Bartering is an increasingly popular business practice whose converts include Ken Lerman, the owner of Litho Partners, a printing business in New York City. "I've been doing it for about three years now, and I think of it as a good new way to supplement existing business," he explains.
Bartering is not a tax dodge; it's a way of building revenues while preserving cash flow. In bartering's simplest form, two companies swap items of equivalent value.
As bartering arrangements become more elaborate, advantages increase. Lerman, for example, belongs to a network of about 1,000 companies that provide and receive products and services through an intermediary New York City network, Barter Advantage. The network takes a 10% cut, but it saves a company the trouble of having to match its needs exactly with those of another. Transactions are valued in barter points, which are assigned to every good or service bartered by the network's members.
In Litho Partners' case, the company earns about 2,500 points each month for printing Barter Advantage's newsletter. "We've spent those points on redoing the office's closets, on business-travel expenses, and on other services," says Lerman. There are other unexpected pluses. "Normally, when we do a printing job, we have to collect payments. But when you barter your services through the network, you're credited immediately, and you don't have to worry about deadbeats."
Lois Dale, Barter Advantage's president, notes that networkers "can barter rather than tie up cash flow" to pay for medical, psychiatric, dental, stress-management, and other health services for employees. Businesses can also regulate cyclical downturns by bartering excess inventory or production capacity.
Companies must report barter points as equivalent dollars of revenue to the IRS. (Barter Advantage helps by filing individual 1099B tax forms that report every member's barter income.) The flip side: barter purchases can also qualify for tax write-offs as business expenses.
Here are two good ways to learn more about bartering:
Obtain a copy of Barter Basics , a free, quick introduction to the different types of bartering arrangements and how they can benefit business owners. To order it, call Barter Advantage at 212-534-7500.
Get a list of barter networks that belong to the National Association of Trade Exchanges (and that adhere to its code of ethics) by writing to Les French, president, National Association of Trade Exchanges, c/o InterCity Association, 9790 S.W. Pembrook St., Portland, OR 97224.