The Mechanics

One-on-one bartering is common, and many do so quite successfully. Dave Memmott, owner of D. Memmott Hair salon in Salt Lake City, Utah, regularly trades hair services for dental care, dry cleaning and eyeglasses, and has even obtained sporting goods and other items through direct barter.

The shortcoming of direct barter is the difficulty of finding exactly what you want. You may sell janitorial services and want printing, for
example, but you'll be stymied if you can't find a printer who wants janitorial services. That's why barter exchanges were created.

These are for-profit businesses which create barter markets much like the New York Stock Exchange creates markets for stocks. Most cities have at least one, which can be found in your local Yellow Pages, usually under "Barter and Trade Exchanges."

It's in the exchange's interest to foster barter, since it makes money on each trade. That's why exchanges will usually actively search for a product or service you want if it is not readily available; all you have to do is ask. They also network with other exchanges throughout the country and even overseas, thereby extending your market and supply lines beyond your local area. Ken Hodges, whose florist and gift shop is in Kansas City, carries a large selection of stuffed animals that he gets via barter from a company in Chicago, for example.

Tax-wise, barter is treated like any other business transaction. The barter exchange keeps track of what you buy and sell, and reports your trades with a 1099 B form to the IRS. Barter "revenues" received are treated like any other revenues, and barter "expenses" are treated like any other expenses. Barter has no tax advantages or disadvantages.

When you buy or sell, you usually fill out a form in triplicate, much like those used with credit cards, with copies going to the buyer, seller
and the exchange. When you buy, trade dollars are deducted from your account, and when you sell, they are added. The exchange keeps the books and sends you monthly statements.

For this and other services, the exchange levies fees, which are paid in cash. Your first expense is a one-time initial fee, which typically
runs $295 to $595, according to Paul Suplizio, chief executive officer of the IRTA. Approximately 10 percent of the exchanges do not charge any initial fee. Rice's American Exchange Network charges $495 and Peters' Trade Services Interchange charges $300. In addition, the exchange might charge a flat ongoing fee. Price charges $20 a month, Peters, $50 a year.

All exchanges levy a transaction fee, which is a percentage of the value of the trade. These typically range from eight to 15 percent, and
may be charged on the buy side, sell side, or split between the two. Rice charges seven and one-half percent when the trader buys, and seven and one-half percent when he sells. Stuart charges 10 percent on a sale, and nothing on a buy.

While barter can't make a failing business a success, it can enhance a company's market and profit potential. For that reason, it is well worth considering.