Business owners look to bartering to keep costs down
Published: Thursday, June 14, 2012
Updated: Thursday, June 14, 2012 10:06
DALLAS - A player piano. A camera. Even accounting services.
Irving, Texas, television producer Joel Stephens has acquired those products and services without paying a dime.
He's among the small business owners who use the ancient strategy of trading services and products. It's called bartering.
Bartering is the exchange of goods or services without using cash. An estimated 400,000 businesses participate in bartering through third-party exchanges _ and more people trade directly with each other.
Stephens wouldn't put a value on his 25 years of bartering, but he acknowledged that he trades for nearly everything for his advertising agency and a TV production company.
"Everybody barters for everything," Stephens said. "It's simply a matter of currency."
He and other small business owners say they barter to boost revenue, preserve cash flow, put excess capacity to good use and gain access to new markets. They say fair, quality trades can lead to referrals for cash-based business.
Bartering tends to increase when times are tough and cash flow and credit are tight. Just look at the proliferation of barter exchanges, online sites and swap sites in the last few years.
"There's no question that the recession has increased trading through barter exchanges," said Ron Whitney, executive director of the International Reciprocal Trade Association. "We've seen a significant increase for the last three years from businesses interested in finding an alternative marketplace for additional business to make up for what was lost in the recession."
Take Bruce Painter, a leadership coach in Frisco, Texas. He plans to start bartering to ease his cash flow.
"I'm hungry to save money, and I saw that this is the type of service where you can really save a lot of money," Painter said. "This economy hasn't been a lot of fun."
Individuals and businesses can trade directly with each other in a private barter or through roughly 500 organized exchanges nationwide.
TV producer Stephens trades on barter exchange Itex because its rules and regulations mean he usually doesn't have to "worry about someone taking you to the cleaners," but he also initiates private barters for hard-to-find items.
Barter exchanges typically charge users a membership fee, monthly fees and transaction fees. They also can extend credit to members.
Exchange members trade goods and services to each other using barter or trade dollars, which are virtual dollars that are earned for "selling" goods and services and can be saved to acquire other items. A new exchange member can begin bartering with a small line of credit from the exchange or by making a sale to build barter dollars.
Austin, Texas-based Vantage Barter saw its exchange members grow more than tenfold in its second year, which ended March 31, said managing partner Brad Versteegh. It has a few hundred members and belongs to BCLsoft's network of thousands of users.
Vantage Barter users pay a $495 lifetime membership fee plus $15 a month. In addition, sellers pay a 1 percent transaction fee and buyers pay a 10 percent transaction fee. It tracks trades and kicks out any member who violates its rules, such as inflating prices, after one offense.
In the eyes of the Internal Revenue Service, a barter transaction is just like cash. The IRS treats barter as two separate cash transactions: a sale (income) by one party and a purchase (an expense) by the other. Some businesses may deduct bartering as an expense.
"If you're doing a lot of bartering, there's the potential for an IRS audit because not everyone reports a (barter) transaction," said Cory A. Strange, a certified public accountant in Lewisville, Texas. "The IRS is trying to crack down on business-to-business barters."
An IRS spokesman declined to comment.
The fair market value of barter sales and earned barter dollars are considered taxable income and must be reported to the IRS on 1099-B, Proceeds from Broker and Barter Exchange Transactions. Sales taxes, income tax, state franchise tax and self-employment tax also apply.
Barter exchanges keep track of trades and trade dollars and must issue 1099-B forms each year to its clients or members.
Debbie Sardone tries to make sure her barter sales and purchases balance out so she has no tax implications.
She began bartering about 10 years ago when her Buckets & Bows Maid Service in Lewisville declined and cash flow tightened after the Sept. 11, 2001, terrorist attacks. Now she barters up to about $20,000 a year on Itex.
"I use bartering to build relationships with my customers and my employees," said Sardone, who's so enamored of bartering that she wrote a book about it, "Barternomics," in 2010. "Bartering should save you money. It only costs you money if you trade for frivolous things."
Sardone recently initiated a three-way barter for a "Margaritas and Makeup Party" at her office for 15 employees. Through Itex, she bartered with Dallas makeup artist Jane Burch for $200 worth of makeup tips and lessons for two hours. She also arranged to rent a margarita machine for $150 through a private barter with the Margarita Shop in Highland Village, Texas.
In exchange, Burch received $200 in Itex dollars, which she has not used yet. Jason Peterson, co-owner of the Margarita Shop in Dallas, received a $150 gift card toward maid service for his home-based business.
"It's just another way to trade business," said Burch, who also barters with TV producer Stephens. "I like to shop with people who shop with me, and I think the bartering keeps business in a little group."