Better Business: Bartering With Customers & Suppliers

Jun 10, 2010

Roger Boroway is a passionate collector of classic cars. Among the dozen or so vehicles he owns are three Corvettes, three Mustangs and a Camaro, all of which have been restored and repaired through barter.

“I’ve gotten a few parts here and there on barter, gotten a few motors,” he said. “I [even] have a bunch of cars that I’ve bought on barter.”

Boroway is the owner of Midas Touch Jewelers in Fairfield, Connecticut, and a franchisee with ITEX, a membership trading company where members trade their goods and services using the company’s proprietary currency.

“ITEX lets me afford to follow my [car] hobby,” Boroway said. “Without ITEX, I don’t think I would be able to have as much as I do.”

Bartering through networks like ITEX or one-on-one with customers and suppliers can offer retailers a number of benefits, including building better customer relationships and increasing cash flow.

Barter Networks

About 400,000 businesses worldwide are involved in the barter process, belonging to networks like ITEX and the International Monetary System (IMS), according to David Wallach of the International Reciprocal Trade Association, an organization that represents the barter and trade industry. Half of those bartering businesses are located in the United States.

“If you can find some way to get customers in there to utilize [your] excess business capacity, that would be greatly to your benefit,” Wallach said. “That’s what we do with the system of modern trade and barter. It allows merchants and businesses to buy and sell to each other utilizing their excess business capacity.”

That excess capacity could be anything from overstocked parts to open slots in your appointment book.

“If you don’t have customers filling every time slot on your schedule, and if you’re not moving all the product that you want to move, by trading some of [that], you get the additional benefit of incremental business on top of what you’re already doing in the cash arena, and you fill those empty slots,” said Don Mardak of IMS. “All of these things bring you new

business and new dollars, new revenue that you can then spend to defray your cash costs.”

Member companies are involved in non-reciprocal trades.

“The International Monetary System’s barter network makes it possible for all these different businesspeople to continue trading their goods and services without ever having to do a direct trade with each other,” Mardak said. “The reason we can do that is because we’ve created our own proprietary currency so, [for example], if you had a restaurant and people came to you for dinners, you could accept trade dollars [and] you wouldn’t have to take their services in return.”

In systems like IMS and ITEX, barter currency is banked and can be used to purchase any goods or services from any member company, everything from restaurants and hotels to accountants and graphic designers.

“If I go to the car wash, the car wash owner doesn’t have to use my product or my service,” said Alan Zimmelman of ITEX. “The car wash now has $20 of mine [that] he can deposit into his ITEX account and he can use to have a sign made or have a plumber come. He can use it for anything that he wishes.”

Having that extra money to spend is one of the benefits of belonging to an exchange, according to participants.

“They get new dollars that they wouldn’t otherwise have -¦ if they weren’t part of the system,” Mardak said. “Then when they spend those [trade dollars], they’re saving their cash. All of this gives them new business, additional revenue and, hopefully, bottom line profits.”

Barter networks also say participating companies can gain cash customers through barter transactions.

“When the plumber comes [to] my house, I say, ‘Make sure your truck is parked prominently so people see that you’re working and give me a bunch of your business cards, and I’ll be happy to spread the word,'” said Zimmelman. “He’s going to get cash customers because people in my neighborhood aren’t ITEX members.”

Direct Exchange

Not every company that takes part in barter belongs to a network like IMS or ITEX. Many work out these deals directly with their customers and suppliers.

Since having two heart attacks last year, Roger Mayes of ARM Performance in Delaware, Ohio, has turned to barter to get help building the high-performance engines his shop specializes in.

“A friend of mine [is] an excellent machinist and he doesn’t have time to sit and port, so I do a lot of his port work,” Mayes said. “Since my heart attack, I can’t always lift cranks and blocks, so he does a lot of the boring and honing on my blocks.”

Mayes has used barter both in his business and for his racing hobby, and often the barter jobs have lead to future work.

“They almost always come back [to you],” he said. “They know what you’ve done for them and they feel like they’ve done something for you, and they generally come back and -¦ sometimes you get a bigger job.”

Before you can plan for future cash work, you have to ensure the bartered deal is going to benefit you and your customer or supplier.

“Make sure you know what you’re trading for, have no misunderstandings because one person can assume that you’re going to get this item and you’re going to assume that they’re going to get this much work,” said Steve Records of Attitude Hotrods in Franklin, Indiana. “Both parties [need] to know exactly what they’re going to get from each other, otherwise you’re going to lose a friendship, lose a client and word-of-mouth [publicity]. It’s the worst advertising you can possibly have.”

It’s best to get everything in writing, whether you’re trading for products or services.

“We trade hour-for-hour,” said Thom Ophof of GodSpeed Rides in Brownsburg, Indiana, who trades services with his powdercoater, painter and engine builder. “They may need stuff done and I may not need anything from them for a month, so I keep a log and they keep a log when they do stuff for me, and then we make sure we knock off hours when we do things for one another.”

Before bartering, be sure to figure out what your shop actually needs.

“We’re not in the market to barter for a boat,” said Mike Atkins with Pratt & Miller Collector Car Restorations in New Hudson, Michigan. “It’s got to be something that will benefit the company. It’s either something that we can use for other programs, can use to leverage any kind of marketing or can resell to make up the difference.

“We’re not interested in taking a guy’s ’69 Camaro and doing a resto-mod for $100,000 and he wants to give us two horses in exchange for money,” Atkins added.

For shops that do find mutually beneficial agreements, working on barter is giving them extra work in a struggling economy, but they still must remain mindful of their cash flow.

“You can’t barter everything you do but, for a certain percentage of your work, it works out OK,” Records said. “You can’t have too much stuff out there without having a little bit come back in.”

Tax Responsibility

Keeping good records of barter transactions, whether through a network or direct with customers, is essential not only to make sure everyone is satisfied with the exchange but also for tax purposes.

Networks like ITEX and IMS report transactions to the IRS.

“This is not an underground economy,” said IMS’ Mardak. “Bartering, done properly, is reportable to the IRS. By law, a trade exchange like IMS is required to file a 1099-B form on every clients’ transactions over the year, so that’s reported to the IRS and you have to then report on your own tax return that you did that much barter business because it’s going to show up.”

If a shop is going to barter directly with clients, they should consult with their accountant.

“We keep our taxes in check,” said Records, “The last thing [we] want is the IRS knocking on the door.