Barter 2.0: Money Reinvented
This Practice Gives New Meaning to the Phrase ‘Trade Policy’
By TRISH TRUITT
The term ‘business barter’ may sound like an oxymoron. The ancient form of making exchanges without money in our high-speed world of commerce doesn’t seem to be a natural fit.
That’s because barter in its most basic form relies on two people having equally valued needs that the other can fulfill. Economists call that a dual coincidence of wants, and say that they’re rare — which, in turn, makes barter an impractical and sticky method of transacting business.
However, barter is alive, well, flourishing, and, in one particular form, has transformed itself into an $8 billion industry.
Third-party bartering networks act as a central clearing or brokerage house. They enable parties to split the trade up into two parts, the purchase and the sale. Once a sale is made, an electronic currency is credited to the seller’s account for the corresponding amount. The seller can then use that currency (usually called ‘trade dollars’) to buy anything else for sale in the network. In essence, the barter exchange network acts as a private market brokerage and monetary system. Barter exchange networks make their money off membership and transaction fees.
Driving Factors
Ron Whitney of International Reciprocal Trade Assoc. says the engine that drives barter is the unused capacity that every business has. “Think of a hotel,” he explained. “In good times they have maybe a 90% occupancy rate. In a down economy they drop to a 50% occupancy rate. What they’re bartering is the unsold hotel rooms.”
Excess capacity, whether in the form of empty rooms, seats, space, or open appointments still costs businesses money to maintain. Barter exchange networks enable sellers to turn what could have gone to waste into an asset by giving them a chance to sell and earn trade dollars for them instead. Once earned, those trade dollars can then be used to buy anything anyone else offered for sale in the network. In fact, most barter exchange networks also have reciprocal agreements with other networks that allow them to sell and buy from each other’s networks.
Similarly, James Varano, owner of the barbecue-and-blues eatery Black Eyed Sally’s in Hartford, employs a strategic approach to spending his trade dollars.
“You need to be creative, flexible, and have a plan,” he said. “Some people buy luxury items like vacations and hot tubs. I prefer to apply mine to business purchases. My strategy is to look for cash business expenses and replace them with trade-dollar purchases. They’re still tax-deductible no matter which kind of dollars you buy them with.”
In most cases, the IRS sees both trade dollars and regular dollars as simply income or money (though they only accept U.S. federal dollars for payment of taxes). Therefore, barter has no inherent advantage or disadvantage tax-wise. What that means is that a sale within an exchange network for trade dollars has to be reported the same as a sale made for cash. It also means that a business purchase made with trade dollars can be written off just like one bought with cash
Shopping on Trade
Once they understand how it works, the first question most people ask is, ‘what can I buy?’ Debbie Lombardi of Bristol, Conn.-based Barter Business Unlimited (BBU), says the answer really depends on what you want, and your timeframe.
“Ultimately,” she continued, “it comes down to your network and the expertise of your trade broker.”
Like a good travel agent, trade brokers play a constant game of matchmaker. They help members promote what they have to sell and help them spend their trade dollars by locating items on clients’ wish lists.The range of what can be bought is quite impressive.
Jeffrey Cohen of ImageWorksLLC, a Web and e-commerce design company in Vernon, Conn. uses his trade-dollar currency for clients, networking, and keeping his employees happy. “I do seven business meals a week between clients and other business associates. We’ve had company events catered as well.”
On the entertainment side, vacations, hotel rooms, banquets, catering, music, and sporting events are always popular.
Van Houten of Advanced Air Quality, a commercial air duct and kitchen exhaust cleaning firm in Springfield, offered how he used barter exchange to curb costs. “One special celebration back in October would have cost $7,000 if I had to pay cash, but I just used trade dollars instead.”
There are a lot of surprising trades, too, said Cohen. “My favorite buy on trade dollars was a bright blue 1976 vintage Corvette.”
Varano has even bought love on barter exchange — puppy love, that is. The newest member of his family, a black cocker spaniel named Lucy, was purchased through his network along with her shots and initial vet exam, an invisible fence for the yard, as well as collars, leashes, treats, and toys.
“The girls wanted a puppy for Christmas, but I knew it could all add up pretty quickly. I just told my trade broker, and they set it all up. It doesn’t matter if Lucy was bought for cash or trade; my daughters love her just the same.”
Todd Demers, owner of Family Wireless cell phone retailers in Wilbraham, says he’s bought everything from bottles of wine to carpeting, mountain bikes, dental work, and even fine teak wood furniture. His most prized trade, however, took 10 year to find: a brand-new Fender 52 Telecaster Hot Rod electric guitar. “I wasn’t going to pay cash or full price for it. The retail was $2,800. I got it for $2,300 and paid in trade dollars.”
And growth is certainly happening. Although the last official industry study in 2007 showed a steady 10% growth pattern, IRTA reports barter exchange networks are seeing record growth in the last year with some networks doubling their trading levels and new members at previously unheard of percentages.
Barter exchange networks also claim another surprising benefit — more cash-paying customers from their trade-dollar customers.
Cohen says his Web design firm leverages its exchange network clients in multiple ways. “There are two ways that barter pays off in cash terms,” he said. “One is that we only do design work on trade. If a customer likes us and adds on more services that we don’t trade, like hosting, they become cash customers, too. Also, our barter exchange customers give us cash referrals on a pretty consistent basis.
read more at: http://www.businesswest.com/details.asp?id=2197
Posted by:
David Melse
Trade Exchange Canada,
748 Bernard Avenue, Kelowna BC V1Y 6P5
Office: (250) 717-0026 Mobile: (250) 864-0529
Website: http://www.tectrade.ca/
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