Most business owners have at least a few good yarns to tell about a trade gone screwy (possibly involving a goat, if you’re lucky). No hard statistics exist on the volume of bartered transactions because much of it is off the books. One accountant said it happens, “all the time.”
Sometimes Scott Brown likes to treat his employees to boxed lunches and trips to the spa for free massages. Only Brown doesn’t does write a check to the catering company or the masseuses. Nor does he pull out a wad of cash when it comes time to pay People’s Tax Service. Instead Brown, the owner of telecommunications vendor Centritech Solutions Inc, reverts to the oldest of all forms of commerce: bartering. As a member of James River Trade Exchange, he trades services with other Richmond-area businesses to the tune of around $5,000 a year.
Instead Brown, the owner of telecommunications vendor Centritech Solutions Inc., reverts to the oldest of all forms of commerce: bartering. As a member of James River Trade Exchange, he trades services with other Richmond-area businesses to the tune of around $5,000 a year.
“It’s allowed me to leverage some of the other businesses in the exchange – to use their services without having to put out hard cash,” Brown said.
Brown is not alone. Anyone who’s worked in small business (or in certain departments of a big business, for that matter) is likely familiar with the ubiquity of non-cash trades. Most business owners have at least a few good yarns to tell about a trade gone screwy (possibly involving a goat, if you’re lucky). No hard statistics exist on the volume of bartered transactions because much of it is off the books. One accountant said it happens, “all the time.”
Indeed, bartering has likely been around since the days of cavemen. And in Richmond bartering seems to be gaining popularity. Two barter exchanges here say business is growing, perhaps because companies are trying to preserve cash in case of a recession.
Cindy Creasy Woolfolk started James River Trade Exchange around four years ago. She said she’s signed up 19 new members since the middle of December, with six more in the pipeline. Her exchange has around 200 members. Meanwhile, Richmond-based Bancmarc, which was started in the early 1980s, has around 500 members, and according to the company that number is rising.
The main advantage of bartering, area business owners say, is that you get something almost without paying for it. Several trade exchange members explained it this way: Let’s say, for example, you have a staff of six employees in a service-based industry. If your personnel can handle taking on another project without a drastic strain on productivity, the costs are negligible. Employees are already getting paid a salary, after all, and expenditures for materials are typically minor in relation to the cost of labor. Meanwhile, instead of paying cash for something the business might need, you can pay for it using “trade dollars.” (More on that later). All told, work purchased through barter can potentially be completed at a considerably lower cost.
How bartering works:
Barter is really the essence of commerce. In its simplest form it can operate at the most informal of levels: Exchange bag of oranges collected from the backyard for one cutting of the grass. Seems simple enough, and everyone is happy. Only, sometimes one business owner doesn’t really need the services of the guy who may want to barter.
Enter barter exchanges, which operate by creating a credit system or virtual currency that can be “spent” at any business in the exchange. Companies earn trade dollars for services rendered and can spend those dollars on any other service in the exchange (emergency or expedited work is usually not included, nor do members have to offer all their services or products). The exchanges recruit a diverse array of businesses so members have places to spend credit. Printing companies and car-repair shops are always in high demand, Woolfolk said.
Both Richmond-area exchanges charge a one-time fee of $500 to join. Then a company pays a percentage of each transaction in cash to the exchange. James River charges 10%, Bancmarc 15%.
For accounting purposes, the exchanges keep track of trading and file tax forms. Ryan Losi, an accountant with Piascik & Associates, said it may come out as a wash for tax purposes if cost such as wages and materials equal the fair market value of the services received. If not, then there will be income on the difference but regardless of the outcome, it must be reported. “Both report their revenue and both report their costs,” he said.
Barter exchanges then try to regulate members just like a government might.
“We’re running an economy and we’re like the treasury,” Creasy said. “We can’t have inflation, and cant’ let people inflate their rates,” she said, meaning businesses must charge fair rates for their services. James River Trade Exchange members pledge that they will price services fairly.
Bill Meacham said his exchange operates like a small town with its own laws of supply and demand. “In my economy, if I go get a dentist and find out that clients need dentistry, I add another dentist. I keep building the directory,” he said. Meacham recently bought a trade exchange in Virginia Beach called The Barter Authority. So how much barter should a small biz do?
Even if a business’ good or service is in high demand, most commerce should still be conducted with U.S. dollars or better yet, Euros. Payroll and taxes, after all, can’t be paid in garbanzo beans or consulting services. (Thought experiment: send a coupon for ten hours of dance lessons to Virginia Department of Taxation…)
Woolfolk says that no business should do more than 6% in trade. “Sometimes if people aren’t careful, they can get themselves in trouble by overextending the services they provide and taking on too many barter sales,” she said. “Then there’s no where to spend them quickly.” Meacham says that figure can rise to as high as 15% or 20%. Using trade exchanges can help reduce costs and buy at wholesale prices, said Meacham, who’s written a book called, “Smarter Companies Barter.”
Charles Robins, owner of City Publications, said he wishes the James River Trade Exchange had more landscaping businesses so he could cash in some of his trade dollars. City Publications is a high-end printer.
“I can’t take on but so many trades until I end up with a large balance,” he said. “But it’s a great way for young businesses starting out to conserve cash,” Robins said, adding that he sees more people bartering now that the economy is slowing.
Trade exchanges can be useful networking tools as well, as trade partners sometimes turn into cash customers and in turn can spread the word about a young company.
“It’s a good way to get a network of 200 businesses,” Brown said. “You can give out business cards. I’ve got several clients through referrals, and had I not been a member of the exchange, I’d probably not met those companies.”
The Business of Barter, Blue Ridge Business Journal
How Swap Deal Pays Off, Inc. Magazine
I’ll Trade You a Baby Crib for a Buzz Saw, Business Week