Government Issues and Politics
Insurance and Employee Benefits
Business and Economic Info
Human Resources and Safety
Education Policies and Practicies
Training and Consulting Services
Welcome to CBIA's Training and Consulting site!
Small Business Human Resources Workforce Development Your Questions Answered Success Stories

September 2003 — Vol. 81, No. 8

SMALL BUSINESS

Can your business benefit from barter?

By Chris Amorosino

Free-lance writer in Unionville

The International Reciprocal Trade Association (IRTA) estimates that in North America about 400 commercial barter-exchange companies account for $1.7 billion of traded goods and services annually. Barter can reduce surplus inventory, bolster sales and ensure that production facilities run at near capacity.

So, can bartering help your business?

Simply put, bartering is trading one product or service for another without exchanging cash. A business can charge retail value for goods and services in trade dollars, instead of selling them for reduced rates in cash or having them go unsold. Frequently barter is used to move excess inventory.

“An ideal client for barter is any company with unused capacity,” says Debbie Lombardi, president and founder of Barter Business Unlimited in Newington. “It could be a radio station with open advertising times, a hotel with empty rooms, a restaurant with empty seats, a manufacturer or anyone with excess inventory.” The only requirement, Lombardi adds, is that the company wanting to barter must be able to handle more business.

“If you’re an accountant, attorney, dentist or doctor, unless you’re seeing a [client or] patient and billing time, you’re not making any money. If you have holes in your calendar, there’s a reason to trade,” says Jim Hamill, manager of Exchange Enterprises in Stratford.

Produce business or conserve cash

Bartering can produce new business and allow companies to expand their market. It also conserves cash. John Leo, CEO of the Masters’ Collection in Somersville, has bartered for more than eight years. Barter produces about $75,000 of business per year for his fine-art reproduction company — business Leo feels he would not receive otherwise. He has used his barter credits to buy advertising, an answering service, car repairs, printing, cleaning services, trash removal, travel and other merchandise for the company.

Most barter done through trade exchanges

Joining a trade exchange eliminates the restrictions of one-on-one trading where each business must want what the other has to offer. Instead of using cash for purchases, exchange members use trade dollars or credits they earn by “selling” products and services to other exchange members. For example, a Web site developer might earn trade credits by revamping a printer’s Web site, then spend those credits to purchase advertising in a publication owned by a third member. The exchange functions as a bridge between members.

Exchanges usually have trade consultants to explain the process, act as a third-party record keeper, and market each member’s goods to other members. Most exchanges list members in a directory and promote them on Web sites and in publications.

Joining a trade exchange usually involves an upfront fee and a commission on each transaction. Sometimes a monthly account maintenance fee is also charged (often $10 to $20). Annual fees can range from $200 to $700. The commission might be paid by the buyer or split evenly between the seller and buyer. Hamill says the standard commission in the industry is 10% to 15%.

Most exchanges closely control the number of members they allow in the same business segment. It doesn’t do a business or the exchange any good if there is no demand for that business’s products or services among the members. Good exchanges also watch for members whose businesses reach capacity and can’t accept more barter. That often indicates a need to add new members in that business segment.

Tax and other caveats

One thing to keep in mind is that bartering doesn’t provide any tax advantages. Tom McDowell, executive director of the National Association of Trade Exchanges in Mentor, Ohio, says barter income is treated the same as cash income for state and federal income-tax purposes.

Also, Connecticut sales and use tax requirements apply to bartered transactions just as they would for a cash transaction. When members of an exchange barter, they add sales tax to the product or service’s fair market value to determine the amount of trade credits to charge. The seller must then report the sales tax on the Connecticut Department of Revenue Services’ Form OS-114, the Sales and Use Tax Return.

Exchange Enterprises’ Hamill adds one other caveat: He cautions his customers not to trade more than 10% of their annual gross revenue. Trading too much might push away cash opportunities. Trading is a supplement to, not a replacement for, cash business, he says.

But many barter veterans consider trading the next best thing to cold, hard cash.

 

[back to top]

 

Related article: