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.
