli, an Internal Revenue Service spokesman. “We trace it the way you trace other sources of unclaimed income--looking at returns, patient lists, appointment books. The street corner type--’You do this for me, I do for you’--is harder to track down.”
Second, barter is not universally accepted. Trade limits you to the offerings of another individual or barter club member. Third, let the trader beware. Unscrupulous barter businesses have been known to sell memberships without providing services. They can also devalue trade credit by adding more to the pool than is backed up in services, just as strapped governments can cause inflation by printing money. It’s important to research clubs and their members before joining.
And finally, some individuals feel less cash has less cachet. A 35-year-old Los Angeles actress needed to exercise her skills between acting jobs, but didn’t have the money for a workshop. So she traded her time working at a local theater for acting classes there.
“It’s not something I’m proud of,” she says, too embarrassed to be named. “It’s something I have to do in order to remain competitive in my field. And I’d rather use my money for things I can’t barter, like head shots and mailings.”
Corporations also barter. About 100 organizations exist for corporate-level bartering, although 10% of those handle most of those transactions. At this level, the barter company buys merchandise from one corporation for trade credits, which, with cash, can then be exchanged for goods and services.
Within Fortune 500 companies, international barter is handled by special divisions. Here the trading is direct; no credits are used. Pepsi-Cola International, for example, traded soda syrup to the Soviet Union for Stolichnaya vodka. (Strictly speaking, the syrup is sold for rubles, which aren’t freely convertible to dollars. So Pepsi uses them to buy a product that can be sold in the United States.)
Home computing may step up individual bartering through electronic bulletin boards.
“It’s not going to replace cash,” Meyer says. “But if the option is to make a deal through trade or there’s no deal, then you barter.”
Bartering Tips
When considering barter companies, keep these points in mind:
* Barter organizations should be able to produce a list of operating officers, a client list and contracts with other vendors, and commit to writing on delivery of products.
* Check to see that client members are satisfied with and active in the club, that their services are competitively priced, located nearby and are what you need.
* Investigate barter organizations and their members by calling your local Better Business Bureau or contacting the International Reciprocal Trade Assn. at 9513 Beach Mill Road, Great Falls, Va. 22066. Newspaper clippings, available by computer via several databases, can also help.
* Read the contract.
* Once you’ve joined, don’t sell more than you can buy in trade.
* Before enlisting the services of a member business, shop around to see if you can get a better deal elsewhere paying cash.
* Barter is taxable. Don’t do business with a company that uses barter to avoid taxes.
