B2B Bartering

In today’s economy, businesses are looking at every possible way to conserve cash — and that includes bartering with other businesses to offset their expenses.

The Bottom Line — Alternative Currency Trading goods and services makes good business sense By Jon Burstein Originally published in the Aug/Sept 2011 issue of 850 Business Magazine

Modern twists on the ancient practice of bartering can help businesses conserve cash while fulfilling their potential in a tight economy.

What might have otherwise been an empty room at a bed-and-breakfast could be bartered for carpet cleaning. A dentist with a few free hours could fill that time seeing patients in exchange for much-needed auto repairs by a local mechanic.

Bartering, though, is now a bit more complex than the days when a farmer would walk over to a neighbor’s house and trade eggs for wheat. There are bartering groups, like the Gulf Coast Trade Exchange in Pensacola, that create networks of businesses trading their goods and services. There are Internet websites such as Craigslist that offer bartering opportunities that range from the serious to the strange. But just because cash isn’t involved doesn’t mean the transaction isn’t reported to the Internal Revenue Service come tax time.

“Bartering has increased tremendously the last three years, with business owners looking at barter exchanges to provide them an alternate way to get new business,” said Ron Whitney, executive director of the International Reciprocal Trade Association, a Virginia-based organization that promotes bartering.

The goal of bartering is not to displace cash business, but maximize unused business capacity, said Whitney, whose association counts more than 90 barter exchanges as members.

While there are no firm numbers on the volume of bartering that goes on in the United States each year, Whitney estimates that as much as $12 billion of goods and services are traded annually through barter exchanges across the globe.

A barter exchange acts almost like a bank, with what’s known as “trade dollars” serving as currency. For example, a florist may join a barter exchange, and a restaurant may want $200 worth of floral arrangements. If the florist agrees to perform the work, it then has $200 in trade dollars in its account.

Those trade dollars then can be used to get services or goods provided by other members of the barter exchange.

“The strength and value of a barter exchange is a function of the number of businesses it has and the scope (of services and goods offered),” Whitney said.

Barter brokers typically charge a transaction fee, and there also may be monthly maintenance charges.

The Gulf Coast Trade Exchange, founded in 1977, now has more than 500 members stretching from Gulf Shores, Ala., to Destin, with businesses ranging from accountants to print shops.

Fran Crumpton, who helped organize the trade exchange with her late husband Bob, said there’s a renewed thirst for bartering reminiscent of the early 1980s when the economy dipped.

“In the last couple of years, there seems to be another surge,” Crumpton said.

Barter exchanges provide a good venue for businesses to make new contacts. She estimates that about 95 percent of Gulf Coast Trade Exchange’s growth has come from member referrals.

In addition, background checks are done on each business applying for membership. In the Exchange’s 35 years, there have only been two disputes that needed to go through the group’s three-step mediation process.

Barter exchanges also network with similar groups across the country. For example, members of the Gulf Coast Trade Exchange do a great deal of trading with a New Orleans barter group, primarily for hotel rooms and restaurant meals.

The array of goods and services available through bartering networks can be surprising. Crumpton once fielded a request from a business owner who wanted to use the barter exchange to get a hair transplant. She was able to refer him to an out-of-state exchange and he got a $7,000 procedure done and walked away with a full head of hair. And he didn’t spend a single dollar.

“If you can imagine it, you can trade for it,” Crumpton said.

Stuart Bainter, station manager of the BLAB Television Network in Pensacola, said that over the course of two decades as a member of the Gulf Coast Trade Exchange, he has traded for printing, clothing, food, computers, T-shirts, painting, building supplies and auto repair. BLAB produces television programming from Mobile to Destin, reaching 550,000 homes.

Bartering enabled Bainter to finance one of his childhood dreams: He went on a two-week, first-class railroad trek across Canada. He estimates that bartering composes about 5 percent of his business.

But not all bartering exchanges experience success. While the Gulf Coast Trade Exchange has proven popular, at least two attempts to set up similar barter organizations in Tallahassee have fizzled within the past decade.

Such problems in setting up barter exchanges are not unique. Florida Barter, a trade exchange company with more than 1,600 clients in the Tampa and Orlando areas, has seen about 20 competing networks come and go over the years, said Dominic Berardi, Florida Barter’s vice president of business development.

“Bad businesses come in for the quick buck,” Berardi said.

Tony Miller, the licensee for a bartering group that recently tried to enter the Tallahassee market, said it’s difficult to sell the concept of a trade exchange to businesses unfamiliar with such networks. Many businesses will take a wait-and-see approach when it comes to getting involved in a bartering exchange.

In recent years, bartering websites have sprung up, along with forums such as Craigslist, that offer a spot for people to trade their services. The barter classified ads on Craigslist for the Tallahassee area recently included a photographer offering picture-taking sessions in exchange for manicures, and a tattoo artist willing to ink people for guns, jewelry, cars and water skis.

Keeping it Legal Even though cash may not be trading hands, bartering income still must be reported to the Internal Revenue Service.

• If a business barters in excess of $600 in services with another business, those payments need to be reported on Form 1099-MISC.
• If you are bartering your services through a barter exchange, you should receive a Form 1099-B, Proceeds from Broker and Barter Exchange Transactions.
• The IRS recommends you treat barter income as you would any other business activity, keeping good records and consulting with the IRS or a tax professional if you have any questions.