A Barter Economy

Exchanging business services can help slash startup costs for some entrepreneurs.

By Robert Jones

Opinions expressed by Entrepreneur contributors are their own.

Let's face it: 2007 wasn't the best time to start a new business in Miami Beach. The real estate market had already crashed, and spiraling gas prices would soon dent the vital tourism industry.

So when Cleveland Cook, 40, found the need to hire an accountant for Can I Have Your Attention, his new advertising and branding agency, what he really wanted to know was, "Can I have a deal?"

Fortunately he found Claudia Peralta, a former corporate accountant who was just starting her own accounting practice around the same time. The two worked out an arrangement: Peralta would do all of Cook's number-crunching in return for a logo, website, postcards and "Everything else she needed to kick-start her business."

Now approaching $100,000 in sales, Can I Have Your Attention is establishing a reputation and a client base despite the slow economy. But the company still has to keep expenses down, so cashless trades with other professionals make sense.

"Especially in this economy, barter helps out because it keeps your overhead low," Cook says. "At the end of the month, the money you save goes right to the bottom line."

He's not the only one who thinks so. As the cash economy cools, the cashless economy is heating up. These days, more entrepreneurs are experimenting with barter. Direct barter, however, requires serendipity. Both parties must be looking for just the right product or service at just the right time--and both must be willing to trade, rather than sell.

Barter for Starters
  • Barter News is the bible of the industry. Back copies are available online at BarterNews.com.

  • To try direct barter, check your local edition of Craigslist.org.

  • There are hundreds of state and local barter exchanges. For a clickable map, visit the National Association of Trade Exchanges.

  • Looking for a national exchange? International Monetary Systems and Itex Payment Systems are two of the largest. Others are listed at Barter News, but focus on local support, rather than sheer membership size or volume of trades.

  • For tax purposes, the IRS considers barter transactions the same as sales. Commercial barter exchanges track members' transactions and report them annually on a Form 1099-B.

  • That's where barter organizations come in. They act as a kind of bank, issuing credits or scrip that can be traded among their members instead of cash. For example, a local store might reward its top salespeople with a day-long yacht charter. If they are members of the same barter group, the yacht captain can be paid in "trade credits," which are deposited into his account. When demand gets so strong he can't find the time to clean his house, he checks the membership directory to find a cleaning service that accepts credits, then the cleaning service spends its credits to print promotional fliers, and on and on it goes.

    All those transactions can add up to a lot of real value, even if it's not real money. The International Reciprocal Trade Association estimates that half a million small businesses using commercial barter exchanges generate some $10 billion in "sales" each year.

    Of course, that kind of sales volume doesn't come free. Commercial barter exchanges typically charge an annual membership fee plus a commission of up to 10 percent per transaction. In return, they promise not only to help conserve cash, but also to find new business.

    "We bring our clients new customers that they wouldn't have if they weren't part of the network," says Wendall Stroderd, a broker with Itex Payment Systems, a large national exchange. Stroderd's Melbourne, Florida, office did $10 million in trades last year--due, he says, to the brokers' proactive role in bringing buyers and sellers together.

    Even so, barter will work better for some businesses than it will for others. Jeff Browne, 50, learned that the hard way when he signed up his two central Texas Hallmark shops with a barter exchange service several years ago.

    Initially everything seemed to work perfectly. Other members came into Browne's stores, chose their cards and gifts, and presented him with an exchange voucher. Browne then submitted the vouchers to the exchange service and watched the credits in his account pile up.

    "I'd get all this money in my account, and then I'd have trouble finding a way to spend it," he says. "Everybody was offering labor rather than goods. The problem was, I didn't need my house painted or my driveway resurfaced. "

    For Browne, the frustration with barter was similar to that voiced by timeshare owners: Despite the promise of 50,000 units to choose from, there never seems to be a vacancy for just the right week in just the right location. When he left Texas four years ago to pursue a new business venture in Santa Fe, New Mexico, Browne says he had about $8,000 still sitting in his account.

    "Finally I just turned it in and said, 'Here, take it back. I'll never be able to use it,'" he says.

    Now the publisher of Natural Awakenings, a health magazine with 13,000 readers in northern New Mexico, Browne is still engaged in barter, though on a much smaller scale. Every month he trades a small ad to a local massage therapist in exchange for a free treatment right after his deadline.

    "It's a treat I look forward to every month," he explains. "After sitting at the computer for several days, it's something for me . . . and I probably wouldn't spend the cash on myself if that was my only choice."

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