Table of contents for Barter

1. Barter—Part 1: What Is It?
2. Barter—Part 2: What Is the Benefit?
3. Barter—Part 3: Who Does It?
4. Barter—Part 4: How Does It Compare to Cash?

Question from a reader: Would you ever perform a service for “trade dollars” when you can get an equivalent amount of “real dollars”?

Answer: Of course, if there is a choice, cash is usually preferable. However, I have accepted trade dollars when I could have been paid in cash. For example, the writer who was originally referred to me by a trade exchange periodically has trade dollars to spend. I always accept trade at those times because he would not be my client if the trade exchange had not referred him to me. Any time I get business from the trade exchange, I accept trade dollars from that person/company for future business. Also there are times that I am trying to build my trade dollar balance for a specific purchase (such as when I needed extensive and expensive dental work) so I would choose trade dollars over cash dollars.

I first joined a trade exchange more than 20 years. I was quickly hooked on barter and have been happily trading ever since. Just like cash business, sometimes I want more trade business … and sometimes I have more than I handle. A milder version of the notorious feast or famine cycle of freelancing. But, like freelancing, I would never give up bartering.

This whole series resulted from an e-mail exchange with a reader who wanted to know more about barter. If you want to know more, ask your questions in comments so everyone can read the replies. Even if you don’t have questions, read the comments—there are excellent ideas there from readers.

Table of contents for Barter

1. Barter—Part 1: What Is It?
2. Barter—Part 2: What Is the Benefit?
3. Barter—Part 3: Who Does It?
4. Barter—Part 4: How Does It Compare to Cash?

Question from a reader: What percentage of small business owners would you say uses a trade exchange? And what is the typical small business owner’s perception of the concept? I ask because at first, I really thought it was a stupid idea. I mean, who wants to go through the hassle of bartering (and pay real cash fees too!) when you can get hard cash! But now I see that the system is actually quite slick.
You have people who want to get some ancillary revenues out of their business, at relatively small cost and effort. And once you get the trade dollars, you really want to spend it quickly, because that enhances your cash flow. This dynamic actually greatly enhances the velocity of transactions in this little ecosystem, and creates liquidity!

Answer: I think a lot of businesspeople have the same reaction as you did until they learn more about barter. Although I don’t have any firm idea of the percentage of small businesses that engage in bartering through a trade exchange, my guess is that it is relatively small because most don’t understand its value.

However, I believe a large percentage of small businesses barter directly from time-to-time because they understand the value of trading goods and services rather than spending cash. The problem with this approach, however, it that two businesses needing each other’s goods/services in the exact same amount is rare so businesses who are willing to barter don’t often find a match for their needs. They may be reluctant to pay fees to a trade exchange because they don’t realize the trade exchange will bring them business—they think only in terms of how they’ve done direct trades and don’t understand that the trade exchange is a third party “matchmaker” and banker.

I know that once a company gets involved in bartering, they usually do far more than they originally expected. I belong to two trade exchanges, and there are many businesses that are members of both to get more trade business.

Of course, bartering is generally more advantageous to service businesses because they don’t have to spend money for products to sell (though their time and/or labor costs are certainly expenses). Barter is great for freelancers during those inevitable slow times—and often trade clients are willing to wait longer for a project. Businesses with very small markups usually don’t barter, because it’s not cost-effective for them to pay the trade exchange fees from their small profit margin. I think you will find a much higher percentage of service businesses belong to trade exchanges than the percentage of businesses in general.

And while small businesses certainly predominate in trade exchanges, some large companies, including major corporations, also barter. They may offer specific items—such as overstocked inventory or older models—rather than offering their complete line, but if the trade buyer is not determined to have the latest model, he can get a good deal.

You can learn more at the Web sites of the two trade exchanges I belong to: Alamo Barter Corporation  and ITEX. You can also find a good definition of the barter industry in an article at Barter News; scroll down the left column to the article: Wallach Offers Definition Of Barter Industry.

You can also do an Internet search for “trade exchange,” “barter exchange,” “how barter works,” or similar terms and find lots of explanations at sites of various trade exchanges.

Be sure to read the comments on the posts in this series to find interesting and helpful information.

Table of contents for Barter

1. Barter—Part 1: What Is It?
2. Barter—Part 2: What Is the Benefit?
3. Barter—Part 3: Who Does It?
4. Barter—Part 4: How Does It Compare to Cash?

Question from a reader: One of the examples that you used [in Trade Exchanges] was that you had some “used plants” that you sold for half price on “trade.” However, why couldn’t you just sell them for half price, except get cash? It seems to me that cash is always better than “trade dollars,” because you can use cash anywhere, and it is not restricted to this very specific circle.

So is the benefit of a trade exchange simply a way to tap into a pre-existing pool of relationships in order to source new business (sort of like Facebook pre-internet)? Or is there something more?

Answer: The value of trade exchanges is that they bring new business that you wouldn’t ordinarily get. One of the rules of all trade exchanges I know of is that you cannot convert a cash customer into a trade customer—the point is to find new customers.

On occasion, I tried to sell used plants for cash. However, the time and costs involved in doing so made it far less profitable and far more work than selling them on trade. I had to store the plants until we had enough to have a sale. We did not maintain a retail operation—our business was strictly putting plants into commercial businesses and maintaining them for the clients. We had a relatively small greenhouse, large enough to store inventory to replace plants for our clients promptly but with no extra space to accumulate used plants. Then there was the labor involved in maintaining them, advertising costs to get customers to come out to buy, and staffing to work the sale. We were not set up to sell from our greenhouse—most of our staff worked out in the field caring for plants at client locations. Our office and greenhouse employees weren’t skilled at sales, and waiting on customers took them away from their primary duties.

Selling used plants for cash was not profitable for us, and until we started selling them on trade, we simply threw the plants away. The replacement cost was built into our pricing, and the plants had been already been expensed. However, we found that selling used plants to trade customers for trade dollars gave us additional income that was pure profit. We didn’t have to warehouse the plants for long periods of time—the trade customers understood we weren’t in the retail business and didn’t expect a large inventory of used plants. We kept a small section of the greenhouse for used plants, and our trade broker kept trade exchange members aware of the availability of these plants. Since we had customers buying used plants only occasionally and one at a time, our warehouse or office staff could handle the sales without significant interruption in their normal duties. If we ever had a significant number of used plants, our trade broker would notify trade exchange members, and we could get rid of them quickly. Selling used plants for cash involved more time, effort, and expense than we made; selling used plants for trade dollars gave us income from something that would otherwise have been thrown in the trash.

The trade exchange is a way to tap into a specific group, like your Facebook example. However, more than that, trade brokers are actively promoting trades. If I am looking for something in particular, they will try to make it available on trade, and they actively promote my products and services to other members. Just like my used plants, they help companies move specific merchandise—last year’s model when the new models come out or an item that is overstocked. Trade members always expect to pay full price—no sales or discounts, so it’s better to get the full price in trade dollars than a deeply discounted price in cash. (Selling used plants for half price does not contradict this because they were used and usually sold for less than half the price of a “new” plant.)

The ability to spend trade dollars only with members works to the advantage of members. Once members have accumulated some trade dollars, they want to spend them—building up a large balance in trade dollars is bad for cash flow. So sellers have a market that has money (trade dollars) to spend and an incentive to spend it (because they can’t pay their rent or utilities with that money and don’t want to build up a huge balance they can’t use).

The seller is always in complete control of what and how much they trade. In my plant business, for example, I offered plants and standard containers as well as maintenance service for full trade. Anything that I did not normally maintain in inventory (expensive brass containers, for example) required cash. Trade exchanges want their members to be successful so they continue as actively trading members so merchants set the terms of what they offer on trade. However, the trade exchange does want this spelled out so they can tell members what is and what isn’t available—no surprises for a customer expecting to buy on trade and being told they can’t.

Members can also go on standby and not accept any trade business. If a business makes a very large trade sale, they may go on standby for awhile until they spend down their trade balance. Maintaining a balance of trade and cash business is important. Trade business should never be too large a percentage of business or create cash flow problems. It should be an addition to business and help with cash flow.

Also, for big ticket items (the specific amount varies among exchanges), the seller can accept part trade and part cash.

The key to successful trading is to join an exchange that has members offering products and services that the individual or company wants or needs. Services are usually more readily available than products because a professional who has any open space in their calendar can generate income from time that would otherwise be lost as far as income is concerned while merchants have to spend cash for product inventory. My doctor, dentist, and CPA are trade exchange members, and I have used the doctor and CPA for more than twenty years—all on trade. However, my husband has a favorite mechanic and won’t let anyone else work on our cars, so we don’t use any of the mechanics available on trade.

Most trade exchanges have lots of advertising available because once the minute is gone, the radio station has lost its income potential. Once the newspaper is published with no advertising on a page, there will never be another opportunity to sell advertising in that issue. So advertisers are motivated to accept trade dollars for unused time/space (and they almost always have some time/space that is unused). Spending trade dollars on advertising to generate cash business is a wise investment.
Trade business can also lead to cash business in other ways. One of my current clients was referred by a trade exchange for book editing. I edited the first few chapters on trade, then he ran out of trade dollars. I have since done tens of thousands of dollars of business with him in cash. I have also had trade clients refer cash clients.

The contracts state that members should do their own due diligence, take bids if appropriate, and choose products and services on trade in the same way they would cash. However, on the rare occasions (maybe two or three in close to 30 years) when I have had a dispute with a supplier on trade, the trade exchange has mediated and resolved the problem.

Note added 8/25: Be sure to read the comments in this series—Rita shares how individuals as well as businesses can barter effectively as well as creative ideas for folks who think they don’t have anything to trade.

Table of contents for Barter

1. Barter—Part 1: What Is It?
2. Barter—Part 2: What Is the Benefit?
3. Barter—Part 3: Who Does It?
4. Barter—Part 4: How Does It Compare to Cash?

A few months ago, I received an e-mail from someone who had read my post Connecting – Part III: Trade Exchanges. He asked several questions that I thought others might find interesting. In this post, I’ll discuss what barter/trade exchanges are, then in subsequent posts, I’ll answer the questions.

Just about everyone has heard about the ancient practice of bartering. The farmer would pay the doctor with a chicken or the carpenter would repair the lawyer’s house in exchange for legal work. However, it’s not often that two businesses need each other’s goods or services in the same amount. Trade exchanges, also known as barter clubs, make bartering possible for almost everyone. The trade exchange acts both as a matchmaker and a banker—finding goods and services for members and maintaining records of the “trade dollars” or “barter units” members spend and receive. The exchange charges a transaction fee (in cash) for providing the service; most exchanges charge a one-time, annual, or monthly membership fee as well.

Often businesspeople find bartering attractive because they think they don’t have to pay taxes on trade income. Unfortunately, that is a misconception. Trade income is taxable exactly the same way cash income is. However, if you spend trade dollars for business expenses, the expenses are deductible just as if you had paid cash.

In the next installment, we’ll talk about the value of being a member of a trade exchange.

Table of contents for Connecting

1. Connecting – Part I: Referrals
2. Connecting – Part II: Search Engines
3. Connecting – Part III: Trade Exchanges

As mentioned earlier, most of my clients come from referrals. A few come from search engines and expand my circle of connections greatly.

The third way clients connect with me is through barter exchanges. I belong to two such exchanges: Alamo Barter Corporation (ABC) and ITEX.

I originally joined ABC back when I owned my interior landscaping company. I had done some direct trades with clients – an electrician did some work in my office in exchange for plants – but most of the time, direct trades aren’t effective because the two parties don’t need each other’s products or services in the same amount.

Trade (or barter) exchanges serve as a middle man, almost like a bank. When I do work for a client referred by a trade exchange, I don’t get paid in cash. Instead, I get “trade dollars” credited to my account with the exchange. I then use those trade dollars to purchase items from other members.

For example, I’ve done several projects for Sky-View, a company that manufactures, sells, and leases advertising balloons and searchlights. Since I work from a home office and don’t need to attract customers to a physical location, I have no need for Sky-View’s products. But when I write a letter or edit marketing materials for Sky-View, I charge them the same amount in trade dollars as I would in cash. Then I use the trade dollars to pay for dental work, electrical repairs to my home, or other goods and services available from the exchange.

The difference between this method of connecting and referrals and search engines is that the trade exchanges charge fees for their services. However, I have always found that the costs are reasonable for the added business. And trade business can lead to cash business, either through sales to trade customers of items not offered on trade or through referrals.

Successful trading requires planning and management. Each member of the exchange can specify what products and services are available for trade and the maximum amount of trade that will be accepted in a time period.

When I was in the interior landscape business, I sold “used” plants on trade. When we removed plants from a lease account, the plants were often healthy. The plant might have lost lower leaves or be flat on one side from being against a wall, but most homeowners found the plants perfectly acceptable. Customers were thrilled to get a plant that looked fine to them for half the retail price, and my company was able to generate income from assets that had already been expensed when they were leased. The fees I paid to the barter exchange were a bargain compared to the extra income from sales that didn’t cost me anything.

Now in my freelance business, I offer writing and editing services to trade clients under the same terms as cash clients. I watch carefully to be sure I’m not spending too much time on trade business – after all, the utility and phone companies don’t accept trade dollars. And I quit taking trade business if my balance starts to build up or if I have more work than I can handle. But often jobs for trade clients are small projects that I can easily fit into my schedule: a letter, a short article, a simple brochure.

I’ve made some excellent and long-lasting connections through trade. My accountant, Jim Oliver & Associates, is one of the best there is, and I’ve paid him in trade dollars for many years. Of course, income in trade dollars is taxable just as cash, and business expenses paid in trade are deductible. I’m glad to have someone who understands trade doing my taxes.

Dr. J. D. Blackburn of Thousand Oaks Clinic, an outstanding physician, has been my doctor for probably 20 years or more. I pay my deductible and insurance co-payments in trade. And ”Dr. B” has also been a client, both in my interior landscaping business and in my freelance writing business.

If you haven’t ever done trade business, you might want to take a look. You can connect with great clients and vendors/service providers.