Barter Boom Expected to Expand as Economy Shrinks

When Barry Wood, founder of Botanical Decorators, picks up the phone to call his broker, it’s not to play the stock market.

On a recent morning, Wood asked his broker at Barter Systems in Silver Spring, Md., to track down a computer repair service and a hot tub for a customer of his Clarksville, Md., retail nursery and landscape company.

“Barter transactions make up about 5% of my business,” said Wood, who since 1978 has traded for printing, advertising, painting, electrical and concrete work.

“Our employees are on a dental plan through barter, and that’s how we put on our Christmas party,” said Wood. “I’m really hot on the barter system--I think it’s great.”

Last year, thousands of small-business owners bartered about $1 billion worth of goods and services through 300 American trade exchanges. Major corporations are also enthusiastic about bartering, especially when dealing with the Soviet Union and Eastern European nations lacking in hard currency.

Commercial trade exchange executives said barter has increased in popularity in the past 10 years, and they are bracing for a new wave of clients because a drooping economy makes trading more attractive than buying.

In the past, bartering had a shady reputation as a less than legal way to do business. But in the early 1980s, the Internal Revenue Service recognized barter as a legitimate way to do deals as long as “trade dollars” are treated exactly like real dollars for all tax purposes.

Depending on where you live and how big your business is, expect to pay a membership fee ranging from $100 to $1,000 to join an exchange. Most exchanges also charge a 10% transaction fee on every deal. A bona fide exchange will provide members with monthly account statements and a year-end 1099-B form that tells the government how many trade dollars changed hands.

Exchanges publish directories and newsletters promoting members’ firms. They also employ brokers who seek out the merchandise or services their members need. The benefit of joining an exchange is that you don’t have to trade your products or services directly for someone else’s. You build up credit and can trade it for anything offered by another exchange member.

“Our biggest problem is a lack of awareness about how barter works,” said Susan Groenwald, who serves as president of the Chicago Barter Corp. and president of the International Reciprocal Trade Assn. in Alexandria, Va.

The international association represents about 10,000 businesses in the United States, England, New Zealand and Australia, among other nations. The Chicago Barter Corp. has about 1,200 members who traded $13 million worth of goods and services in 1989.

Sondra Ames, whose husband, Michael, founded Orange-based Trade American Card about 20 years ago, bartered with her obstetrician for the delivery of her daughter, Allyson. Because the doctor and a local pet store owner both belonged to her exchange, the doctor got some Alaskan malamute puppies in exchange for services rendered to Ames and her baby.

“In the 1970’s, during the gasoline crisis, we experienced a 30% growth rate in the business,” said Ames, who expects a similar upturn as the economy slows down.

“The biggest advantage is getting things without spending business dollars for them,” said Don Gibas, owner of Gibas Golf Products in Huntington Beach. Gibas, who belongs to two barter exchanges, uses barter for his business and personal life. He recently bartered for hotel rooms in Las Vegas to attend a trade show and used trade dollars to wallpaper and repaint his home.

Exchange representatives say membership can increase sales by 5% by bringing a business customers it would not have otherwise found.

“Barter cannot save a company that is going under, but it can lead it away from its competition,” said Ronald Daversa, vice president of marketing for Barter Systems, which serves about 1,000 members in the Washington metropolitan area. “If more companies knew about it, they would participate.”

Bob Lichtle, president of Lichtle Flat Roof Co. in Detroit, belongs to two trade exchanges and does about $100,000 worth of bartering a year. “When I join an exchange, their six to eight brokers become my sales people,” said Lichtle, who is currently bartering for supplies to build a new home in Sterling Heights, Mich.

Through the years, he has bartered for his firm’s advertising, accounting services, printing, equipment rentals and propane.

He sometimes pays his workers in trade dollars, which they can spend at a barter store set up much like a K mart. He recently bartered for several rooms worth of furniture and $2,500 worth of scuba diving equipment.

“You can get anything,” said Lichtle. “I love it, and it brings in business I never would have had.”

MAKING BARTER WORK FOR YOU Barter works especially well for companies with excess inventory or manufacturing capacity. Professionals can also fill in their schedules with barter clients. Some tips:

* Don’t pay more for an item through barter than if you paid cash.

* Be willing to wait a bit longer to receive goods or services.

* Join a legitimate trade exchange that reports transactions to the IRS.

* Encourage trade brokers to promote your company to other members.

* Keep a good balance between barter and cash transactions so you don’t jeopardize your cash flow.

* Don’t accept more bartering deals than you can handle.