USA TODAY
Posted 2/23/2004 1:35 AM Updated 2/23/2004 1:45 AM
Barter makes for good business
Q: Steve, both my husband and I have businesses that are part of a barter network. We go out to dinner, get our dry-cleaning, spa services, etc. this way. We have also purchased computers, catering services, and carpet cleaning through barter. I just wanted to mention it, because lots of small businesses find it a way to get more people in the door and can use the barter money for great stuff.
Ellen, Rochester, N.Y.
A: I couldn't agree more, Ellen. When I first started my law practice, I had a client come in who had a lot of legal problems. It turned out that he was a general contractor, so we made a deal — I would do his legal work and in exchange he would do some work on my house. In the end, I spent a year fixing his legal problems and he spent a year refurbishing my house, and not a dollar was ever exchanged between us. So yes, I am a big believer in business barter.
There are two forms of barter. The traditional method is what I used: a quid pro quo (literally, "this for that" — my time for your time or product). Barter can also be done through a barter exchange which acts as a sort-of middle-man. The exchange issues "barter bucks" to you when you do something for someone else in the group. You can then use those "bucks" to purchase the goods or services form anyone else in the group. For example:
• A computer consultant who flies a lot can trade his air miles for house cleaning
• The house cleaning company can exchange its services for printing services
• The printer can then use its barter bucks for computer help
• And around it goes
According to the International Reciprocal Trade Association (IRTA) almost a half a million small businesses use commercial barter exchanges every year. Moreover, the IRTA says that almost $10 billion in sales is transacted each year by the commercial barter industry.
It's not hard to see why. For the small business, there are definite benefits to using barter to augment one's normal business.
1. You can get rid of excess assets. First, barter allows you move assets and products that are not being used. Store owners have inventory, restaurants have empty tables, lawyers have free hours, and so on. Barter allows such entrepreneurs to trade unused assets to people who want them, people who may not otherwise utilize their business.
2. You create new customers. Because of number 1, new people are exposed to your business. By joining a barter group, you may find that people who bartered for your goods or services may become regular clients.
3. Barter saves money. When you use your time rather than your money, you save money. What would it have cost me in actual dollars to have someone work on my house for a year?
Barter is especially good for service businesses as it is all but impossible to bill out all of your time, and time unbilled is income lost. Barter allows you to turn excess hours into money. It is not uncommon for businesses who barter to have 10% of their income come from barter.
If this idea appeals to you (and it probably should) it is important to know that business derived from barter is income for tax purposes. The IRS treats barter transactions just as they do cash transactions.
Today's tip: As with everything else, the Internet has changed barter, too. Online barter exchanges have cropped up across the Net and are great places for small businesses to get started. As with a non-virtual barter exchange, a good virtual barter exchange should:
• Keep track of transactions
• Act as an intermediary
• Issue the currency
• Handle paperwork
• Keep its fees to a minimum
Ask an Expert appears Mondays. You can e-mail Steve Strauss at: sstrauss@mrallbiz.com. And you can click here to see previous columns. Steven D. Strauss is a lawyer, author, and speaker who specializes in small business and entrepreneurship. His latest book is The Big Idea: How Business Innovators Get Great Ideas to Market. You can sign up for his free newsletter, "Small Business Success Secrets!" at his Web site — www.mrallbiz.com.
