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Barter is Smarter
by Jesse F. Cornish
An estimated 15 billion dollars in retail business was transacted during 1978 which was never rung up on cash registers. The purchases were all made with a newly discovered source of buying power: inventory!
Bartering, one of the oldest concepts of marketing, has been around since men first started doing business with one another. Now it’s back. And it’s organized. Inflation, taxes, the rising cost of the money commodity, and a flood of new products on the world market have combined to give new life to the age-old practice of swapping goods and services.
In Ely, Minnesota, for example, a sporting goods dealer swaps guns, ammo and snow shoes (at retail) for firewood; a Minnesota road builder swapped two dump trucks for 39 acres of standing timber for the same purpose.
One-on-one bartering has been common practice even in modern times, but it becomes too cumbersome if advanced beyond the occasional, convenient trade-out. Weekend swap-meets and flea markets trace their lineage even beyond the exchange of trinkets for Manhattan Island. Today, bartering has become a highly sophisticated, computerized, multi-billion dollar business practiced by merchants, major corporations and nations. Most economists who specialize in market concepts now agree that bartering accounts for as much as 40% of world trade and has passed 10% in western trade.
Many communist or Third World countries doing business with U.S. corporations will no longer accept western currencies. Instead, locally produced agricultural products or manufactured goods are exchanged for needed western technology and equipment.
No longer does General Electric call in their purchasing department to buy a thousand tons of steel. Today, the sales department is confronted with one question: "Where can we best place this order to assure a reciprocal order of an equal, or greater amount?"
Currency instability has engendered a new era of bartering between nations, and this may be only the beginning. Times have changed since the dollar gained stardom in 1940 as the world’s prime reserve asset and trade medium. The seller’s quest for equity, and the buyer’s advantage in moving inventories is creating a market romance that could leave the dollar in the role of the jilted suitor. Even on a global scale, examples abound: After raising oil prices – and still suffering declines in revenue – many OPEC nations are beginning the switch to barter arrangements; the recent currency swap in West Germany to bolster the dollar has taken bartering from backyard deals to international finance.
On the local level, the super stores and giant chains are turning the independent merchant into an endangered species. But by bartering for portions of overhead, plus everyday business and family needs, an independent can save his cash flow from drying up. By using his inventory (products and/or service valued at retail) to purchase some of these needs, he is actually buying with his own built-in discount – not to mention using his purchasing power (inventory) as a marketing tool to secure new sales.
Most reputable barter groups organize on a club basis with an equitable representation of members offering products, services and professional categories. Members pledge to sell a mutually agreed upon amount to other members and, if accepted, are extended a line of credit and buyer’s exchange checks or vouchers to be used in all trade transactions. The seller is not obligated to purchase from the buyer and no physical exchange takes place. He may use his earned credits to buy what he wants from any other member at any time.
A barter group might also organize a central clearing house which functions just like a bank. Credits for sales are deposited to each member’s account and monthly statements are mailed to members giving the status of their accounts. Built-in checks and balances insure against over-purchase, or placing the seller in credit overload. Further, the program offers manufacturer, wholesaler and merchant a way to utilize dead inventory and non-productive, off-season periods by selling for full credit to swap for a current, or future need.
There are other benefits, as well. Professionals, prohibited from soliciting new clients, gain by a host of new referrals. Advertisers trade dead time and space for wanted goods or services. A housewife can trade her husband’s business inventory for carpeting, plumbing, or TV repair without asking if they can afford it; the trade itself guarantees new sales to offset the expense.
To join a barter group, new members usually pay initiation fees ranging from $200 to $350 and annual renewal fees of $50 to $100. A minimal service fee is also paid to the clearing house to administer the program, publish directories, provide market newsletters and generally police the system.
Tax advantages in barter resemble beauty, because they are in the eyes of the beholder. Membership and service fees are deductible as a business expense, but program administrators do not encourage members to play games with the revenue people. Straight barter transactions do offer many tax advantages to the alert trader if he drives carefully.
Unfortunately, on the heels of every new profit concept come the hucksters and franchise merchants. As the values and practical need for barter' catches on like wildfire across the nation, licensing and franchise peddlers are springing out of the woodwork. Most of them have never had a day’s experience in a successful, working program. And in too many cases, the franchisee is left at the altar. Within a year after the front money has been put up, he finds himself an orphan, and absolutely without the necessary know-how to succeed in the great new venture he bought.
The truly successful barter programs are, for the most part, locally owned and operated. Most independents and professionals don’t care for the idea of being administered and billed by some computer in Timbuktu. Most of the interstate and intercity barter bonanzas are a myth, as well as a great tool for franchise sales; too many would-be-barterers have been cinched with the promise of a Caribbean cruise or exotic lakeshore property in romanceland.
Local level business and professional men and women have sufficient gray matter to initiate and operate this fine concept. It is a low-overhead operation and requires little capital to get started. And as the ailing dollar creates a continued series of market convulsions, barter is one move toward economic survival. It creates new hope, new business, new profits, the closeness of a fraternal society and, above all – it’s fun!
Editor’s note: A monetary investment counselor and world lecturer, Jesse Cornish is vice president (Shirley Fichtner, pres.) of Business Owner’s Exchange (4901 W. 77th St., Mpls, MN 55435), a locally owned and operated bartering organization specializing in barter consulting.
Home Energy Digest & Wood Burning Quarterly, Winter 1979, Pages 14-17
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