Need a product or service, but don’t have the cash? More entrepreneurs are turning to the age-old barter system to get what they want.

By Mark Henricks

Rich Kazimir’s IT services company needed sales training, but the Flemington, New Jersey, business owner was short on cash. A local sales trainer needed help getting online and was willing to swap business development training for web design. No money changed hands, but everybody got what they wanted. “We built her a nice website, and she provided me with some coaching on marketing and selling,” says Kazimir, who employs eight at his CM IT Solutions franchise.

Barter—the cash-free exchange of goods and services—is a big business. The International Reciprocal Trade Association (IRTA) reports that last year, $8.25 billion flowed through commercial barter channels. That figure doesn’t include direct barter between two firms, as in Kazimir’s deal, because no one tracks it. And Tom McDowell, executive director of the National Association of Trade Exchanges (NATE), says, “The amount of direct barter dwarfs what we do on an organized basis.”

Barter can help any business by providing a way to turn excess inventory into useful products and services. It’s especially useful for capital-constrained small firms, notes Phyllis Malitz, a CPA and barter expert in Wilmette, Illinois. “Paying for business expenses with trade dollars leaves more cash available for the payment of strictly cash expenses,” Malitz says.

Barter can also be a good marketing tool. “One of the biggest benefits I’ve seen is referrals,” says Mark Collins, owner of Sign-A-Rama in Skokie, Illinois, who has bartered for computers and networking services for his six-employee company. “The businesses you barter with refer you to other customers who will do cash business,” he explains.

Barter only works if you can find a partner willing to trade, which may take time. “That is a disadvantage to barter,” says Joan Varner, co-owner of Illinois Trade Association, a barter exchange in Niles, Illinois. “You have to be willing to wait.”

And, contrary to popular belief, barter won’t cut your tax bill. The IRS considers barter exchanges the same as cash deals. “It’s taxed just like income,” says IRTA executive director Krista Vardabash. “One barter dollar is equal to one U.S. dollar.” 

Goods and services from carpet cleaning to new automobiles are actively traded on exchanges and between direct barter customers. But the companies that do best in barter are retail, service and professional firms—“any business with a disposable commodity that has no shelf life,” says McDowell. If you have a highly specialized product or service, on the other hand, you are not a good barter candidate.

Commercial exchanges act as brokers, connecting hundreds or thousands of businesses into a system that allows them to exchange their offerings for barter dollars. The barter dollars can, in turn, be swapped for goods and services offered by other members. They’re convenient and flexible, and the exchange handles all the paperwork, but you’ll pay $300 to $700 to join, plus 10 percent to 15 percent on all exchanges. You can find online directories of barter exchanges at the websites of IRTA (www.irta.com) and NATE (www.nate.org).

If you choose the direct exchange route, how do you find a suitable trade partner? That can take legwork and networking, as well as patience and trust. Kazimir says it took a month of biweekly, hour-long discussions before he was comfortable with his website-for-training swap. “I’d recommend doing it with someone you know,” he says. “Look for something, such as references, that make you feel you’re dealing with somebody trustworthy.”

Mark Henricks writes on business and technology for leading publications and is author of Not Just a Living.