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Dan's Soup
Is Barter Better?
By Dan McKay

Long before Jack traded his cow for a handful of magic beans, the system of barter was already alive and well. Even after the ancient Greeks and Romans spawned the first monetary systems, barter continued to flourish -- most notably for the Native Americans who traded the island of Manhattan (but luckily not future bingo rights) for $22 worth of beads and trinkets.

While most all mobiles have at one time or another directly traded their DJ services with other businesses, the process can be time-consuming and not always successful. Enter the "barter exchange", an association of businesses networked through a central office to trade goods and services.

Barter exchanges initially charge a sign-up fee that can range from $100-$400, and an annual renewal which is usually less. For that sum, your company is included in a printed directory of businesses who are also looking to trade. Some exchanges allow you to buy an additional directory ad to stimulate interest in others trading with you.

The mechanics are simple. Say the owner of the local widget store decides he'd like a DJ for his daughter's wedding. Mr. Widget simply finds a mobile who is a member of his barter exchange. He pays the DJ's fee by transferring an appropriate number of "trade credits" to the DJ's account; typically $1 equals one trade credit. Widget's trade credits have been accrued from trading goods or services with other barter members. He also pays a cash surcharge directly to the barter exchange (usually 10%) for their administrative handling. Any applicable sales tax is paid directly to the seller by the buyer.

Sound easy? In principle, yes. But not all barter exchanges are created equal. While some limit the use of your credits to local members; others are networked with other trade organizations who can redeem your credits with national hotels and resorts, or with a vendor that might not be available locally. Some barter exchanges screen their "mix" of business categories carefully; others put no limits on the number of similar businesses they admit.

The latter became the case for Rob Alberti, owner of the three-system After Hours DJ Service in Westfield, MA. Encouraged by a feature in a national magazine about bartering, he called several different local exchanges before joining one. "The concept of getting business that you potentially wouldn't have gotten cash-wise was intriguing. But whether it was the (barter) organization itself or the area, it didn't work out for us."

After joining, Alberti unfortunately discovered there were already four other DJ's in the exchange. So to encourage trade business for his company, Alberti paid cash to buy several additional ads in the barter exchange's listing directory.

The result? After two years as a member, Alberti says he got only three gigs... all low-budget events. "Members would call all the DJ's in the exchange looking for the least expensive one. I was amazed! Not only did they want to barter, but they wanted to haggle over the price." Alberti later learned some of the other DJ's in the group weren't much happier.

Luckily, his final barter gig resulted in referrals netting three events. "I guess I just about broke even on the barter exchange venture considering the additional trade advertising I bought." Undaunted by the experience, Alberti still believes in bartering... but on a one-on-one basis. In fact, he admits barter is the only thing keeping his car on the road -- After Hours DJ Service negotiated a trade with a local garage for $2,000 in car repairs.

Is $2,000 a lot of gigs? You bet! Because it's not "real" money, some bartering DJ's may get themselves overextended in trade credits and sacrifice prime dates for cashless bookings. To avoid this, it's good business sense to consider "blacking out" certain time periods from trade credits like airlines and hotels who restrict discount fares from holiday travel. Also, to avoid a haggling hassle, you might adopt a policy of always quoting your full regular rate for a barter gig. (A "How did you hear about us" qualifier will let you know up front.)

To get the most out of a barter exchange, K.C. Kokoruz of Chicago's Spinnin' Discs recommends you thoroughly research an exchange's membership list before joining. "If someone approached you for a bridal show and you found they had 70 DJ's in there... you're not going to get anything out of it. Likewise, if I have comparable competitors in my barter exchange, I know they're after the same clientele I am. I'm not going to benefit from a barter group where I'm going to have to justify why I don't charge $250 to every (trade) customer who calls."

A member of four Chicagoland barter exchanges, Kokoruz finds most of his trade bookings are relatively last-minute -- just 4 to 8 weeks before the event. It's a symbiotic strategy that works for the seven-system company: it has accrued $30,000 in trade credits over three years.

"I inventoried the type of business services I needed, then shopped for the barter exchange that had them. I've bartered for carpet cleaning, printing, landscaping, even advertising in "The Wedding Pages". Kokoruz advises against trading for high-ticket merchandise. "I've found TV's, computers and fax machines are generally used or reconditioned and very expensive. Because of the dealer's cash outlay, you can bet you're going to pay full markup." Interestingly, this theory didn't dampen Kokoruz's enthusiasm for using some of his trade credits to acquire two new Waverunners.

Because no two businesses do business the same way, there could be one last hitch. "In my experience most people trade labor at 100%, but those services that use expensive materials might ask for cash." Such was the case when Spinnin' Discs bartered for logo T-shirts and leather jackets.

Has his extensive bartering led to more cash business? "Oh my God, yes," says Kokoruz. "I've gotten a lot of business I never would have had before. I also use some of the trade credits to help make me money -- I've traded for billboard advertising and even a booth at a bridal show."

A final caveat -- just because trade credits are used as currency in a barter deal doesn't mean that Uncle Sam won't demand his due in certified greenbacks. "The government looks at barter as taxable income," advises Tony DeLaTorre III, owner of Barter Exchange in San Bernadino, CA. "Should you barter over $600 in a year, your trade organization will send you IRS Form 1099-B which must be filed with your regular tax return."

And if you're thinking of joining a barter exchange today and trading for your own Waverunner tomorrow, you could be in for a surprise. "Exchanges aren't supposed to 'front' trade credits to your account," says DeLaTorre, who enforces that policy for his 160-member exchange. "Before you can receive goods or services for trade in my group, another member has to use your service first." Over his 12 years in the industry, however, he has seen many other exchanges make exceptions to this unwritten rule.

Although working with a barter exchange is a bit more complex than your grade school lunchtime experience of trading egg salad for a peanut butter sandwich, the basics are the same. Before you join, make sure your barter exchange offers the services you want. Printers are the highest in demand -- a good exchange should have several to choose from. Check to see that the number of DJ's in your exchange is proportionate to the rest of the membership. Confirm the business getting your trade credits is reputable and established before you barter. After all, after they've eaten your peanut butter there's not much you can do when you unwrap their spoiled egg salad sandwich.

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